'REITarization' Effects in Global Real Estate Markets
46 Pages Posted: 8 Jul 2016 Last revised: 17 Jul 2018
Date Written: July 5, 2018
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
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