Pub Date : 2022-04-05DOI: 10.1108/jerer-05-2022-067
David McIlhatton, J. Berry, David Chapman
resilience in the management of the built environment. From a complementary perspective, this special issue contributes to the knowledge to support better regulations for improving property wealth in cities based on better security and less crime.
{"title":"Guest editorial: urban conflict and real estate","authors":"David McIlhatton, J. Berry, David Chapman","doi":"10.1108/jerer-05-2022-067","DOIUrl":"https://doi.org/10.1108/jerer-05-2022-067","url":null,"abstract":"resilience in the management of the built environment. From a complementary perspective, this special issue contributes to the knowledge to support better regulations for improving property wealth in cities based on better security and less crime.","PeriodicalId":44570,"journal":{"name":"Journal of European Real Estate Research","volume":null,"pages":null},"PeriodicalIF":1.3,"publicationDate":"2022-04-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87380896","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-03-22DOI: 10.1108/jerer-07-2021-0037
N. Kishor
PurposeThis study aims to know to what extent do the commercial and residential estate markets move together in different economies? Do the shocks originating in one of these markets spillover to the other markets?Design/methodology/approachThe authors apply a modified version of the dynamic factor model to commercial and residential real estate prices in the Euro area, Hong Kong, Singapore and the USA. This modified dynamic factor model decomposes price growth in these two real estate markets into common, spillover and idiosyncratic components.FindingsThe results show significant heterogeneity in the relative importance of different components in the evolution of commercial and residential price growth across different economies. The findings suggest that the spillover from the residential to commercial real estate market dominates the spillover from the commercial to real estate market for all the economies in our sample. The authors also find that the common component accounts for a large fraction of the price movements in the residential markets in the European Union (EU) area and the USA, whereas spillover and common components together explain more than two-thirds of the variations in Hong Kong and Singapore. The results suggest that the role of spillover from one market to another increased significantly during the financial crisis of 2008–2009.Originality/valueThis paper contributes to the existing literature on how the transmission of shocks takes place across commercial and residential real estate markets. The transmission of shocks can take place in two directions in the proposed framework. There may be a direct spillover from a shock from one market to another. This corresponds to a shock to the idiosyncratic component affecting the other idiosyncratic component. In this paper, the authors are mainly interested in indirect spillover where the shock would transmit from the idiosyncratic factor to the common factor, and then from the common factor to the other idiosyncratic factor.
{"title":"Comovements and spillovers in international commercial and residential real estate markets","authors":"N. Kishor","doi":"10.1108/jerer-07-2021-0037","DOIUrl":"https://doi.org/10.1108/jerer-07-2021-0037","url":null,"abstract":"PurposeThis study aims to know to what extent do the commercial and residential estate markets move together in different economies? Do the shocks originating in one of these markets spillover to the other markets?Design/methodology/approachThe authors apply a modified version of the dynamic factor model to commercial and residential real estate prices in the Euro area, Hong Kong, Singapore and the USA. This modified dynamic factor model decomposes price growth in these two real estate markets into common, spillover and idiosyncratic components.FindingsThe results show significant heterogeneity in the relative importance of different components in the evolution of commercial and residential price growth across different economies. The findings suggest that the spillover from the residential to commercial real estate market dominates the spillover from the commercial to real estate market for all the economies in our sample. The authors also find that the common component accounts for a large fraction of the price movements in the residential markets in the European Union (EU) area and the USA, whereas spillover and common components together explain more than two-thirds of the variations in Hong Kong and Singapore. The results suggest that the role of spillover from one market to another increased significantly during the financial crisis of 2008–2009.Originality/valueThis paper contributes to the existing literature on how the transmission of shocks takes place across commercial and residential real estate markets. The transmission of shocks can take place in two directions in the proposed framework. There may be a direct spillover from a shock from one market to another. This corresponds to a shock to the idiosyncratic component affecting the other idiosyncratic component. In this paper, the authors are mainly interested in indirect spillover where the shock would transmit from the idiosyncratic factor to the common factor, and then from the common factor to the other idiosyncratic factor.","PeriodicalId":44570,"journal":{"name":"Journal of European Real Estate Research","volume":null,"pages":null},"PeriodicalIF":1.3,"publicationDate":"2022-03-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"77355183","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-03-21DOI: 10.1108/jerer-07-2021-0039
