The case for property investment and the implications of a unitized property market

Abstract

It is well known that direct property investment has often provided a more attractive risk/return profile than gilts and yet it enjoys a comparatively small role in institutional portfolios. This paper begins by updating and confirming that position. It then considers why this should be the case and poses the question of whether the development of a unitized property market might alter institutions’ perceptions of property as an investment in such a way as to increase its portfolio importance.

Section 2 discusses the weighting attached to property in recent years and section 3 discusses the conventional methods of risk/return analysis which present property in a favourable light. The paper then asks why the weighting should be so low and begins (section 4) by looking at arguments that conventional methods of risk/return analysis are misleading when applied to property, leading to an overstatement of return and an underestimate of risk. If institutions are aware of these defects they may adjust their perceptions of risk/return appropriately. We are not, however, persuaded that this is the whole of the explanation. In section 5 we consider other disadvantages or costs of direct property investment which go unrecorded by conventional measures of risk but which might be important to institutions. We confirm there are peculiarities attaching to direct property investment but that these cannot wholly explain the high return that institutions seem to need to induce them to hold only a small proportion of their portfolio in property. We are left, therefore, with the conclusion that institutions’ perceptions of the merits of property investment are a significant factor. Thus, in section 6, we try to identify ways in which an active market in unitized property might encourage institutions to hold larger property portfolios in future.     

我国物权法中征收征用制度之理解与评析

《物权法》共有八个条文对征收征用制度予以规定,这些规定对完善我国征收征用制度具有重要意义:(1)首次以民事基本法的形式强调征收原因限于公共利益目的;(2)首次以法律形式确立了征收集体土地时"保障被征地农民生活"的补偿原则;(3)首次对"征收"、"征用"制度予以明确区分;(4)明确了征收个人住宅的补偿原则;(5)首次单独规定了对所有权人之外的关系人的补偿。这些规定为今后制定专门的征收征用法提供了原则性的依据。但《物权法》关于征收征用制度的部分规定也存在一些值得商榷之处,如征收的标的、拆迁补偿的含义和范围等,应通过法律解释或适用予以矫正。     

Property rights and ecosystem properties

For almost two decades, institutional analysts have been struggling to distinguish clearly between institutional factors like property rights and the properties of the resources that are governed by such institutional arrangements. Institutions are regarded as man-made social constructions that regulate the relations between humans themselves with regard to the use of certain resources, while the biophysical attributes of a particular resource are considered given and unaffected by the institutional arrangements. This paper takes this distinction as a point of departure and takes a closer look at the complexities introduced into institutional analysis with the advance of new paradigms for governing resources—such as governing by environmental objectives and indicators, biodiversity governance, adaptive ecosystem management, etc.—and points to some of the institutional changes that this involves. In doing so, it re-examines some of the dichotomous conventions regarding the ‘nature of goods’ in light of increased attention given to ecosystem properties.     

苇河林区企业产权改革和制度建设情况的调查

通过对苇河林区国有企业产权制度改革实践及运行现状的调研,剖析现状,分析问题,讨论产权结构对企业经济效率的影响,依据国家相关法规政策,参照先进经验,规范职工持有企业股权的基本思路,提出自己对完善苇河林区中小企业产权制度改革制度建议,更好更快地推动林区经济发展和经济转型升级。     

Duration and convexity in commercial property lease management

Summary

This paper examines the application of portfolio immunization strategies to leasehold real estate investments. It illustrates how measures such as duration and convexity can be used to improve the management of property portfolios and it also shows how the application of these statistical techniques can make more explicit the comparison of property assets with other investment media.     

Property tax inequity resulting from inaccurate assessment—The Taiwan experience

Real properties are periodically valued by governments in order to perform a variety of public functions. Time and resource constraints have often motivated a government to develop adhoc assessment rules to undertake expeditious valuation. The extent to which the properties are equitably valued, however, should be under constant scrutiny. Valuation equity is defined as properties being valued at the same, or similar, percentage of their sales price in the market. Violation of the equity criterion is deemed as evidence of valuation inequity. This study employs and expands the concept of assessment ratios to detect, and explain where possible, the property valuation inequity in Taipei City. Empirical evidence suggests no significant assessment regressivity or progressivity among individual properties. The assessment ratios between houses, low-rise condominiums, and high-rise condominiums, nevertheless, are found to be materially different. Spatial consideration is also explicitly added into the analysis. A distinct clustering of neighborhoods with similar assessment ratios is found. This non-random pattern infers valuation inequity in a spatial sense. The spatial inequity of assessment ratios suggests that certain location-associated social and economic price-determining factors are not properly accounted for in the assessment rules. The extraction method adopted by assessment rules to apportion land and structure values is believed to be responsible. A likely cause for the malfunction of the extraction method is thought to be the widely documented non-linear site size–land value relationship. After all, high buildings on sites that feature multi-ownership dominate the majority of areas in Taipei.     

