RELATIONSHIP BETWEEN DIRECT PROPERTY AND PROPERTY STOCK MARKET

Abstract

The relationship between direct property returns and property stocks have been the subjects of substantial controversies over the years. The importance of deriving the relationship is of concern to many investors, who are interested in property stocks as an alternative tool in property investment. Many researches have been done in an attempt to detect any contemporaneous long-term relationship between direct property values and its indirect vehicle, property stocks. However, due to the complexity and certain ambiguity, this relationship has yet been confirmed or derived in any way. The reasons behind the disparity of researchers' findings are mostly due to different time series, assumptions held by models used, source and accuracy of input data. This study attempts to further the studies in examining the possibility of contemporaneous long-term relationship between direct property and property stocks. The time series examined covers the span of 25 years (1976-2001). This research is worth the review due to the complete cycle of economy movement. The peak of the economy was detected from 1990 to 1995. The downturn of economy was witnessed from the year of 1997. In view of this complete cycle, the study of relationship between property values and its stock values is again revisited. This study finding reveals the weak contemporaneous long term relationship between direct and indirect property markets. The linkage between property stocks in predicting direct property market performance declined over the 25 year study period. This suggests the emergence of other significant factors that predicts direct property returns other than property stocks performance.