Marte Flått, J. Olaussen, A. Oust, Ole Jakob Sønstebø
PurposeThis paper aims to investigate the likelihood and price effects of auction hijacking – transactions conducted before a planned auction – in the residential real estate market.Design/methodology/approachUsing a sample of 84,203 residential properties in Oslo, Norway for the period 2007–2017, the authors employ a probit sales choice model to study the likelihood of auction hijacking and hedonic models, fixed effects models and propensity score matching to investigate the price effects.FindingsThe authors find that auction hijacking is more likely to occur in periods of higher market activity and that hijacked auction properties sell at a premium of approximately 4% compared with properties sold at regularly conducted auctions. One possible explanation for the premium could be that risk aversion among buyers leads to a higher likelihood of hijacking offers and higher prices due to the risk reduction premium that sellers can extract.Originality/valueFor most households, buying a home is an investment of great economic significance, and understanding the different aspects of the auction is paramount for both buyers and sellers. Policymakers need to be aware of the market effects from auction hijacking and determine whether restrictions should be introduced.
{"title":"Hijacking the auction – seller's or buyer's curse?","authors":"Marte Flått, J. Olaussen, A. Oust, Ole Jakob Sønstebø","doi":"10.1108/jerer-07-2021-0039","DOIUrl":"https://doi.org/10.1108/jerer-07-2021-0039","url":null,"abstract":"PurposeThis paper aims to investigate the likelihood and price effects of auction hijacking – transactions conducted before a planned auction – in the residential real estate market.Design/methodology/approachUsing a sample of 84,203 residential properties in Oslo, Norway for the period 2007–2017, the authors employ a probit sales choice model to study the likelihood of auction hijacking and hedonic models, fixed effects models and propensity score matching to investigate the price effects.FindingsThe authors find that auction hijacking is more likely to occur in periods of higher market activity and that hijacked auction properties sell at a premium of approximately 4% compared with properties sold at regularly conducted auctions. One possible explanation for the premium could be that risk aversion among buyers leads to a higher likelihood of hijacking offers and higher prices due to the risk reduction premium that sellers can extract.Originality/valueFor most households, buying a home is an investment of great economic significance, and understanding the different aspects of the auction is paramount for both buyers and sellers. Policymakers need to be aware of the market effects from auction hijacking and determine whether restrictions should be introduced.","PeriodicalId":44570,"journal":{"name":"Journal of European Real Estate Research","volume":null,"pages":null},"PeriodicalIF":1.3,"publicationDate":"2022-03-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82482471","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-03-15DOI: 10.1108/jerer-04-2021-0021
Katarzyna Reyman, G. Maier
PurposeThe purpose of the article is to improve the understanding of the role of institutional factors in real estate development. The authors take into account zoning (existence and type), type of right of disposal and type of buyer and seller of property in a multivariate econometric estimation. Dependent variable of the analysis is the time between acquisition of empty land and the application for a building permit, a period when many important development decisions have to be made. This indicator is closely related to debated phenomena like land hording and speculation.Design/methodology/approachThe authors estimate a Cox proportional hazard model with the time between acquisition and application for a building permit as dependent variable and institutional indicators and a number of control variables as explanatory variables. Study area is the GZM Metropolis in the South of Poland. This region shows enough variability in institutional arrangements to allow for this type of analysis.FindingsThe analysis shows that institutional factors significantly influence the real estate development process. In areas that have not issued a zoning plan, the period until the building permit application is significantly longer. When the state is involved in a transaction (as purchaser or seller), it also takes longer until the building permit application is submitted. Although the instrument is usually intended to speed up development, perpetual usufruct implies a longer period until building permit application. Because of the results the authors get for control variables and for robustness checks, the authors are confident of the results of the analysis.Originality/valueTo the authors’ knowledge, this is the first study that deals with the question how institutional factors influence the timing of real estate development. By using data for a region in Poland, the authors also add to knowledge about real estate development in CEE countries.
