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Analysing the real estate investment risk : The case of Paris

Author

Listed:
  • Mahdi Mokrane
  • Fabrice Barthélémy
  • Michel Baroni

Abstract

In this paper we investigate the risk factors associated with real estate investment. We explore a rich database of over 100 000 transactions mainly for residential assets in the Paris area over the 1973 ñ 1998 period. The main risk factors are identified using a Principal Component Analysis as well as a Stepwise Regression Method. The first method shows that linear or log-linear combinations of factors such as interest rates, interest rate spreads, financial market return, rents, unemployment, or even market traded real estate cannot capture physical real estate return risk in a satisfactory manner. The second method indicates that if one were to nevertheless opt for a factor model, the consistent factors should be rents, unemployment, traded real estate and a population index. Comparisons of this factor model index with both a Weighted Repeat Sales (WRS) index computed for the Paris area, the IPD index and the square-foot price index, yield interesting implications concerning real estate risk, market participant behaviour, and the so-called 1990s ëspeculative bubbleí.

Suggested Citation

  • Mahdi Mokrane & Fabrice Barthélémy & Michel Baroni, 2001. "Analysing the real estate investment risk : The case of Paris," ERES eres2001_237, European Real Estate Society (ERES).
  • Handle: RePEc:arz:wpaper:eres2001_237
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    File URL: https://eres.architexturez.net/doc/oai-eres-id-eres2001-237
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    JEL classification:

    • R3 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location

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