Pricing of Real Estate Specific Market Risks for Worldwide 66 Countries

14 Pages Posted: 1 Feb 2012 Last revised: 22 Jun 2013

Multiple version iconThere are 2 versions of this paper

Date Written: November 1, 2011

Abstract

I address the construction of hurdle rates for 66 countries that adequately compensate investors for the real estate specific market risks involved when investing, operating and exiting a foreign market. To estimate the market-based framework, I run random effect panel regressions for a period of six years from 2004-2009 of IPD direct property market returns and an integral and newly developed composite index that takes into account all real estate market and investment specific conditions. The regression results provide direct evidence that an increased perception of risk and instability in the countries' socio-economic conditions and institutional frameworks significantly imply higher investors' return expectations. Finally, the results provide international investors with an absolute hurdle rate that prices risks and opportunities of national real estate markets and guides investors in selecting a core, value-add, or opportunistic investment strategy.

Keywords: Hurdle Rate, Country Risk, Real Estate Investments, International Asset Allocation

JEL Classification: C33, C23, G11, G23, G24, O16, O18, P25, P52

Suggested Citation

Lieser, Karsten, Pricing of Real Estate Specific Market Risks for Worldwide 66 Countries (November 1, 2011). IESE Business School Working Paper No. 940, Available at SSRN: https://ssrn.com/abstract=1996563 or http://dx.doi.org/10.2139/ssrn.1996563

Karsten Lieser (Contact Author)

eXapital Capital Advisors ( email )

Germany

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