{"title":"Institutional factors and the timing of land development: a survival analysis applied to the GZM Metropolis in Poland","authors":"Katarzyna Reyman, G. Maier","doi":"10.1108/jerer-04-2021-0021","DOIUrl":"https://doi.org/10.1108/jerer-04-2021-0021","url":null,"abstract":"PurposeThe purpose of the article is to improve the understanding of the role of institutional factors in real estate development. The authors take into account zoning (existence and type), type of right of disposal and type of buyer and seller of property in a multivariate econometric estimation. Dependent variable of the analysis is the time between acquisition of empty land and the application for a building permit, a period when many important development decisions have to be made. This indicator is closely related to debated phenomena like land hording and speculation.Design/methodology/approachThe authors estimate a Cox proportional hazard model with the time between acquisition and application for a building permit as dependent variable and institutional indicators and a number of control variables as explanatory variables. Study area is the GZM Metropolis in the South of Poland. This region shows enough variability in institutional arrangements to allow for this type of analysis.FindingsThe analysis shows that institutional factors significantly influence the real estate development process. In areas that have not issued a zoning plan, the period until the building permit application is significantly longer. When the state is involved in a transaction (as purchaser or seller), it also takes longer until the building permit application is submitted. Although the instrument is usually intended to speed up development, perpetual usufruct implies a longer period until building permit application. Because of the results the authors get for control variables and for robustness checks, the authors are confident of the results of the analysis.Originality/valueTo the authors’ knowledge, this is the first study that deals with the question how institutional factors influence the timing of real estate development. By using data for a region in Poland, the authors also add to knowledge about real estate development in CEE countries.","PeriodicalId":44570,"journal":{"name":"Journal of European Real Estate Research","volume":null,"pages":null},"PeriodicalIF":1.3,"publicationDate":"2022-03-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85203952","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-03-14DOI: 10.1108/jerer-02-2021-0011
E. Marzano, Paolo Piselli, R. Rubinacci
PurposeThe purpose of this paper is to provide a dating system for the Italian residential real estate market from 1927 to 2019 and investigate its interaction with credit and business cycles.Design/methodology/approachTo detect the local turning point of the Italian residential real estate market, the authors apply the honeycomb cycle developed by Janssen et al. (1994) based on the joint analysis of house prices and the number of transactions. To this end, the authors use a unique historical reconstruction of house price levels by Baffigi and Piselli (2019) in addition to data on transactions.FindingsThis study confirms the validity of the honeycomb model for the last four decades of the Italian housing market. In addition, the results show that the severe downsizing of the housing market is largely associated with business and credit contraction, certainly contributing to exacerbating the severity of the recession. Finally, preliminary evidence suggests that whenever a price bubble occurs, it is coincident with the start of phase 2 of the honeycomb cycle.Originality/valueTo the best of the authors’ knowledge, this is the first time that the honeycomb approach has been tested over such a long historical period and compared to the cyclic features of financial and real aggregates. In addition, even if the honeycomb cycle is not a model for detecting booms and busts in the housing market, the preliminary evidence might suggest a role for volume/transactions in detecting housing market bubbles.
