INTERRELATIONSHIPS BETWEEN REAL ESTATE SPACE, ASSET AND SECURITISED MARKETS

Abstract

Despite the importance of real estate and its growing acceptance by institutional investors as an important component of a mixed-asset portfolio, little is known about the degree of integration between real estate markets. This study applies the Corgel (1998)'s model to investigate the interrelationships between real estate space, asset and securitised markets, in the context of Singapore office, retail, residential and industrial sectors. Quantitative analysis using the Singapore Exchange's SEPROP and the URA's quarterly price and rental indices will be conducted. Risks and returns analysis, correlation and cross-correlation examinations, Johansen's cointegration assessments and Granger causality tests will be applied to the market indices to investigate the empirical relationships between the three markets in the four sectors. The main findings of the study are fundamentally consistent with earlier works on related topics. In essence, this study reveals that securitised real estate prices lead real estate asset prices while asset prices lead rental values. Causality in the direction from the securitised market to the asset market and from the asset market to the space market is ascertained as well. For the sectoral analysis, long-term relationships exist between the space and asset markets of office and industrial sectors while short-term relationships are found between securitised and asset market in all sectors and between the space and asset markets in the office, residential and industrial sectors. Lastly, this is the first study that examines the interrelationships between space, asset and securitised real estate markets in the context of Singapore office, retail, residential and industrial sectors. Market participants with better knowledge of the links between real estate markets will be able to identify investment opportunities and evaluate the possible impact of economic measures across sectors and markets.