'REITarization' Effects in Global Real Estate Markets

46 Pages Posted: 8 Jul 2016 Last revised: 17 Jul 2018

See all articles by Kiat Ying Seah

Kiat Ying Seah

National University of Singapore (NUS)

James D. Shilling

DePaul University; National Bureau of Economic Research (NBER)

Tien Foo Sing

National University of Singapore (NUS) - Department of Real Estate

Long Wang

National University of Singapore (NUS)

Date Written: July 5, 2018

Abstract

This study empirically tests the impact of establishing REIT markets on international real estate investment flows using a large dataset of commercial real estate transactions in 59 countries for the period from 2001 to 2014. Our results show that setting up new REIT markets brings three economic outcomes. First, we find that new REIT markets increases cross-border real estate investments by foreign REITs and corporate investors by 23.3% and 18.7%, respectively, relative to other private investors. The results hold when we aggregate the real estate investments at the investor-type level. By aggregating the investments at the property type level, we find that hotel, office, retail sectors attract significantly higher cross-border investments in newly established REIT countries. Second, we find that foreign REITs pay higher premiums in acquiring local real estate, but they reap higher holding period returns from their investments compared to non-REIT investors. There is no evidence suggesting that foreign REITs acquire “lemon” real estate in new REIT markets; and the results imply that information transparency improves in new REIT markets. Third, new REIT markets increase local stock market volatilities, and create positive spillovers to global REIT markets, thus resulting in higher correlations between local stock returns and global REIT returns.

Keywords: REIT, real estate capital flows, cross-border investments, substitution effect, relative performance

JEL Classification: G15, G29, R3

Suggested Citation

Seah, Kiat Ying and Shilling, James D. and Sing, Tien Foo and Wang, Long, 'REITarization' Effects in Global Real Estate Markets (July 5, 2018). Available at SSRN: https://ssrn.com/abstract=2804913 or http://dx.doi.org/10.2139/ssrn.2804913

Kiat Ying Seah

National University of Singapore (NUS) ( email )

Bukit Timah Road 469 G
Singapore, 117591
Singapore

James D. Shilling

DePaul University ( email )

1 East Jackson Blvd.
Chicago, IL 60604
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Tien Foo Sing (Contact Author)

National University of Singapore (NUS) - Department of Real Estate ( email )

4 Architecture Drive
Singapore 117566
Singapore

Long Wang

National University of Singapore (NUS) ( email )

Bukit Timah Road 469 G
Singapore, 117591
Singapore

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