Predicting uncertainty: the impact of risk measurement on value of real estate portfolios

This paper presents a theoretical framework for an assessment and valuation of real estate assets and funds, based on modern stochastic discounted cash flow (DCF) models, which accurately captures the nature of related risks. We show that an accurate risk-adjusted valuation is particularly difficult for real estate investments, due to practical limits to diversification and difficulties in approximating total risk with systematic risk. We develop a risk assessment framework that includes idiosyncratic risk but focuses on insolvency risk related to a specific cash flow profile. We also present a methodology of rating this risk, using forecasts and simulations. We conclude that simulation techniques are a valuable tool in property risk assessment. Further, we show that cost of capital and value of assets depend on diversification of specific risks, investors can achieve in their portfolios.     

Property taxation in Israel: a non ad valorem approach

The arnona, the system of property taxation in Israel, is a unique form of taxation being based on a property's size (m²) and not on its discrete open market value. The actual use of the property (residential versus non-residential), its location in the municipality, type of property and its age are the determining factors for tax liability. In order to test for equity within the current system, the methodology adopted was to investigate the effect of population size, remoteness and population makeup with respect to some 80 municipalities on the levels of arnona. Although the thresholds of arnona for individual municipalities are approved by a committee of the Knesset, the present analysis indicates that the current differences in per capita amount of arnona collected by local authorities do reflect factors that would normally be expected to influence an ad valorem property tax in a market economy. It is argued that whilst the arnona is an accepted form of local authority property taxation, there are a number of fundamental weaknesses. Its application could be improved by incorporating elements of an ad valorem property tax, which would more fully reflect the socio-economic level of taxpayers and the physical condition of the built environment. However, the arnona, not being based directly on a property's market value should be of interest to countries (e.g. transitional countries of Central and Eastern Europe) who are presently introducing property taxes within an environment where property markets are not as yet fully developed.     

中国林权制度变革与林业投资的研究

林业产权制度是林业经济发展的基础和核心,林业产权制度的变更对林业的投资有重要的影响,该研究以新中国成立以来的林权变更为基础,对林业投资进行研究,结果表明：林权制度的变更对林业投资有重要的影响,林业投资倾向于营林建设。并提出建议：继续深化林权制度改革,增加国家对林业的投资力度,开拓林业投资新渠道。     

Land Invasions,Insecure Property Rights and Production Decisions

This paper investigates empirically the effect of land invasions on farm production decisions. The main hypothesis is that more invasions in a region are associated with lower investment, and in particular a bias towards annual crops as opposed to long‐term crops. We use a county‐level dataset for the state of Paraná, Brazil, from 2003 to 2007, with 1,995 observations. The panel data structure allows us to control for fixed effects, such as the formalisation of land titles and land concentration, which might be correlated with the intensity of invasions. An instrumental variable fixed effects model was estimated to avoid other sources of bias. Our main finding is that land invasions are associated with lower long‐term crop production and a higher percentage of annual crops, which could accelerate land degradation, and undermine environmental sustainability.     

Property taxation and rural land values: Their effect on private forestland ownership structure in Texas

The objective of this study was to estimate the effect of property tax and rural land market value on the ownership structure of private forestland in Texas. Using county-level panel data in an Instrumental Variable regression framework, we estimated the effect of property tax rate and rural land value on two measures of ownership fragmentation: the total number of private forest landowners and the average size of private forest holdings. The results indicate that after controlling for the total amount of private forest area in a county, both property tax rates and rural land values increased ownership fragmentation. However, the rate of ownership fragmentation was relatively inelastic in both property tax rate and rural land value. While further restructuring local property tax rates might minimize the negative effect on private ownership dynamics, policy instruments that decrease the disparity between productivity value and market value of rural forestland might be needed to check the ongoing ownership fragmentation in Texas and elsewhere in the United States.     

从金融视角审视中国传统农地产权及地权交易

明清以来,我国农地具有明确的产权制度,独立而多层次的产权,复杂多样的产权交易形式,促进了土地的流动,这为农户根据自身状况合理配置劳动、土地和资本打下了基础,促进了资源的有效配置。从金融视角审视我国明清的土地市场其实是一个集债券市场、股票市场、衍生品市场和信贷市场在内的复杂的金融市场,但由于历史的局限没有发展成为真正意义上的金融市场,其中因素还有待研究。同时,历史上出现过的衣地产权制度和交易形式为我们当今的土地改革提供了重要的借鉴意义。     

Refining the real estate pricing model

Investment theory dictates that capitalisation (cap) rates for freehold real estate should be determined by the risk-free nominal rate of return plus the risk premium (RP) less the expected growth rate, with an allowance for depreciation. However, importing the concept of the RP from the capital markets fails to guide investors through the complexities of the asset, or enable exploration of purchaser preferences and behaviour. A refined pricing model for real estate is proposed, based on a concept termed a risk scale, to distinguish between macro (market) and micro (stock) determinants of risk and growth within the RP. This pricing model is estimated for a major global investment market, using a cross-sectional inter-temporal framework, with a data-set of 497 transactions in the London office sector over 2010 Q2–2012 Q3. Average cap rates are estimated at just over 5%, with asset-specific attributes dominating yield determination, with submarket quality and tenant covenant most important; and unexpired term insignificant, surprising during the ‘flight to safety’ characterising the period. International investors bought at lower cap rates, despite the ongoing economic and financial instability of the study period. Improving understanding of pricing behaviour and market transparency is important and may be advanced through the pricing model.     

