Comparing Predictive Accuracy of Real Estate Pricing Models: An Applied Study for the City of Montreal.

Rapport de recherche

Densification & affordability : comparative real estate projects across Montreal

Montréal, Québec se construit vers une forme urbaine compacte, mais il en relève des questionnements quant aux effets sur l’abordabilité et l’accession à la propriété. En tenant compte du processus de la densification urbaine, une enquête sur une série de projets de condominiums immobiliers à travers la ville est menée afin de divulguer les prix des projets nouveaux ou en construction. Au préalable, ceci survole la littérature et les études actuelles portant sur la planification urbaine, notamment celles qui sont reliées au Smart Growth, études dans lesquelles le contexte de densification et de tendances consuméristes à préférer les formes urbaines étalées est mis en évidence. Essentiellement, Moroni (2010) souligne l’approche dichotomique en planification urbaine entre les perspectives «teleocratic» et «nomocratic». La densification montréalaise actuelle contemporaine s’exprime par une multitude de modèles de condos conformes aux nouvelles tendances démographiques et des modes de vie. En s’appuyant sur les critères du programme Accès Condos, sur les critères du SCHL (32% du revenu) et sur le revenu médian des ménages, le niveau d’accessibilité à la propriété d’un condominium peut être mesuré. Les résultats indiquent que selon ces critères, les logements de style condominium, neufs et en construction, sont abordables. L’analyse contribue empiriquement à la littérature en exposant les liens entre les stratégies actuelles de densification urbaine avec l’abordabilité des logements condos. La recherche porte un regard nouveau sur le phénomène condo à Montréal et ses tendances démographiques. La ville est divisée selon le modèle Burgess et la recherche mène un sondage comparatif des prix pour déterminer l’abordabilité. Les résultats suggèrent que les projets condos actuels sont relativement abordables pour les ménages avec un revenu médian et plus, selon Accès Condos.

Timing and the holding periods of institutional real estate

Literature on investors' holding periods for securities suggests that high transaction costs are associated with longer holding periods. Return volatility, by contrast, is associated with shorter holding periods. In real estate, high transaction costs and illiquidity imply longer holding periods. Research on depreciation and obsolescence suggests that there might be an optimal holding period. Sales rates and holding periods for U.K. institutional real estate are analyzed, using a proportional hazards model, over an 18-year period. The results show longer holding periods than those claimed by investors, with marked differences by type of property and over time. The results shed light on investor behavior.

Annual CREMRU-JCI survey of corporate real estate practices in Europe and North America: 1993-2002

The annual survey of corporate real estate practices has been conducted by CREMRU since 1993 and in collaboration with Johnsons Controls Inc. since 1997. This year the survey forms the first stage of a broader research project: International Survey of Corporate Real Estate Practices: longitudinal study 1993-2002, being undertaken for the Innovative Construction Research Centre at the University of Reading, funded by the Engineering and Physical Sciences Research Council. The survey has been endorsed by CoreNet, the leading professional association concerned with corporate real estate, which opened it to a wider audience. This summary of the ten annual surveys focuses on the incidence of corporate real estate management (CREM) policies, functions and activities, as well as the assessment of knowledge or skills relevant to the CREM function in the future. Both are of vital interest to educational institutions concerned with this field, as well as the personnel and training functions within organisations concerned with better management of their property.

Direct investment in real estate

Momentum strategies have the potential to generate extra profits in private real estate markets. Tests of a variety of frequencies of portfolio reweighting identify periods of winner and loser performance. There are strong potential gains from momentum strategies that are based on prior returns over a 6- to 12-month period. Whether these gains are attainable for real-world investors depends on transaction costs, but some momentum strategies do produce net excess returns. The findings hold even if returns are unsmoothed to reflect underlying market prices.

Pricing inefficiencies in private real estate markets using total return swaps

Efficient markets should guarantee the existence of zero spreads for total return swaps. However, real estate markets have recorded values that are significantly different from zero in both directions. Possible explanations might suggest non-rational behaviour by inexperienced market players or unusual features of the underlying asset market. We find that institutional characteristics in the underlying market lead to market inefficiencies and, hence, to the creation of a rational trading window with upper and lower bounds within which transactions do not offer arbitrage opportunities. Given the existence of this rational trading window, we also argue that the observed spreads can substantially be explained by trading imbalances due to the limited liquidity of a newly formed market and/or to the effect of market sentiment, complementing explanations based on the lag between underlying market returns and index returns.