Real estate performance

University dissertation from Institutionen för fastigheter och byggande

Author: Kicki Björklund; Kth.; [1999]

Keywords: ;

Abstract: This dissertation consists of five papers addressing variousreal estate performance issues (see full titles in italicsbelow). The dissertation is empirical in nature and the dataused in most of the empirical sections consist of figures forincome-producing property returns. Paper 1 was presented atseminar and accepted as a Licentiate Degree in Engineeringthesis. Papers 2 to 5 were all written jointly with others (thenames of the co-authors appear later in the dissertation).Paper 3 has been published in theJournal of Real Estate Research, and Papers 2, 4, and 5,are also intended for publication in academic journals.The objective of Paper 1, entitledCapital Recovery and Long-run Profitability, was to findempirical and scientific support for adopting measurements ofprofitability featuring stability, simplicity and reliability,that could easily be implemented into existing administrativeroutines, and which could also support effectivedecision-making. The model was empirically tested throughanalysing the profitability of individual properties andproperty portfolios. The portfolios studied were put togetherfeaturing variation in property location, usage and initialperformance expectations.Paper 2, entitledAn Investigation of Property Price Studies, constitutesan untraditional literature review covering articles whereprice equations in the real estate market have been estimatedusing regression techniques. This paper examines the degree towhich these studies follow good scientific practice whenreporting on the econometric issues. It also presents adescriptive overview of the prevalence of these articles in theliterature, and the significance of the various topicsaddressed by these studies. This paper was prepared in 1996 andexamines 145 articles published between 1990 and 1995 from 12highly regarded (see later) research journals on real estate,housing and urban economics.Paper 3,entitledProperty Cycles, Speculative Bubbles and the Gross IncomeMultiplier, addresses the issue of whether or not theoccurrence of significant price increases during the upturn ina property cycle can be attributed to a speculative bubble. Thefindings of this study indicate that a speculative bubble mayhave driven the Swedish income-producing real estate marketduring the 1980s. This conclusion is based on an analysis ofpanel data where the state of the property cycle has beenmirrored by the value of the Gross Income Multiplier (GIM).In Paper 4, entitledAnalysing Performance in a Constant Sample of Mixed-useProperties, property performance was analysed using annualtotal rate of return (TRR) data for a sample of 138 mixed-useincome-producing properties from 1979 to 1997. The empiricalanalysis using panel data models involve three-step analyses.In step 1, various different TRR definitions were compared andfound to provide almost identical results at the portfoliolevel. In step 2, regression analyses were used to explain thevariation in the TRR. The percentage of commercial space inparticular was found to have an important and cycle-dependentimpact. Regression has also been used for explaining theindividual deviation from the mean TRR. In step 3, maintenancecosts and investments were found to have a significanteffect.In Paper 5, entitledRent Determinant and Rent Drift in a Housing Market underRent Control, residential rent 1990? 1997, wasstudied from an investor?s point of view. Estimations wereconducted using rent equations to analyse whether or not rentlevels varied between locations while other rent-affectingvariables were held constant, and found evidence suggestingthat they did. Annual increases in the effective rent chargedfor privately owned residential properties were compared withthe official increases set via official negotiation formunicipality owned residential housing to see whether excessiverent increases (indicating rent drift) could be found. Evidencewas found to support the existence of rent drift, and also thatthis rent drift is partly explainable in terms of investmentand maintenance.Keywords: Depreciation, gross income multiplier, netoperating income, property performance, real estateprofitability, profitability, residential rent, total rate ofreturn,