Home • PRRES Inc. Journal • Read the Journal

Investment Portfolios and Three Dimensions of Real Estate Investment: An Australian Perspective

Author/s: Richard Heaney, David Higgins, Amalia Di Iorio

Date Published: 1/01/2012

Published in: Volume 18 - 2012 Issue 4 (pages 335 - 354)

Abstract

Real estate offers a range of investment alternatives for mutual funds including residential real estate, commercial real estate and units in listed real estate investment trusts (REITs). Our quarterly total return data spans the period from the 3 quarter 1986 to the 3rd quarter 2009 using various combinations of the Australian All Ordinaries share price index and these three classes of real estate investment. Comparison of Sharpe and Sortino (downside risk) measures across a range of portfolios suggest that diversification benefits may be achieved through diversifying into real estate investment, particularly direct investment in residential real estate, given an initial exposure to the equity market.

Download Full Article

Download the Full Article PDF

14445921.2012.11104366.pdf 14445921.2012.11104366.pdf (587kB)

Keywords

Diversified Portfolio Performance - Real Estate - Smoothed Real Estate Returns

References

  • Abelson, P, Roselyne, J, Milunovich, G, and Chung, D 2005, ‘Explaining house prices in Australia: 1970 to 2003’, Economic Record Vol. 81, S96-S103.
  • Australian Prudential Regulatory Authority 2011, Statistics, Annual Superannuation Bulletin, June 2011, accessed 12 June 2012,http://www.apra.gov.au/Super/Publications/Pages/annual-superannuati on-publi cation.aspx.
  • Blake, D, Lehmann, B, and Timmermann, A 1999, ‘Asset allocation dynamics and pension fund performance’, Journal of Business, Vol. 72, pp. 429–461.
  • Bodman, P and Crosby, N 2003, How far to fall? bubbles in major city house prices in Australia, University of Queensland, School of Economics, Working Paper.
  • Brounen, D and Eichholtz, P 2003, ‘Property, common stock, and property shares’, Journal of Portfolio Management, Vol. 30, pp. 129–137.
  • Byrne, P and Lee, S 1995, ‘Is there a place for property in the multi-asset portfolio?’, Journal of Property Finance, Vol. 6, pp. 60–83.
  • Chaudhry, A and Johnson, H 2008, ‘The efficiency of the Sortino ratio and other benchmarked performance measures under skewed return distributions’, Australian Journal of Management, Vol. 32, pp. 485–502.
  • Chiang, K and Lee, M-L 2007, ‘Spanning tests on public and private real estate’, Journal of Real Estate Portfolio Management, Vol. 13, pp. 7–15.
  • Cho, H, Kawaguchi, Y and Shilling, J 2003, ‘In smoothing commercial property returns: a revision to the Fisher-Geltner-Webb’s unsmoothing methodology’, Journal of Real Estate Finance and Economics, Vol. 27, pp. 393–405.
  • Clayton, J and MacKinnon, G 2001, ‘The time-varying nature of the link between REIT, real estate and financial asset returns’, Journal of Real Estate Portfolio Management, Vol. 7, pp. 43–54.
  • Geltner, D and Goetzmann, W 2000, ‘Two decades of commercial property returns: a repeated-measures regression-based version of the NCREIF index’, Journal of Real Estate Finance and Economics, Vol. 21, pp. 5–21.
  • Georgiev, G, Bhaswar, G, and Kunkel, T 2003, ‘Benefits of real estate investment’, Journal of Portfolio Management, Vol. 30.
  • Giliberto, M 1993, ‘Measuring real estate returns: the hedged REIT index’, Journal of Portfolio Management, Vol. 19, pp. 94–99.
  • Giliberto, M 2003, ‘Assessing real estate volatility’, Journal of Portfolio Management, Vol. 30, pp. 122–128.
  • Higgins, D 2007, Placing commercial property in the Australian capital market, RICS Research Paper Series 7, London.
  • Higgins, D and Ng, B 2009, ‘Australian securitised property funds: an examination of their risk-adjusted performance’, Journal of Property Investment and Finance, Vol. 27, pp. 404–412.
  • Hudson-Wilson, S, Fabozzi, F and Gordon, J 2003, ‘Why real estate?’, Journal of Portfolio Management, Vol. 30, pp. 12–25.
  • Jud, G, Wingler, T and Winkler, D 2006, ‘Single-family housing and wealth portfolios’, Journal of Real Estate Portfolio Management, Vol. 12, pp. 13–22.
  • Lee, C 2008, ‘Housing in Australia as a portfolio investment’, International Journal of Housing Markets and Analysis, Vol. 1, pp. 352–361.
  • Lee, M-L, Lee, M-T and Chiang, K 2007, ‘Structural breaks and cross-continental real estate securities diversification: evidence from spanning tests’, Pacific Rim Property Research Journal, Vol. 13, pp. 510–535.
  • Lee, S and Stevenson, S 2005, ‘The case for REITs in the mixed-asset portfolio in the short and long run’, Journal of Real Estate Portfolio Management, Vol. 11, pp. 55–80.
  • MacGregor, B and Nanthakumaran, N 1992, ‘The allocation to property in the multi-asset portfolio: the evidence and theory reconsidered’, Journal of Property Research, Vol. 9, pp. 5–32.
  • Masron, T and Fereidouni, H 2010, ‘Performance and diversification benefits of housing investment’, International Journal of Economics and Finance, Vol. 2, pp. 7–11.
  • Newell, G, and MacFarlane, J 1996, ‘Risk estimation and appraisal-smoothing in UK property returns’, Journal of Property Research, Vol. 13, pp. 1–12.
  • Newell, G, Peng, H and de Francesco, A 2011, ‘The performance of unlisted infrastructure in investment portfolios’, Journal of Property Research, Vol. 28, pp. 59–74.
  • Sortino, F and Price, L 1994, ‘Performance measurement in a downside risk framework’, Journal of Investing, Vol. 3, pp. 50–58.