Property rights of urban underground space in China: A public good perspective

With the booming development of urban underground space in China, “fuzzy” property rights of this special form of land use type are not only the cause of ownership disputation and registration chaos, but also may seriously delay the undertaking of related underground land laws or regulations. China's emerging property rights issue of urban underground space, especially the delimitation of the surface and ground or underground, is facing such a challenge. This article aims to identify the property rights of urban underground space by using a practical method that classifies the underground space as economic goods, and to analyze attributes of different property rights of urban underground space within the theoretical framework of public goods. We use civil defense projects and underground parking lots as case studies. Both case studies are the most utilized types and controversial ownership cases of urban underground space in present China. Our case studies indicate that it is a feasible method to avoid the delimitation of the start-stop height of 3D property right vertically, and directly define the attributes of surface and underground property rights in line with the supply mode of goods. Our results show that the method proposed in this study can effectively solve the dispute of property rights against problems rising with unclear contract and lags in the legislation of urban underground space and clearly delimited the interests boundaries among different parties of property rights for urban underground space. Ultimately, this study may offer better insight into the utilization and registration work of urban underground space in China as well as reference for countries with similar property rights issues.     

财产权利权能理论新拓展:理论框架及其对中国当前集体农地权利体系的合理解释

研究目的:提出权能支的新概念,建立一个新的财产权利权能结构理论框架,对当前中国集体农地权利体系进行解释。研究方法:逻辑推理法,法学分析方法。研究结果:所有权权能结构包括占有、使用、收益和处分四项基本权能,而这四项基本权能由若干更小的基本单元——权能支构成;权能支是财产权利的基本单元,每一个权能支意味着权利人可以依法实施一类行为的可能性,四项基本权能是由若干权能支组成的权能束;基本权能或权能支的分离、重组和耦合形成新的财产权利类型。研究结论:权能支概念的引入,拓宽了既有权能理论的解释能力,可以较好地解释新出现的财产权利的权能结构,也能合理解释权能分离后的所有权和他物权的内涵;基于权能支的概念和新的财产权利权能结构,本文解释了当前中国集体农地权利体系,并就现阶段土地承包经营权权能完善和拓展提出了政策建议。     

国有林权制度改革后承包户投资及收入调查

根据黑龙江省伊春市参与国有林权制度改革试点的118个承包户实地调查样本数据,对承包户的初始投资、追加投资以及家庭收入进行了统计性描述。研究结果表明:承包户的投资能力不强;承包林地的面积和离家距离对承包户的追加投资有影响;短期内承包户的收入仍然依赖于林业局的工资,而承包户林下经济投资的收益已有所显现。     

基于物权法的征地拆迁补偿创新探讨

本文以《物权法》相关规定为依据,通过深入理解其立法精神,分析现行征地拆迁补偿中存在的诸多问题,在此基础上,对征地拆迁补偿提出相应的完善及改进意见。     

Property rights in a very poor country: tenure insecurity and investment in Ethiopia

This article provides evidence from one of the poorest countries in the world that the institutions of property rights matter for efficiency, investment, and growth. With all land state‐owned, the threat of land redistribution never appears far off the agenda. Land rental and leasing have been made legal, but transfer rights remain restricted and the perception of continuing tenure insecurity remains quite strong. Using a unique panel data set, this study investigates whether transfer rights and implied tenure insecurity affect household investment decisions, focusing on trees and shrubs. The panel data estimates suggest that limited perceived transfer rights negatively affects the long‐term investment in Ethiopian agriculture, contributing to the low returns from land and perpetuating low growth and poverty.     

Property rights and housing prices: An empirical study of small property rights housing in Shenzhen,China

Small Property Rights Housing (SPRH) is an important part of informal housing in China. SPRH is defined as housing developed with collective land ownership that is then sold to outside homebuyers such as non-indigenous villagers. This housing practice is legally forbidden and comes without formal titles. SPRH is popular in big Chinese cities where formal housing prices are constantly rising and increasingly unaffordable for many urban residents. However, research on SPRH is rare. Therefore, this study aims to investigate the effects (or the lack thereof) of de-jure property rights on housing prices by using the empirical case of Shenzhen where SPRH and FPRH estates constitute the main sources of urban housing for its residents. We collected both SPRH and formal Full Property Right Housing (FPRH) data in the Shenzhen housing market and adopted the Boundary Fixed Effect method and matching strategy to mitigate the bias caused by unobservable location and neighborhood factors. This empirical study shows that the lack of de-jure property rights has negative and significant effects on housing prices. The average housing price for SPRH apartments is, ceteris paribus, 52.82% lower than for formal FPRH apartments. Also, the premium of property rights varies across two administrative regions with different locations and economic environments, and the premium decreases as the age of the building increases.