{"title":"The housing cycle as shaped by prices and transactions: a tentative application of the honeycomb approach for Italy (1927–2019)","authors":"E. Marzano, Paolo Piselli, R. Rubinacci","doi":"10.1108/jerer-02-2021-0011","DOIUrl":"https://doi.org/10.1108/jerer-02-2021-0011","url":null,"abstract":"PurposeThe purpose of this paper is to provide a dating system for the Italian residential real estate market from 1927 to 2019 and investigate its interaction with credit and business cycles.Design/methodology/approachTo detect the local turning point of the Italian residential real estate market, the authors apply the honeycomb cycle developed by Janssen et al. (1994) based on the joint analysis of house prices and the number of transactions. To this end, the authors use a unique historical reconstruction of house price levels by Baffigi and Piselli (2019) in addition to data on transactions.FindingsThis study confirms the validity of the honeycomb model for the last four decades of the Italian housing market. In addition, the results show that the severe downsizing of the housing market is largely associated with business and credit contraction, certainly contributing to exacerbating the severity of the recession. Finally, preliminary evidence suggests that whenever a price bubble occurs, it is coincident with the start of phase 2 of the honeycomb cycle.Originality/valueTo the best of the authors’ knowledge, this is the first time that the honeycomb approach has been tested over such a long historical period and compared to the cyclic features of financial and real aggregates. In addition, even if the honeycomb cycle is not a model for detecting booms and busts in the housing market, the preliminary evidence might suggest a role for volume/transactions in detecting housing market bubbles.","PeriodicalId":44570,"journal":{"name":"Journal of European Real Estate Research","volume":null,"pages":null},"PeriodicalIF":1.3,"publicationDate":"2022-03-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"73014830","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-01-19DOI: 10.1108/jerer-01-2021-0002
Paloma Taltavull de La Paz, J. Berry, David McIlhatton, David Chapman, Katja Bergonzoli
PurposeThis paper focusses on analysing the impact of crime on the housing market in Los Angeles (LA) County. By looking at different types of crime instead of general crime measures and controlling by spatial dimension of prices and crime as well as endogeneity, a model is developed that allows for the understanding of how a specific crime impacts the housing market transaction price. To perform the analysis, the paper merges different data sets (crime, housing transaction and census data) and then computes the distances to crucial transport modes to control the accessibility features affecting housing prices. The latter allows estimating the association of housing prices and crime in the distance and estimating the impact on housing depending on it.Design/methodology/approachThis paper focusses on the following crimes: aggravated assault, burglary (property crime), narcotics, non-aggravated assault and vandalism. The paper shows firstly how incidents of reported crime are distributed across space and how they are related to each other – thus highlighting crime models with spatial influences. Secondly, the research utilises instrumental variables within the methodology to estimate house prices using spatial analysis techniques while controlling for endogeneity. Thirdly, it estimates the direct impact of crime on house prices and explores the impact of housing and neighbourhood features.FindingsResults suggest that house transaction prices and crime are closely correlated in two senses. Housing prices are endogenously negatively associated with the levels of narcotics and aggravated assaults. For narcotics, the impact of distance is shorter (1,000 m). However, for burglary, vandalism and non-aggravated assaults, the price reaction suggests a positive association: the further away the crime occurs, the higher the prices. The paper also shows the large spatial association of different crimes suggesting that they occur together and that their accumulation would make negative externalities appear affecting the whole neighbourhood.Research limitations/implicationsThe use of a huge database allows interesting findings, but one limitation can be to not have longer time observations to identify the crime evolution and its impact on housing prices.Practical implicationsLarge implications as the relationship identified in this paper allow defining precise policies to avoid crime in different areas in LA. In addition, crime has significant but quantitative small effects on LA housing transaction prices suggesting that the effect depends on the spatial scale as well as lack on information about where the crimes are committed. Lack on information suggests low transparency in the market, affecting the transaction decision-taken process, affecting the risk perception and with relevant implications over household welfare.Originality/valueThis paper relates the spatial association among crimes defining the hotspots and their impacts on housing transaction prices.
