Market Fundamentals, Risk and the Canadian Property Cycle: Implications for Property Valuation and Investment Decisions
AbstractThe dramatic decline in commercial property values in recent years has changed popular perception about real estate investment risk. This paper aims to generate new insights into real estate investment risk and its implications for real estate valuation. It shows that the risk premium on unsecuritized commercial real estate varies over time and is strongly related to general economic conditions. A vector autoregressive model developed to forecast real estate returns reveals that time variation in real estate risk is partly predictable, and thus can help us to forecast future movements in commercial property values. The analysis suggests that in periods surrounding major market movements, changes in commercial property prices are driven more by changes in expected (required) returns than by changes in current and expected future property income. Changing expected returns may reflect rational revisions of real estate investment risk, or alternatively investor psychology or sentiment.
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Bibliographic InfoArticle provided by American Real Estate Society in its journal Journal of Real Estate Research.
Volume (Year): 12 (1996)
Issue (Month): 3 ()
Contact details of provider:
Postal: American Real Estate Society Clemson University School of Business & Behavioral Science Department of Finance 401 Sirrine Hall Clemson, SC 29634-1323
Web page: http://www.aresnet.org/
Postal: Diane Quarles American Real Estate Society Manager of Member Services Clemson University Box 341323 Clemson, SC 29634-1323
Find related papers by JEL classification:
- L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services
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