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Estimating Quality Adjusted Commercial Property Price Indexes Using Japanese REIT Data

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  • Diewert, W. Erwin
  • Nishimura , Kiyohiko G.
  • Shimizu, Chihiro
  • Watanabe, Tsutomu

Abstract

The paper proposes a new method to estimate quality adjusted commercial property price indexes using real estate investment trust (REIT) data. The method is based on the present value approach, but the way in which current operating income and the capitalization rate are estimated differs from the traditional method. The traditional method uses a hedonic regression with appraisal information on properties as the dependent variable in order to estimate the capitalization factor. We compare this method with a method that replaces appraisal information with stock market valuations (adjusted for debt). We also run alternative hedonic regressions, restricting the sample of properties to those which are associated with new rental contracts, which may contain more information on future cash flows from properties. Using a dataset with prices and cash flows for about 400 commercial properties included in Japanese REITs for the period 2001 to 2013, we find that our price index signals turning points much earlier than an appraisal-based price index. Our results suggest that the share prices of REITs provide useful information in constructing commercial property price indexes.

Suggested Citation

  • Diewert, W. Erwin & Nishimura , Kiyohiko G. & Shimizu, Chihiro & Watanabe, Tsutomu, 2015. "Estimating Quality Adjusted Commercial Property Price Indexes Using Japanese REIT Data," Economics working papers erwin_diewert-2015-16, Vancouver School of Economics, revised 04 Aug 2015.
  • Handle: RePEc:ubc:bricol:erwin_diewert-2015-16
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Commercial property price indexes; REIT; quality adjusted price index; hedonic regressions; Tobin’s q; risk premium.;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • G19 - Financial Economics - - General Financial Markets - - - Other
    • R21 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Housing Demand

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