THE DYNAMICS OF NET ASSET VALUE (NAV) DISCOUNTS IN ASIAN REAL ESTATE MARKET: A PANEL COINTEGRATION AND CAUSALITY STUDY

Abstract

The concept of Net Asset Value Discount (NAVDISC) is the key focus of this paper. Essentially, the valuation of a real estate stock is done through the Net Asset Value (NAV) of the real estate company. A property stock should trade around the NAV since that is the underlying value of a real estate company. However, since the stock price (P) is determined largely by the stock market and NAV valued solely through the private market, there has been a deviation between these two variables known as the NAVDISC. As such, this study looks at the NAVDISC behaviour of real estate companies in Asia in the long run and the short run from a panel study perspective. The main objectives of the paper include: establishing the presence of the NAVDISC behaviour through a panel cointegration study (a long-term equilibrium relationship with the P and NAV series), understanding the long-term elasticity of P to its NAV, analyzing the short run disequilibrium adjustment and lastly, a panel causality investigation between the P and NAV series. The study is conducted across six Asian markets (Hong Kong, Japan, Malaysia, Philippines, Singapore and Thailand) and studying the entire Asian region as a whole from 2004 Q1 to 2014 Q4. Outcomes from the study exhibited long-term equilibrium relationship, establishing the NAVDISC behaviour in the Asian real estate market. In addition, results from the panel causality have also proven that P and NAV have causal effects on each other for certain Asian markets and for the region.