The Versatility of The Real Estate Asset Class - The Singapore Experience

About the Book

Chapter 1 takes a close look at two types of heterogeneous investors (momentum and disposition) to form a unique difference model, to interpret housing price dynamics. Three parameters are crucial, namely, auto-correlation, the rate of mean reversion and the contemporaneous adjustment towards long-term equilibrium price. The key implication is that the 2006 boom of the Singapore private housing market does not offer as large a magnitude as that from the price gain in the 1990’s boom-and-recovery over the long-term. Singapore’s private housing market is low risk, offering stable returns owing to virtually no divergence even in the speculative 1990s. The best way to invest is to consider the momentum strategy and avoid the herd behaviour for profit sustainability. For policy makers, the Singapore private housing market is over-damped in the long run. Chapter 2 adopts game theory to look at the private residential development oligopolistic market; the determination of residential development sale prices in an uncertain market and under incomplete information of competing developers; the dynamic interaction among developers; the time lags of the development project completion from project start; and the launching of the residential development for sale before completion and the residential development’s own capacity constraints. Developers tend to cooperate for long-term benefit, leading to a sales slowdown. Relatively high profits, earnable in the first few periods, provide an allowance to price undercut others, to sell much faster. First-mover advantage in a new market is evident. As uncertainty rises, prices decrease while price variability increases. Chapter 3 looks at the institutional nature of legal origin and the total returns (TRs), derived from investing in a country’s direct real estate, and via the adoption of a multi-factor arbitrage pricing theory (APT) model. The 1st and 4th order autoregressive model is adopted to de-smooth the TRs. De-smoothed data is used in conjunction with 2 macroeconomic variables (real GDP growth rate and interest rate) and 1 real estate risk factor (vacancy rate) to form the multi-factor structural model. A pooled panel analysis is conducted with the law-system dummies, denoting British legal origin and French legal origin, and the factor loadings (i.e. the sensitivity of the risk factor to the TRs). Macroeconomic and real estate risk factors in equilibrium affect the TRs. Vacancy rate commands high and significant risk premium owing to its direct impact on the TRs, relative to GDP growth rate and interest rate. Chapter 4 is concerned with the real estate mezzanine investment (REMI), a new financial instrument for Asia’s real estate market, and examines the REMI structure, the measurement and characteristics of its risks and returns via a forward-looking binomial asset tree (BAT) model. Risk neutral pricing probability is adopted. REMI bears more risk than typical commercial bank loans, resulting in higher interest rates than pure equity. Different risk issues focus on two major sources - the financial loan to value (LTV) ratio risk and the real estate and capital markets risk. Chapter 4 fulfils the need to close the gap concerning the REMI structure and performance in the steady state, utilizing reliable, authoritative information and data sources. Lastly, Chapter 5 offers this book’s conclusion.

About the Author

Dr HO Kim Hin / David is Honorary Professor in Development Economics & Land Economy, awarded by the UK public university, the University of Hertfordshire. He retired end-May 2019 as Professor (Associate) (Tenured) from the National University of Singapore. Professor HO spent the last thirty-one years across several sectors, which include the military, oil refining, aerospace engineering, public housing, resettlement, land acquisition, land reclamation, real estate investment , development and international real estate investing. He spent six years in the real estate career as part of the executive management group of Singapore Technologies at Pidemco Land Limited, and as part of the senior management team of the Government of Singapore Investment Corporation’s GIC Real Estate Private Limited. Seventeen years are spent in the National University of Singapore at the then School of Building and Estate Management, the Department of Real Estate, School of Design and Environment, where his research expertise is in two areas. First is international real estate in the area of risk-return behavior behind international real estate investing in direct and indirect real estate. Secondly, is urban and public policy analysis involving real estate, sea transport, public housing, land and land use. Schooled in development economics and in land economy at the University of Cambridge, England, he has effectively extended these disciplines to examine his two expertise areas. Apart from being well versed in econometrics, his quantitative interests include real estate demand and supply, investment and finance, artificial intelligent modeling in real estate and system dynamics modeling for real estate market analysis and public policy analysis. He is the Member of the Royal Economics Society (U.K.), Academic Member of the National Council of Real Estate Investment Fiduciaries (U.S.), Fellow of the American Real Estate Society (U.S.), member of the American Economic Association (U.S.) and member of the Economic Society of Singapore and the Singapore Institute of Management. He holds the degrees of Master of Philosophy (1st Class Honors with Distinction), Honorary Doctor of Letters and the Doctor of Philosophy from the University of Cambridge, U.K. He has published widely in top international journals and conferences, in chapters of international academic book publishers. Dr Ho has written 11 major books (including this book), undertaken many consultancies and funded research projects. He has written a total of about 275 published works (with 91 in peer reviewed, reputable international journals). He is an editorial board member of the Journal of Economics & Public Finance, Real Estate Economics journal, Journal of Property Research, Journal of Property Investment & Finance, Journal of Real Estate Finance & Economics, the Property Management journal and the International Journal of Strategic Property Management. He has published widely in conferences, Finance, chapters of international academic book publishers, undertaken many consultancies and funded research projects. He is an immediate past Governor of the St Gabriel's Foundation that oversees nine schools in Singapore; and a District Judge equivalent member of the Valuation Review Board, Ministry of Finance, Singapore, and the Singapore Courts.