Optimal Structure of Real Estate Portfolio Using EVA: A Stochastic Markowitz Model Using Data from Greek Real Estate Market

Abstract

The purpose of this paper is to examine the issue of portfolio optimization. Optimization consists of minimizing the risk for a given rate of return or achieving a bigger return for a given level of risk. We use historical data from the Bank of Greece to calculate the net return and the standard deviation (std) for each type of property that is available. The objective is to maximize the economic value added (EVA) of a property’s assets portfolio under a specific rate of standard deviation, following the classic Markowitz model (M-V). The stochastic procedure entry in the model uses the Monte Carlo Simulation method with debt to equity (DTE) following PERT distribution for the portfolio’s invested budget, and the net return for the normal distribution with the mean of the expected return and std are taken from historical data, correspondingly. The returns verify that they follow the base assumption of normality through the Lilliefors test in the Greek real estate market. We observe the maximization of EVA and the expected return maximizing concurrently, but the minimizing risk of EVA is diversified with the minimization of portfolio risk. We observe that the max weight that a residential asset takes is 22.7% because a bigger percent reduces both mean and std. The study provides an explicit portfolio optimization procedure under uncertainty in the real estate market and enriches the academic debate about EVA and revenue.

Persistent trends and inefficiencies in the Greek housing market: a sentiment based approach

“…The Greek housing market is particularly interesting due to its unique features and the economic challenges it has faced, including a severe financial crisis that led to a significant decline in house price (Lekkos et al, 2014). Although there have been signs of recovery, the lingering effects of the crisis continue to impact market dynamics, resulting in high price fluctuations (Anastasiou and Kapopoulos, 2023;Petropoulos et al, 2023), and potentially influencing investor behavior.…”

“…, 2014). Although there have been signs of recovery, the lingering effects of the crisis continue to impact market dynamics, resulting in high price fluctuations (Anastasiou and Kapopoulos, 2023; Petropoulos et al. , 2023), and potentially influencing investor behavior.…”

What drives the real estate market? Could behavioral indicators be useful in house pricing models?

“…This stands in contrast to ECON 25,1 the home ownership rate in the Euro area, which experienced a decline over the last decade, primarily attributed to diminishing ownership rates among young adults and low-income groups (Calabria & Calder, 2019) or escalating housing prices ( Cerm akov a & Hromada, 2022). Furthermore, Greece has faced severe economic challenges, including a notable financial crisis (Lekkos, Staggel, Kefalas, & Vlachou, 2014), high level of debt (Leschinski & Bertram, 2017), financial instability (Anastasiou & Kapopoulos, 2023), deflation pressures (Lekkos et al, 2014) and high volatility in housing prices (Gounopoulos et al, 2012;Petropoulos, Liapis, & Thalassinos, 2023). These economic challenges potentially influence investor behavior, contributing to the impact on housing prices beyond market fundamentals, as noted by Marfatia et al (2022).…”

“…These economic challenges potentially influence investor behavior, contributing to the impact on housing prices beyond market fundamentals, as noted by Marfatia et al (2022). Given that the Greek housing market stands out with homeownership rates (Gounopoulos et al, 2012), high impact from changes in consumer behavior (Petropoulos et al, 2023) and is highly sensitive to changes in financial stress conditions (Anastasiou & Kapopoulos, 2023), it is intriguing to study how these unique characteristics interact with the dynamics of the Greek housing market, providing valuable insights for investors, policymakers and researchers alike.…”

“…, 2014) and high volatility in housing prices (Gounopoulos et al. , 2012; Petropoulos, Liapis, & Thalassinos, 2023). These economic challenges potentially influence investor behavior, contributing to the impact on housing prices beyond market fundamentals, as noted by Marfatia et al.…”