{"title":"The impact of crimes on house prices in LA County","authors":"Paloma Taltavull de La Paz, J. Berry, David McIlhatton, David Chapman, Katja Bergonzoli","doi":"10.1108/jerer-01-2021-0002","DOIUrl":"https://doi.org/10.1108/jerer-01-2021-0002","url":null,"abstract":"PurposeThis paper focusses on analysing the impact of crime on the housing market in Los Angeles (LA) County. By looking at different types of crime instead of general crime measures and controlling by spatial dimension of prices and crime as well as endogeneity, a model is developed that allows for the understanding of how a specific crime impacts the housing market transaction price. To perform the analysis, the paper merges different data sets (crime, housing transaction and census data) and then computes the distances to crucial transport modes to control the accessibility features affecting housing prices. The latter allows estimating the association of housing prices and crime in the distance and estimating the impact on housing depending on it.Design/methodology/approachThis paper focusses on the following crimes: aggravated assault, burglary (property crime), narcotics, non-aggravated assault and vandalism. The paper shows firstly how incidents of reported crime are distributed across space and how they are related to each other – thus highlighting crime models with spatial influences. Secondly, the research utilises instrumental variables within the methodology to estimate house prices using spatial analysis techniques while controlling for endogeneity. Thirdly, it estimates the direct impact of crime on house prices and explores the impact of housing and neighbourhood features.FindingsResults suggest that house transaction prices and crime are closely correlated in two senses. Housing prices are endogenously negatively associated with the levels of narcotics and aggravated assaults. For narcotics, the impact of distance is shorter (1,000 m). However, for burglary, vandalism and non-aggravated assaults, the price reaction suggests a positive association: the further away the crime occurs, the higher the prices. The paper also shows the large spatial association of different crimes suggesting that they occur together and that their accumulation would make negative externalities appear affecting the whole neighbourhood.Research limitations/implicationsThe use of a huge database allows interesting findings, but one limitation can be to not have longer time observations to identify the crime evolution and its impact on housing prices.Practical implicationsLarge implications as the relationship identified in this paper allow defining precise policies to avoid crime in different areas in LA. In addition, crime has significant but quantitative small effects on LA housing transaction prices suggesting that the effect depends on the spatial scale as well as lack on information about where the crimes are committed. Lack on information suggests low transparency in the market, affecting the transaction decision-taken process, affecting the risk perception and with relevant implications over household welfare.Originality/valueThis paper relates the spatial association among crimes defining the hotspots and their impacts on housing transaction prices.","PeriodicalId":44570,"journal":{"name":"Journal of European Real Estate Research","volume":null,"pages":null},"PeriodicalIF":1.3,"publicationDate":"2022-01-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"89329642","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2022-01-12DOI: 10.1108/jerer-05-2021-0029
Olawumi Fadeyi, S. McGreal, M. McCord, J. Berry, M. Haran
PurposeThe London office market is a major destination of international real estate capital and arguably the epicentre of international real estate investment over the past decade. However, the increase in global uncertainties in recent years due to socio-economic and political trends highlights the need for more insights into the behaviour of international real estate capital flows. The purpose of this study is to evaluate the influence of the global and domestic environment on international real estate investment activities within the London office market over the period 2007–2017.Design/methodology/approachThis study adopts an auto-regressive distributed lag approach using the real capital analytics (RCA) international real estate investment data. The RCA data analyses quarterly cross-border investment transactions within the central London office market for the period 2007–2017.FindingsThe study provides insights on the critical differences in the influence of the domestic and global environment on cross-border investment activities in this office market, specifically highlighting the significance of the influence of the global environment in the long run. In the short run, the influence of factors reflective of both the domestic and international environment are important indicating that international capital flows into the London office market is contextualised by the interaction of different factors.Originality/valueThe authors provide a holistic study of the influence of both the domestic and international environment on cross-border investment activities in the London office market, providing more insights on the behaviour of global real estate capital flows.
