Estimating Quality Adjusted Commercial Property Price Indexes Using Japanese REIT Data
AbstractWe propose a new method to estimate quality adjusted commercial property price indexes using real estate investment trust (REIT) data. Our method is based on the present value approach, but the way the denominator (i.e., the discount rate) and the numerator (i.e., cash flows from properties) are estimated differs from the traditional method. We estimate the discount rate based on the share prices of REITs, which can be regarded as the stock marketâ€™s valuation of the set of properties owned by the REITs. As for the numerator, we use rental prices associated only with new rental contracts rather than those associated with all existing contracts. Using a dataset with prices and cash flows for about 500 commercial properties included in Japanese REITs for the period 2003 to 2010, we find that our price index signals turning points much earlier than an appraisal-based price index; specifically, our index peaks in the first quarter of 2007, while the appraisal-based price index exhibits a turnaround only in the third quarter of 2008. Our results suggest that the share prices of REITs provide useful information in constructing commercial property price indexes.
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Bibliographic InfoPaper provided by Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo in its series CARF F-Series with number CARF-F-307.
Length: 28 pages
Date of creation: May 2012
Date of revision: Feb 2013
Other versions of this item:
- Chihiro Shimizu & Walter Erwin Diewert & Kiyohiko G. Nishimura & Tsutomu Watanabe, 2012. "Estimating Quality Adjusted Commercial Property Price Indexes Using Japanese REIT Data," UTokyo Price Project Working Paper Series 004, University of Tokyo, Graduate School of Economics, revised Feb 2013.
- E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
- G19 - Financial Economics - - General Financial Markets - - - Other
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