Does Reit offer a Better Risk and Return Contour to the New Zealand Residential Property Investors?

Abstract

New Zealanders’ overwhelming favour of residential property investment has resulted in residential properties being overvalued with a house-price-to-income multiple equals to 5.9 for the country and 10 for its largest city – Auckland. With the deterioration in housing affordability; currently ranked the fourth worst in the world for Auckland (the largest city in New Zealand), investing directly in residential property become riskier. Under this scenario, a more passive property investment option such as REIT could be more viable. The objective of the paper is to assess whether REIT could offer a better risk and return contour then direct residential property option to potential property investors in New Zealand. Empirical findings from this study show that there is a significant difference between the rates of return of these two types of property investment options. Further analysis using Treynor ratio indicates that investing in REITs generated a higher return on a risk-adjusted basis. This finding has implications for investors looking for a more affordable and liquid way to tap into the property asset class.

Housing Price, Mortgage Interest Rate and Immigration

“…A study conducted by Shi, Young & Hargreaves (2010), using data from 1994 to 2004, document the existence of a long run cointegration relationship between trading volume and housing prices in New Zealand, further endorsing the impact of demand on housing price. Studies also indicate that some of the New Zealand residential housing buyers are speculators and are not rational in investment activities (Braithwaite & Kemp, 2007;Smith & Searle, 2010;Chong, 2018) Housing property price is not only affected by the overwhelming demand of residents for their own occupation and speculative purposes (Smith & Searle, 2010). The influx of immigrants can add further pressure on the demand for housing property.…”

To Explore the Risk and Return Performance for REITs Investment in Malaysia

“…The had further the recent suggestion of the investment into real estate investment trusts which is known as REITs had been attracting more investors especially in the time of the economic recession [10]. This is because that the impression of REITs to provide greater return over time despite the uncertainty and risk of the investment [11].…”