International Direct Real Estate Risk Premiums in

Authors: David Kim Hin Ho Kwame AddaeDapaah John L Glascock

Publish Date: 2014/07/03

Volume: 51, Issue: 1, Pages: 52-85

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Abstract

We estimate international risk premiums for North and South Asia and US direct real estate by using a pooledpanel multifactor least squares model Data for the paper are from JLL REISAsia and the RussellNCREIF Property Indexes Our results based on the Geltner and Miller 2007 1st and 4th order autoregressive desmoothing models affirm the existence of appraisal smoothing in the direct real estate market returns Secondly our findings affirm that the true historical volatility of autoregressive lagged desmoothed returns is a reasonable estimate of international direct real estate risk premiums Thirdly we find that changes in macroeconomic and real estate variables explain the office and retail returns more than the residential returns There is also a high vacancy rate risk premium that we attribute to countryspecific institutional environmental factors Furthermore the South Asia direct real estate risk premium is found to be higher than that for North Asia Moreover the risk premiums for North and South Asia are higher than that for the US Finally our results show that appraisal smoothed returns significantly underestimate the international direct real estate risk premiums for the sampled Asia markets and the US

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