The role of rural land in mixed asset investment portfolios

Rural land has not always been considered as a major long-term investment with both institutional investors and absentee owners in countries such as U.K. and Australia. Although rural land is included in both single asset and mixed asset portfolios in the U.S, it is not at the same levels as either commercial or industrial property. Rural land occupies over 50% of the total area of Australia, and comprises over 115,000 economic farm properties (excludes rural residential, hobby farms and rural lifestyle blocks. However, less than 1.6% of the total economic farm numbers are actually owned by corporate or institutional investors. This low level of corporate involvement in the Australian rural property market has limited both the investment performance research and inclusion of this rural land type in both property and mixed asset investment portfolios. In the U.S. rural land is also the most extensive real estate type based on total area occupied. The United States Department of Agriculture statistics (1998) show that in 1997 there were 2.06 million farms in the U.S., covering 968 million acres, with a total value of $912 billion and generating an annual income of $202 billion. The level of corporate ownership of farms in the U.S. is also higher than the level of corporate farm ownership in Australia. This high level of institutional ownership in rural land in U.S has provided the opportunity for the rural property asset class to be analysed in relation to it’s investment performance and possible role in a mixed asset or mixed property investment portfolio.

Role of timberland in us investment portfolios

Timberland is now regarded as a long-term investment with both institutional investors and absentee owners. This paper utilises the NCREIF Timberland index to examine the performance of US timberland over the period of 1987-1999. US timberland was found to provide significant risk reduction and portfolio diversification benefits in the portfolio resulting from the low risk and low correlation with stocks and bonds. Timberland was also found to make a significant contribution to a portfolio of stocks, bonds and real estate, particularly at low to midrange portfolio risk levels.

The role of institutional rural property in diversified investment portfolios in NSW, Australia

The food and fuel crisis experienced in 2006 to 2008 has highlighted the importance of agricultural commodity production throughout developing and developed economies and has placed greater awareness and importance on rural property and rural property markets. These factors have led to an increased interest from major property investment institutions and property companies in the role of rural property in a mixed asset or mixed property investment portfolio. This paper will analyse rural property sales in New South Wales for the period 1990-2008, and will compare total return performance across a number of rural property sectors based on geographic location and land use type. These results show that the inclusion of rural property in an investment portfolio has benefits in relation to return and risk.

Property investment, construction and economic growth : the case of Malaysia

It is generally accepted that there is a close relationship between property investment and construction activity. The construction sector plays a crucial role in economic development, especially for a developing nation such as Malaysia. However, the volume of new properties added to the property market is only a fraction of the total volume of the property market. Is the conventional assumption of the relationship between property investment and construction supported by empirical data? This paper revisits the tripartite relationships between economic growths, property investment and construction activities with official Malaysian 2000Q1-2010Q4 quarterly time series data. The Granger causality tests are used to establish the causality runs from the GDP to the value of property transactions, and the growth of construction activities to GDP growth. The result is expected to be useful for policymakers and industrial practitioners in formulating industrial policies and corporate strategies.

Residential property investment : assessing home ownership long term viability

Home purchase and ownership is seen by the majority of Australians as the basis for a sound investment strategy and to seciure their long term retirement goals. Although home ownership rates in Australia are in excess of 65% of the population, there have been doubts raised as to the effectiveness of purchasing a house as the main source of retirement income. The main issue with this approach is that the house has to be sold to gain access to these funds or the owners have to take out a reverse mortgage to access the capital tied up in their home, which can be more expensive than selling. This paper will carryout a detailed analysis of a number of investment options to determine the effectiveness of home purchase as a long term investment vehicle. This study has found that the long term investment in equities or managed superannuation funds can provide a greater retirement income than the purchase of a residential property for owner occupation

Does sustainable housing construction provide the home owner with a greater investment return?

Over the past 20 years there has been a considerable push at all three tiers of Government and private industry in Australia to improve the energy efficiency and sustainability levels of residential housing. A number of these initiatives have been voluntary, such as solar power and solar heating rebates, with other mandatory measures being incorporated into building standards and codes. Although the importance of energy efficiency and sustainable materials have been widely conveyed both at the academic and public level, it does not always reflect in the residential house purchase decision by typical house buyers, including residential property investors. This paper will analyse a range of housing markets in Brisbane to determine the investment performance of those markets over the past 3 years to determine any significant differences between new residential suburbs and older residential suburbs where houses have not been constructed to the current energy efficiency and sustainability guidelines. The range of suburbs to be analysed will focus on middle to lower high value suburbs, with a particular focus on residential housing in Master Planned Communities to determine if socio-economic factors and development size and scope have an impact of the purchase and investment performance of sustainable houses in comparison to older housing stock. The paper confirms that the residential property market shows a higher capital return for residential property built under stricter sustainability guidelines than similar located and type of property built prior to the BCA 2004 and older style project type homes erected prior to 2000.

The cluster effect in China: Real or imagined?

Policy makers, urban planners and economic geographers readily acknowledge the potential value of industrial clustering. Clusters attract policy makers’ interest because it is widely held that they are a way of connecting agglomeration to innovation and human capital to investment. Urban planners view clustering as a way of enticing creative human capital, the so-called ‘creative class’, that is, creative people are predisposed to live where there is a range of cultural infrastructure and amenities. Economists and geographers have contrived to promote clustering as a solution to stalled regional development. In the People’s Republic of China, over the past decade the cluster has become the default setting of the cultural and creative industries, the latter a composite term applied to the quantifiable outputs of artists, designers and media workers as well as related service sectors such as tourism, advertising and management. The thinking behind many cluster projects is to ‘pick winners’. In this sense the rapid expansion in the number of cultural and creative clusters in China over the past decade is not so very different from the early 1990s, a period that saw an outbreak of innovation parks, most of which inevitably failed to deliver measurable innovation and ultimately served as revenue-generating sources for district governments via real estate speculation. Since the early years of the first decade of the new millennium the cluster model has been pressed into the service of cultural development.