{"title":"Influence of the global environment on capital flows in the London Office market","authors":"Olawumi Fadeyi, S. McGreal, M. McCord, J. Berry, M. Haran","doi":"10.1108/jerer-05-2021-0029","DOIUrl":"https://doi.org/10.1108/jerer-05-2021-0029","url":null,"abstract":"PurposeThe London office market is a major destination of international real estate capital and arguably the epicentre of international real estate investment over the past decade. However, the increase in global uncertainties in recent years due to socio-economic and political trends highlights the need for more insights into the behaviour of international real estate capital flows. The purpose of this study is to evaluate the influence of the global and domestic environment on international real estate investment activities within the London office market over the period 2007–2017.Design/methodology/approachThis study adopts an auto-regressive distributed lag approach using the real capital analytics (RCA) international real estate investment data. The RCA data analyses quarterly cross-border investment transactions within the central London office market for the period 2007–2017.FindingsThe study provides insights on the critical differences in the influence of the domestic and global environment on cross-border investment activities in this office market, specifically highlighting the significance of the influence of the global environment in the long run. In the short run, the influence of factors reflective of both the domestic and international environment are important indicating that international capital flows into the London office market is contextualised by the interaction of different factors.Originality/valueThe authors provide a holistic study of the influence of both the domestic and international environment on cross-border investment activities in the London office market, providing more insights on the behaviour of global real estate capital flows.","PeriodicalId":44570,"journal":{"name":"Journal of European Real Estate Research","volume":null,"pages":null},"PeriodicalIF":1.3,"publicationDate":"2022-01-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76127547","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-12-21DOI: 10.1108/jerer-03-2021-0013
T. Borgersen
PurposeThe purpose of this paper is to analyse the interaction between a profit maximising mortgagor and a newcomer to a mortgage market with Bertrand competition where the newcomer has a populistic entry strategy and undercuts mortgage market rates. The intention of the paper is to relate the populistic entry strategy to mortgage market characteristics and the strategic market position of both the established mortgagor and the newcomer in question.Design/methodology/approachThe paper analyses a mortgage market by combining the behaviour of a profit maximising mortgagor with that of a newcomer to the mortgage market which has a populistic entry strategy and does not maximise profits. The short-run market solution provides comparative statics on the strategic market position of both the established mortgagor and the newcomer to the mortgage market during the entry phase both related to product differentiation and to price mirroring and undercutting of mortgage rates.FindingsThe model finds a mortgage market solution where a lower mortgage rate helps the newcomer gain a customer base. As the newcomer's strategy to mirror prices makes it unable to pass-through funding cost to its mortgage rate, the strategy is unsustainable over time. The established mortgagor has a strategically beneficial position as the mortgage market rates only relate to its funding cost. Unless the newcomer has a funding cost advantage, the established mortgagor has a higher interest rate margin. Differentiation impacts the newcomers’ interest rate margin positively. If the newcomer lacks a funding cost advantage, there is a critical mirroring rate that ensures it a higher interest rate margin. The higher the newcomers’ own funding cost, the higher is the upper bound for price mirroring, relating market entry to a small undercutting of mortgage rates and a mortgage market with weak competition. The funding cost of the established mortgagor pulls pricing in the opposite direction, allowing for a lower mirroring rate and tougher mortgage market competition during entry.Originality/valueThe paper aims to contribute to the understanding of market equilibrium in the absence of profit maximising behaviour. Framing a mortgage market in terms of a duopoly where a newcomer enters with a populistic entry strategy offering a lower mortgage rate and a mortgage product with a different loan-to-value (LTV) ratio, a novel mortgage market case comes about. The populistic entry strategy produces an augmented reaction curve, crucial for the mortgage market rates.
