Steffen Heinig and Anupam Nanda
In mainstream economics and finance literature, market sentiment is considered “irrational”. This leads to significant challenges in capturing the effect of sentiment on economic…
Abstract
Purpose
In mainstream economics and finance literature, market sentiment is considered “irrational”. This leads to significant challenges in capturing the effect of sentiment on economic relationships. Real estate is even more complex due to the fact that the sector exhibits several market inefficiencies. The purpose of this paper is to explore the literature and present a simple test for the potential of using three different sentiment indicators to improve a basic cap rate model. The authors establish the case using commercial real estate (CRE) data for London West End.
Design/methodology/approach
The three indicators differ in their underlying source and method. The authors used orthogonalisation and principal component analysis for a macroeconomic sentiment indicator. Furthermore, online search volume data have been used to mirror the market sentiment for the London West End market. Finally, textual analysis based on word lists has been applied to corpus of market reports.
Findings
The results indicate considerable improvement in the authors’ ability to capture the effect of sentiment. Furthermore, the consideration of a human factor leads to improvement in the basic yield model.
Practical implications
The methods suggest that sentiment extracted from more forward-looking sources, such as online searches, could be a significant information gain for investors, lenders or other market participants. The additional information could be used to adjust their behaviour within the market.
Originality/value
To the authors’ knowledge, this is the first study that applies textual analysis to market reports for the CRE market in the UK.
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Abdullah Alfalah, Simon Stevenson, Steffen Heinig and Eamonn D’Arcy
This paper aims to improve the housing affordability by measuring the housing affordability in a resource-rich economy and studying the impact of implementing new policies.
Abstract
Purpose
This paper aims to improve the housing affordability by measuring the housing affordability in a resource-rich economy and studying the impact of implementing new policies.
Design/methodology/approach
This paper seeks to test the impact of new policies introduced to the Kuwaiti housing market to improve affordability. In 2008, the Kuwaiti parliament introduced two policies: a tax on empty lands and, forbidding companies to own or develop residential lands or houses.
Findings
By constructing the housing affordability index and the price-to-income multiplier using observations from 2004 until 2017, it has been found that affordability has worsened over time regardless of the new policies introduced in 2008. Housing in Kuwait became “severely unaffordable” (equivalent to London in the UK, San Diego in USA and Toronto in Canada).
Originality/value
Even with its unique condition, as a rich country, small population and availability of white land and other resources, the affordability worsened over time. Introducing new policies without solving the central issue of housing supply challenges seems not worth it. This paper is the first of its kind on the Kuwait housing market, and it provides a valuable foundation for future research on this market and similar markets in the region.
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Abdullah Alfalah, Eamonn D’Arcy, Steffen Heinig and Simon Stevenson
The purpose of this paper is to examine the sensitivity of the Kuwait housing market to major local and regional geo-political and economic events.
Abstract
Purpose
The purpose of this paper is to examine the sensitivity of the Kuwait housing market to major local and regional geo-political and economic events.
Design/methodology/approach
This paper examines the market dynamics of the housing market in Kuwait. Kuwait provides an interesting market to consider owing to its position as a major oil producer, its sensitivity to geo-political events and its unusual demographic characteristics.
Findings
The error-correction model highlights that market is relatively volatile, with evidence of mean-reverting behaviour. Only when the data is smoothed are their more consistent findings with respect to underlying fundamentals. This paper also examines the response of the market to seven regional and local events. Of particular interest is that the one event that results in a consistent significant response is domestic legislation directly concerned with housing. This has a far greater impact than local or regional geo-political events.
Originality/value
Very few papers have considered how economic and political shocks directly impact housing markets using an event study approach. Given its geographic location and also its economic dependence on oil, Kuwait is an interesting market to consider.