Holding periods and investment performance: analysing UK office returns 1983-2003

Drawing on a unique database of office properties constructed for Gerald Eve by IPD, this paper examines the holding periods of individual office properties sold between 1983 and 2003. It quantifies the holding periods of sold properties and examines the relationship between the holding period and investment performance. Across the range of holding periods, excess returns (performance relative to the market) are evenly distributed. There are as many winners as there are losers. The distribution of excess returns over different holding periods is widely spread with the risk of under-performance greater over short holding periods. Over the longer term, excess performance is confined to a narrow range and individual returns are more likely to perform in line with the market as a whole.

Private investment in the countryside: an assessment of the role of new houses and estates in sustaining the rural economy and environment

The British countryside has been shaped and sustained over the years by the establishment of landed estates. Some of our best known, and now most protected, landmarks derive from this tradition by which money, that was often sourced from outside the rural economy, was invested in land. Whilst there was some reversal in this trend during the last century, there is again a widespread desire among people of means to invest in new country property. Paragraph 3.21 of Planning Policy Guidance Note 7: The Countryside - Environmental Quality and Economic and Social Development was introduced in 1997 as a means of perpetuating the historic tradition of innovation in the countryside through the construction of fine individual houses in landscaped grounds. That it was considered necessary to use a special provision of this kind reflects the prevailing presumption of planning authorities against allowing private residential development in open countryside. The Government is currently reviewing rural planning policy and is focusing on higher density housing, affordable homes and the use of brownfield sites. There is an underlying conception that individual private house developments contribute nothing and are seen as the least attractive option for most development sites. The purpose of paragraph 3.21 lies outside the government’s priorities and its particular provisions may therefore be excluded in forthcoming ‘policy statements’. This paper seeks to examine the role of private investors wishing to build new houses in the countryside, and the impact that that might have on local economies. It explores the interpretation placed on PPG7 through an investigation of appeal sites, and concludes by making recommendations for the review process, including the retention of some form of exceptions policy for new build houses.

Does regional infrastructure investment stimulate extra housing and commercial building supply? Long-run evidence across the English regions

This paper uses long-term regional construction data to investigate whether increases infrastructure investment in the English regions leads to subsequent rises in housebuilding and new commercial property, using time series modeling. Both physical (roads and harbours) and social infrastructure (education and health) impacts are investigated across nine regions in England. Significant effects for physical infrastructure are found across most regions and, also, some evidence of a social infrastructure effect. The results are not consistent across regions, which may be due to geographical differences and to network and diversionary effects. However, the results do suggest that infrastructure does have some impact but follows differential lag structures. These results provide a test of the hypothesis of the economic benefits of infrastructure investment in an approach that has not been used before.

International investment, ownership and risk in the City of London office market: an analysis of trends 1972-1997

Office returns in the City of London are more volatile than in other UK markets. This volatility may reflect fluctuations in capital flows associated with changing patterns of ownership and the growing linkage between real estate and financial markets in the City. Using current and historical data, patterns of ownership in the City are investigated. They reveal that overseas ownership has grown markedly since 1985, that owners are predominantly FIRE sector firms and that there are strong links between ownership and occupation. This raises concerns about future volatility and systemic risk.

Measuring European property investment performance: comparing different approaches

Purpose – Price indices for commercial real estate markets are difficult to construct because assets are heterogeneous, they are spatially dispersed and they are infrequently traded. Appraisal-based indices are one response to these problems, but may understate volatility or fail to capture turning points in a timely manner. This paper estimates “transaction linked indices” for major European markets to see whether these offer a different perspective on market performance. The paper aims to discuss these issues. Design/methodology/approach – The assessed value method is used to construct the indices. This has been recently applied to commercial real estate datasets in the USA and UK. The underlying data comprise appraisals and sale prices for assets monitored by Investment Property Databank (IPD). The indices are compared to appraisal-based series for the countries concerned for Q4 2001 to Q4 2012. Findings – Transaction linked indices show stronger growth and sharper declines over the course of the cycle, but they do not notably lead their appraisal-based counterparts. They are typically two to four times more volatile. Research limitations/implications – Only country-level indicators can be constructed in many cases owing to low trading volumes in the period studied, and this same issue prevented sample selection bias from being analysed in depth. Originality/value – Discussion of the utility of transaction-based price indicators is extended to European commercial real estate markets. The indicators offer alternative estimates of real estate market volatility that may be useful in asset allocation and risk modelling, including in a regulatory context.

Foreign Direct Investment in Latin America and the Caribbean 2008

Includes bibliography

Maximum Justifiable Investment Analysis Determines Property Valuation

Investors and developers are often faced with the task of determining the worth or value of a real estate entity that presently exists or is proposed for development. This article explains the process for determining the value of a proposed project and, subsequently, the maximum investment dollars the project can cover, while at the same time producing a reasonable return for the investor. A proposed 300-room hotel serves as the real estate entity to be analyzed.