{"title":"Product differentiation and populistic entry strategies in a mortgage market with Bertrand competition","authors":"T. Borgersen","doi":"10.1108/jerer-03-2021-0013","DOIUrl":"https://doi.org/10.1108/jerer-03-2021-0013","url":null,"abstract":"PurposeThe purpose of this paper is to analyse the interaction between a profit maximising mortgagor and a newcomer to a mortgage market with Bertrand competition where the newcomer has a populistic entry strategy and undercuts mortgage market rates. The intention of the paper is to relate the populistic entry strategy to mortgage market characteristics and the strategic market position of both the established mortgagor and the newcomer in question.Design/methodology/approachThe paper analyses a mortgage market by combining the behaviour of a profit maximising mortgagor with that of a newcomer to the mortgage market which has a populistic entry strategy and does not maximise profits. The short-run market solution provides comparative statics on the strategic market position of both the established mortgagor and the newcomer to the mortgage market during the entry phase both related to product differentiation and to price mirroring and undercutting of mortgage rates.FindingsThe model finds a mortgage market solution where a lower mortgage rate helps the newcomer gain a customer base. As the newcomer's strategy to mirror prices makes it unable to pass-through funding cost to its mortgage rate, the strategy is unsustainable over time. The established mortgagor has a strategically beneficial position as the mortgage market rates only relate to its funding cost. Unless the newcomer has a funding cost advantage, the established mortgagor has a higher interest rate margin. Differentiation impacts the newcomers’ interest rate margin positively. If the newcomer lacks a funding cost advantage, there is a critical mirroring rate that ensures it a higher interest rate margin. The higher the newcomers’ own funding cost, the higher is the upper bound for price mirroring, relating market entry to a small undercutting of mortgage rates and a mortgage market with weak competition. The funding cost of the established mortgagor pulls pricing in the opposite direction, allowing for a lower mirroring rate and tougher mortgage market competition during entry.Originality/valueThe paper aims to contribute to the understanding of market equilibrium in the absence of profit maximising behaviour. Framing a mortgage market in terms of a duopoly where a newcomer enters with a populistic entry strategy offering a lower mortgage rate and a mortgage product with a different loan-to-value (LTV) ratio, a novel mortgage market case comes about. The populistic entry strategy produces an augmented reaction curve, crucial for the mortgage market rates.","PeriodicalId":44570,"journal":{"name":"Journal of European Real Estate Research","volume":null,"pages":null},"PeriodicalIF":1.3,"publicationDate":"2021-12-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"76996709","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2021-12-17DOI: 10.1108/jerer-01-2020-0004
K. Dmytrów, Wojciech Kuźmiński
PurposeOur research aims in designation of a hybrid approach in the calibration of an attribute impact vector in order to guarantee its completeness in case when other approaches cannot ensure this.Design/methodology/approachReal estate mass appraisal aims at valuating a large number of properties by means of a specialised algorithm. We can apply various methods for this purpose. We present the Szczecin Algorithm of Real Estate Mass Appraisal (SAREMA) and the four methods of calibration of an attribute impact vector. Eventually, we present its application on the example of 318 residential properties in Szczecin, Poland.FindingsWe compare the results of appraisals obtained with the application of the hybrid approach with the appraisals obtained for the three remaining ones. If the database is complete and reliable, the econometric and statistical approaches could be recommended because they are based on quantitative measures of relationships between the values of attributes and properties' unit values. However, when the database is incomplete, the expert and, subsequently, hybrid approaches are used as supplementary ones.Originality/valueThe application of the hybrid approach ensures that the calibration system of an attribute impact vector is always complete. This is because it incorporates the expert approach that can be used even if the database excludes application of approaches that are based on quantitative measures of relationship between the unit real estate value and the value of attributes.
