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Estimating Quality Adjusted Commercial Property Price Indexes Using Japanese REIT Data

Author

Listed:
  • Chihiro Shimizu

    (Reitaku University; University of British Columbia)

  • Walter Erwin Diewert

    (University of British Columbia)

  • Kiyohiko G. Nishimura

    (Deputy Governor, Bank of Japan)

  • Tsutomu Watanabe

    (Graduate School of Economics,University of Tokyo)

Abstract

We 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 market’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.

Suggested Citation

  • 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.
    • Handle: RePEc:upd:utppwp:004
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    References listed on IDEAS

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    Cited by:

    1. Masatomo Suzuki & Seow Eng Ong & Yasushi Asami & Chihiro Shimizu, 2023. "Long-Run Renewal of REIT Property Portfolio Through Strategic Divestment," The Journal of Real Estate Finance and Economics, Springer, vol. 66(1), pages 1-40, January.
    2. Erwin Diewert & Chihiro Shimizu, 2020. "Alternative Land‐Price Indexes for Commercial Properties in Tokyo," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 66(4), pages 784-824, December.
    3. Diewert, Erwin & Shimizu, Chihiro, 2013. "A Conceptual Framework for Commercial Property Price Indexes," HIT-REFINED Working Paper Series 4, Institute of Economic Research, Hitotsubashi University.
    4. W. Erwin Diewert & Kiyohiko G. Nishimura & Chihiro Shimizu & Tsutomu Watanabe, 2020. "The System of National Accounts and Alternative Approaches to the Construction of Commercial Property Price Indexes," Advances in Japanese Business and Economics, in: Property Price Index, chapter 0, pages 181-219, Springer.
    5. W. Erwin Diewert & Kevin J. Fox & Chihiro Shimizu, 2016. "Commercial Property Price Indexes And The System Of National Accounts," Journal of Economic Surveys, Wiley Blackwell, vol. 30(5), pages 913-943, December.
    6. Yu Cheng Lin & Chyi Lin Lee & Graeme Newell, 2019. "The significance of residential REITs in Japan as an institutionalised property sector," Journal of Property Investment & Finance, Emerald Group Publishing Limited, vol. 37(4), pages 363-379, May.
    7. Robbie Lin & Chyi Lin Lee & Graeme Newell, 2019. "The significance of Residential REITs in Japan as an Institutionalized property sector," ERES eres2019_122, European Real Estate Society (ERES).

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    More about this item

    Keywords

    REIT; quality adjusted price index; hedonic regression; Tobin’s q; risk premium;
    All these keywords.

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • G19 - Financial Economics - - General Financial Markets - - - Other

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