What is the “duration” of Swiss direct real estate?

Constantinescu, Mihnea

doi:10.1108/14635781011048849

Cited by 11 publications

(7 citation statements)

References 22 publications

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“…Although this database is not publicly accessible, it has been used for several recent academic contributions (Bourassa et al, 2008(Bourassa et al, , 2010(Bourassa et al, , 2011Constantinescu, 2010;Chaney & Hoesli, 2010). The IAZI data also form the basis for the construction of hedonic price indices that are published by the Swiss stock exchange (the SIX Swiss Capitalization Rate Determinants 11 Exchange), and for automated hedonic appraisal models (Scognamiglio, 2000) that are used for mortgage lending purposes.…”

Section: Transaction-based and Appraisal-based Data Sourcesmentioning

confidence: 99%

Transaction-Based and Appraisal-Based Capitalization Rate Determinants

Chaney¹,

Hoesli

2012

SSRN Journal

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This paper contributes to the debate about capitalization rate determinants by comparing the driving factors of appraisal-based cap rates with those of transaction-based cap rates. By using a rich database of real estate transactions in Switzerland for the period of 1985-2010, we identify several property-specific variables that have not been used in prior research and that increase the explained portion of the cap rate variance by as much as 10 percentage points. The results show that compared to investors, appraisers overweight factors that they can easily observe when they appraise a property, at the cost of variables related to growth expectations and the opportunity cost of capital. This has two implications. First, as the easily observable factors hardly change over time, while the latter variables change frequently and significantly, it provides new evidence that may add to the appraisal-smoothing discussion.Second, investors put less emphasis on factors that are diversifiable, which suggests that they favor a portfolio perspective, whereas the focus of the appraisers is more on the individual property level.

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Section: Transaction-based and Appraisal-based Data Sourcesmentioning

confidence: 99%

Transaction-Based and Appraisal-Based Capitalization Rate Determinants

Chaney¹,

Hoesli

2012

SSRN Journal

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“…These counter-intuitive results may have arisen as Brown tries to equate two equivalently priced investments with different price/yield curves, one of which is based on a fixed income equivalent yield model which is unable accurately to differentiate the impacts of rental growth and rent review terms on cash flows from the impacts these two factors have on the discount rate. Subsequently, the equivalent yield model results in under-or over-estimating the inflation-rate sensitivity of real estate (Constantinescu, 2010).…”

Section: The Flow-through Parameter For Commercial Propertymentioning

confidence: 99%

The sensitivity of UK commercial property values to interest rate changes

Macgregor

Nanthakumaran

Orr

2012

Journal of Property Research

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Duration and convexity measures are commonly applied in the management of bond portfolios to measure the sensitivity of asset values to changes in interest rates, enabling fund managers to manage their exposure to interest rate risk. Yet, there are no commonly accepted methods for applying the concepts of duration and convexity to equities and real estate, making it difficult for fund managers to analyse the exposure of multi-asset portfolios to interest rate risk (Blitzer & Dash, 2004).This paper contributes to this underdeveloped area of interest rate risk management by assessing the accuracy of using duration and convexity to measure the sensitivity of commercial property values in the UK to discount rate movements. Simulations confirm that property has duration and convexity characteristics similar to bonds. Our estimates overlap with duration figures estimated by Cairns and Wilkie (2010) for index-linked British government bonds over 15 years but are higher than their estimates for conventional bonds and five-to 15-year index-linked gilts. Perhaps more importantly, the paper demonstrates that duration is not sufficiently reliable enough to mitigate the interest rate risk attached to a property portfolio. The inclusion of convexity is necessary for effective interest rate immunisation strategies.

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“…Real estate is an attractive investment class for asset insulation as real estate investments are illiquid and have high transaction costs. In contrast, real estate is of limited use for duration matching because the duration of real estate is typically lower than the duration of long-term bonds (Constantinescu, 2010) and, at the same time, higher transaction costs do not permit a regular adjustment of portfolios. I use the share of real estate investments compared to total investments in 2013.…”

Section: Ta B L E 5 Association Between Asset and Liability Durationmentioning

confidence: 99%

Interest rate risk of life insurers: Evidence from accounting data

Möhlmann

2020

Financial Management

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Life insurers are exposed to interest rate risk as their liability side is typically more sensitive to interest rate changes than their asset side. This paper explores why insurers assume this risk using a new accounting-based method to measure the interest rate sensitivity of assets and liabilities. Calculation at the insurer level yields a wide duration gap with pronounced heterogeneity in the cross-section.This could be explained by alternative investment strategies, such as asset insulation, which are at odds with interest rate risk management. Using a 2014-2018 panel, factors associated with interest rate risk support this view.

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What is the “duration” of Swiss direct real estate?

Cited by 11 publications

References 22 publications

Transaction-Based and Appraisal-Based Capitalization Rate Determinants

Transaction-Based and Appraisal-Based Capitalization Rate Determinants

The sensitivity of UK commercial property values to interest rate changes

Interest rate risk of life insurers: Evidence from accounting data

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