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Pub Date : 2021-10-28DOI: 10.1108/jerer-03-2021-0016
K. Liow, J. Song
PurposeWith growing interdependence between financial markets, the goal of this paper is to examine the dynamic interdependence between corporate equity and public real estate markets for the USA and a select group of seven European developed economies under a cross-country framework in crisis and boom market conditions. Dynamic interdependence is related to four measures of market linkages of “correlation, spillover, connectedness and causality”.Design/methodology/approachThis study adopts a four-step investigation. The authors first estimate “time-varying variance–covariance spillovers and implied correlations” modeled with the bivariate BEKK-MGARCH methods. Second, the methods of Diebold and Yilmaz (2012, 2014) measure the conditional volatility spillover-connectedness effects across the corporate equity and public real estate markets based on a decomposition of the forecast error variance. Third, the authors implement nonlinear bivariate and multivariate causality tests to understand the lead-lag dynamics of the two asset markets' returns, volatilities and net directional volatility connectedness across different sample periods. Finally, the authors conclude the study by providing a portfolio hedging analysis.FindingsThe authors find that corporate equity and public real estate are moderately interdependent to the extent that their diversification benefits increases in the longer term. Moreover, the authors find increased corporate equity-public real estate causal dependence of the market groups of the European and international portfolios during the GFC and INTERCRISIS periods. The nonlinear causality test findings indicate that the joint information of asset markets can be a useful source of prediction for future innovation of market risks. Additionally, policy makers may also be able to employ conditional volatility and volatility connectedness as two other measures to manage market stability in the cross-asset market dependence during highly volatile periods.Research limitations/implicationsOne major take away from this academic research is since international portfolio investors are not only concerned the long-term price relationship but also the correlation structure and volatility spillover-connectedness, the conditional BEKK modeling, generalized risk connectedness analysis and nonlinear causal dependence explorations from this multi-country study can shed fresh light on the nature of market interdependence and magnitude of volatility connectedness effects in a multi-portfolio framework.Practical implicationsThe hedging performance analysis for portfolio diversification and risk management indicates that industrial stocks (“pure” equities) are valuable assets that can improve the hedging performance of a well-diversified corporate equity-public real estate portfolio during crisis periods. For policymakers, the findings provide important information about the nature of causal links and predictability during the crisis and asset-market
{"title":"Interdependence dynamics of corporate equity and public real estate markets","authors":"K. Liow, J. Song","doi":"10.1108/jerer-03-2021-0016","DOIUrl":"https://doi.org/10.1108/jerer-03-2021-0016","url":null,"abstract":"PurposeWith growing interdependence between financial markets, the goal of this paper is to examine the dynamic interdependence between corporate equity and public real estate markets for the USA and a select group of seven European developed economies under a cross-country framework in crisis and boom market conditions. Dynamic interdependence is related to four measures of market linkages of “correlation, spillover, connectedness and causality”.Design/methodology/approachThis study adopts a four-step investigation. The authors first estimate “time-varying variance–covariance spillovers and implied correlations” modeled with the bivariate BEKK-MGARCH methods. Second, the methods of Diebold and Yilmaz (2012, 2014) measure the conditional volatility spillover-connectedness effects across the corporate equity and public real estate markets based on a decomposition of the forecast error variance. Third, the authors implement nonlinear bivariate and multivariate causality tests to understand the lead-lag dynamics of the two asset markets' returns, volatilities and net directional volatility connectedness across different sample periods. Finally, the authors conclude the study by providing a portfolio hedging analysis.FindingsThe authors find that corporate equity and public real estate are moderately interdependent to the extent that their diversification benefits increases in the longer term. Moreover, the authors find increased corporate equity-public real estate causal dependence of the market groups of the European and international portfolios during the GFC and INTERCRISIS periods. The nonlinear causality test findings indicate that the joint information of asset markets can be a useful source of prediction for future innovation of market risks. Additionally, policy makers may also be able to employ conditional volatility and volatility connectedness as two other measures to manage market stability in the cross-asset market dependence during highly volatile periods.Research limitations/implicationsOne major take away from this academic research is since international portfolio investors are not only concerned the long-term price relationship but also the correlation structure and volatility spillover-connectedness, the conditional BEKK modeling, generalized risk connectedness analysis and nonlinear causal dependence explorations from this multi-country study can shed fresh light on the nature of market interdependence and magnitude of volatility connectedness effects in a multi-portfolio framework.Practical implicationsThe hedging performance analysis for portfolio diversification and risk management indicates that industrial stocks (“pure” equities) are valuable assets that can improve the hedging performance of a well-diversified corporate equity-public real estate portfolio during crisis periods. For policymakers, the findings provide important information about the nature of causal links and predictability during the crisis and asset-market ","PeriodicalId":44570,"journal":{"name":"Journal of European Real Estate Research","volume":null,"pages":null},"PeriodicalIF":1.3,"publicationDate":"2021-10-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87022138","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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