How Do Institutional Factors Affect International Real Estate Returns?

Abstract

Prior international real estate studies recognize the importance of country-specific factors for explaining real estate security returns. Using firm level observations from the FTSE NAREIT/EPRA Index for 2004-2006, we construct a set of multifactor multivariate statistical regression models to identify and pin-point country-specific institutional features that determine differences for excess real estate security returns. Our analyses indicate that the excess real estate returns (i. e., required risk premiums) are, in part, determined by the quality of a country's legal system and the corporate governance environment, controlling for various country-specific macro-economic variables and firm-level characteristics. We further find that the impact of institutional factors on international real estate returns is more prominent in the Asia-Pacific Region, and recent development of the REIT structure across the world does not alter the importance of corporate governance and legal system quality for determining real estate returns. © 2010 Springer Science+Business Media, LLC.