Hedging effectiveness of total returns swaps: application to the Japanese market

The development of the real estate swap market offers many opportunities for investors to adjust the exposure of their portfolios to real estate. A number of OTC transactions have been observed in markets around the world. In this paper we examine the Japanese commercial real estate market from the point of view of an investor holding a portfolio of properties seeking to reduce the portfolio exposure to the real estate market by swapping an index of real estate for LIBOR. This paper explores the practicalities of hedging portfolios comprising small numbers of individual properties against an appropriate index. We use the returns from 74 properties owned by Japanese Real Estate Investment Trusts over the period up to September 2007. The paper also discusses and applies the appropriate stochastic processes required to model real estate returns in this application and presents alternative ways of reporting hedging effectiveness. We find that the development of the derivative does provide the capacity for hedging market risk but that the effectiveness of the hedge varies considerably over time. We explore the factors that cause this variability.

Persistence of UK Real Estate returns: a Markov chain analysis

The persistence of investment performance is a topic of perennial interest to investors. Efficient Markets theory tells us that past performance can not be used to predict future performance yet investors appear to be influenced by the historical performance in making their investment allocation decisions. The problem has been of particular interest to investors in real estate; not least because reported returns from investment in real estate are serially correlated thus implying some persistence in investment performance. This paper applies the established approach of Markov Chain analysis to investigate the relationship between past and present performance of UK real estate over the period 1981 to 1996. The data are analysed by sector, region and size. Furthermore some variations in investment performance classification are reported and the results are shown to be robust.

Forward pricing and the housing market: the pre-sales housing system in Taiwan

In countries that have experienced rapid economic development, the need to establish more efficient markets in which private property can be constructed has induced some innovative solutions. One such solution is the phenomenon of a pre-sales market of the kind that can be observed in Taiwan, Korea, and more recently in China. Developers sell their property before building is started in order to acquire financing for the development companies. This paper discusses the process and, by recognising the analogy between the pre-sales market and forwards markets, analyses the implications for developers

House price dynamics and their reaction to macroeconomic changes

This article applies a three-regime Markov switching model to investigate the impact of the macroeconomy on the dynamics of the residential real estate market in the US. Focusing on the period between 1960 and 2011, the methodology implemented allows for a clearer understanding of the drivers of the real estate market in “boom”, “steady-state” and “crash” regimes. Our results show that the sensitivity of the real estate market to economic changes is regime-dependent. The paper then proceeds to examine whether policymakers are able to influence a regime switch away from the crash regime. We find that a decrease in interest rate spreads could be an effective catalyst to precipitate such a change of state.

Rooting cuttings of Syringa vulgaris cv. Charles Joly and Corylus avellana cv. Aurea: the influence of stock plant pruning and shoot growth

The relationship between shoot growth and rooting was examined in two, 'difficult-to root' amenity trees, Syringa vulgaris L. cv. Charles Joly and Corylus avellana L. cv. Aurea. A range of treatments reflecting severity of pruning was imposed on field-grown stock prior to bud break. To minimise variation due to the numbers of buds that developed under different treatments, bud number was restricted to 30 per plant. Leafy cuttings were harvested at different stages of the active growth phase of each species. With Syringa, rooting decreased with later harvests, but loss of rooting potential was delayed in cuttings collected from the most severe pruning treatment. Rooting potential was associated with the extent of post-excision shoot growth on the cutting but regression analyses indicated that this relationship could not entirely explain the loss of rooting with time, nor the effects due to pruning. Similarly, in Corylus rooting was promoted by severe pruning, but the relationship between apical growth on the cutting and rooting was weaker than in Syringa, and only at the last harvest did growth play a critical role in determining rooting. Another unusual factor of the last harvest of Corylus was a bimodal distribution of roots per cutting, with very few rooted cuttings having less than five roots. This implies that, for this harvest at least, the potential of an individual cutting to root is probably not limited by the number of potential rooting sites.