Gerald R. Brown and George A. Matysiak
The measurement of property portfolio performance is an importantissue that, superficially, appears very straightforward. All that isrequired is an index of property market…
Abstract
The measurement of property portfolio performance is an important issue that, superficially, appears very straightforward. All that is required is an index of property market movements which can then be used as a reference point for comparing performance. Problems can arise, however, if the statistical characteristics of the index are different from the portfolio being analysed. This is not a trivial issue as the difference can be large enough to obscure the true performance of the portfolio and can lead to an inaccurate diagnosis of investment skill. Draws on recent research into index construction and examines some of the issues surrounding these problems. Discusses tracking errors and benchmarking issues.
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Suggests that in a climate of uncertainty, property investmentdecisions need to be undertaken within a quantifiable risk and returnframework. Offers an analytical framework…
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Suggests that in a climate of uncertainty, property investment decisions need to be undertaken within a quantifiable risk and return framework. Offers an analytical framework, considering a portfolio of properties as an entity, to arrive at optimum risk and return trade‐offs within the portfolio. Concludes that a scenario‐type approach can obtain inputs and outlines its many uses.
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Philip Booth and George Matysiak
Examines the impact of using “unsmoothing” techniques on real estate data to take pension‐plan asset‐allocation decisions. It is generally believed that valuation‐based real…
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Examines the impact of using “unsmoothing” techniques on real estate data to take pension‐plan asset‐allocation decisions. It is generally believed that valuation‐based real estate indices give rise to returns figures which are “smoothed” versions of the underlying transaction prices. Unsmoothing techniques can be used to develop real estate return data series that are believed to be a more accurate representation of underlying transaction prices. If this is done, the resulting data reveal greater volatility of real estate returns. When such data are applied to portfolio selection models, they often reveal a reduced allocation to real estate in efficient portfolios. Looks at the impact of unsmoothing data when taking pension‐plan asset‐allocation decisions. Finds here that the unsmoothed data are more closely correlated with pension plan liabilities. As a result, efficient pension plan portfolios sometimes contain more real estate, rather than less. In general, there is little change in the efficient real estate allocation. These results are very important. They reveal that so‐called “valuation smoothing” may distort property investment decisions less than is commonly thought.
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The intent of this paper is to identify uncertainty surrounding automated valuation models (AVMs) valuations and the criteria by which a valuer could judge the accuracy of an AVM…
Abstract
Purpose
The intent of this paper is to identify uncertainty surrounding automated valuation models (AVMs) valuations and the criteria by which a valuer could judge the accuracy of an AVM estimate of value when being assisted by such AVM as a valuation tool.
Design/methodology/approach
European law and European Valuation Standards allow valuers to use AVMs as one tool among others in reaching an estimation of Market Value, but only insofar as the valuer is able to satisfy him/herself and the client of the relevance of the AVM report, its inputs and outputs. To enable this, it thus becomes essential that AVMs be more transparent and their accuracy verified.
Findings
This paper recommends minimum reporting requirements thereby enabling an assessment of AVM valuations. At the outset, a distinction needs to be made between two groups of AVM users: banks and valuers. Banks will require considerably more information, including details of the types of models employed and “Bulk” accuracy test results.
Practical implications
This paper addresses the minimum information needed by valuers in order to gauge the usefulness and accuracy of the AVMs they propose to use as one of their valuation tools.
Originality/value
This paper provides guidance on minimum information requirements for AVMs. Indeed, it may be that the AVM vendors' industry will recognise that providing more transparency in their reports along the lines suggested would facilitate a wider and more supportive acceptance of AVMs.
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Philip Booth and George Matysiak
Looks at the role of property in pensions funds pre and post minimum funding requirement (MFR). Suggests that while property has a role as a matching asset in pension funds, this…
Abstract
Looks at the role of property in pensions funds pre and post minimum funding requirement (MFR). Suggests that while property has a role as a matching asset in pension funds, this role has declined in recent years. This is partly because of poor performance but also because other asset categories can perform the role that property has played. The introduction of the MFR may make property still less attractive to pension funds because of the equity/gilt valuation benchmark. However, we expect any effect in the short term to be limited.
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George Matysiak, Martin Hoesli, Bryan MacGregor and Nanda Nanthakumaran
Based on a multivariate analysis of long‐term total returns and inflation data over the period 1963‐1993, shows that commercial property total returns reflect both expected and…
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Based on a multivariate analysis of long‐term total returns and inflation data over the period 1963‐1993, shows that commercial property total returns reflect both expected and unexpected components of inflation in the long term. There is no evidence that property returns systematically provide, on an annual basis, hedging characteristics against either of these components.
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George Matysiak and Sotiris Tsolacos
This paper looks at the application of economic and financial series in forecasting IPD monthly rental series. The approach follows that employed in classical business cycle work…
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This paper looks at the application of economic and financial series in forecasting IPD monthly rental series. The approach follows that employed in classical business cycle work that seeks to decompose series into trend, cyclical and noise components and is the first time that it has been applied to IPD monthly data. Trend extraction is obtained by means of the Hodrick‐Prescott filter. Several potential indicator series are investigated together with their lead characteristics. The short‐term forecasts of these series are compared with naïve methods and a composite indicator. The results show the naïve methods, especially the Holt‐Winters method, and certain leading indicator series produce satisfactory short‐term forecasts, but the success is both sector and time‐dependent. This suggests that it is a worthwhile endeavour in identifying potential leading indicator series. The methodology presented in this paper should be seen as complementing existing approaches that employ standard econometric procedures in modelling rental growth.
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Brano Glumac and François Des Rosiers
Automated valuation models have been in use at least for the last 50 years in both academia and practice, while automated valuation recently re-emerged as very important with the…
Abstract
Purpose
Automated valuation models have been in use at least for the last 50 years in both academia and practice, while automated valuation recently re-emerged as very important with the rise of digital infrastructure. The current state of the art, therefore, justifies the dual contributions of this paper: organising existing knowledge and providing a new framework.
Design/methodology/approach
This paper provides much-needed analysis and synthesis of the accumulated body of knowledge by proposing an updated classification of automated valuation approaches based on two criteria, and a taxonomy adapted to new trends. The latter requires a paradigm shift from models to automated valuation systems. Both classification and taxonomy arose after literature review.
Findings
This paper provides a framework for an explicit context under which automated valuation is carried out. To do so, authors propose a definition of automation valuation systems; contextualise the differences among theories, approaches, methods, models and systems present in automated valuation and introduce a classification of automated valuation approaches and a non-hierarchical taxonomy of automated valuation systems.
Research limitations/implications
Perhaps, a systematic literature review process instead of a selective list of 100 references could additionally validate the proposed classification and taxonomy.
Practical implications
The new framework, underlying various dimensions of the automated valuation process, can help practitioners surpass judging models based purely on their predictive accuracy. Also, the automated valuation system is a more generic term that can better accommodate future research coming from a multitude of disciplines, more diverse business areas and enlarged variety of practical users.
Originality/value
This is the first paper that develops a taxonomy of automated valuation systems.