Seow Eng Ong

Multilevel modeling using spatial processes: Application to the Singapore housing market

Customary spatial modeling with point-referenced data introduces a modeling specification that includes a mean term, a spatial error or random effects term and a pure error term. The spatial random effects are usually modeled through a mean zero spatial process. If the mean term includes an intercept, then the spatial random effects can be interpreted as local spatial adjustments to the intercept. If the mean term is a familiar linear regression then it makes sense to ask whether the regression coefficients are constant or whether they might vary spatially, analogous to the intercept. This has been previously considered and the benefits of the increased flexibility have been demonstrated. The situation with replicates available at spatial locations is considered. This enables the building of the spatial analog of a multilevel model-replicate level covariates to explain the replicate level responses and location level covariates to explain the location level coefficients. The particular motivation for this modeling effort is a data set on condominium sales in Singapore. In this case, the replicates are the sales of condominiums within a building. Unit level features are available to explain the selling price of the unit and building level attributes to explain the coefficients. Anticipating dependence between coefficients, a multivariate spatial process specification is provided. This process is specified through kernel convolutions due to the computational challenges associated with fitting such models to a fairly large data set. There is flexibility in this kernel modeling necessitating model comparison. In particular, roughly 68,000 transactions across 1374 buildings (locations) are analyzed and the results and interpretation for the selected model are presented.

The Wealth Effects of Property Acquisitions: Evidence from Japanese and Singaporean REITs

This article examines the wealth effects of 228 property acquisition announcements made by REITs publicly traded in Singapore and Japan, which are the two largest REIT markets in Asia. Adopting an aggressive growth‐by‐acquisition strategy, the newly listed REITs acquired a number of properties within a short time period. Despite their regular activities, we observe the acquisition announcements are associated with a significantly positive abnormal increase in shareholder wealth averaging 0.38% in a 5‐day window around the event date. Controlling for the method of payment, buyers acquisition strategy and sellers relationship with the acquiring REIT, the regression results show that the likely sources of economic gains associated with acquisitions are economies of scale and better management by acquiring firms. We also find strong evidence that the market reacts less favorably to acquisitions involving a portfolio of properties as opposed to a single property and weaker evidence that it reacts less favorably to mixed‐use acquisitions. These findings suggest the presence of premiums on transparency and corporate focus.

Securitising China real estate: a tale of two China‐centric REITs

Purpose – There is currently no real estate investment trust (REIT) listed in China. As of date, only two REITs – GZI REIT of Hong Kong and CapitaRetail China Trust (CRCT) of Singapore – have securitised Chinese property assets. The purpose of this paper is to examine the driving forces and the obstacles surrounding China REITs, and evaluate REIT securitisation as an exit strategy for Chinese properties.Design/methodology/approach – The paper analyses the performance of the two cross‐border REITs and investigates whether REITs holding Chinese assets outperform other listed REITs.Research limitations/implications – CRCT outperforms GZI REIT as well as some of the other Singapore REITs, while GZI REIT ranked second lowest in terms of price performance when compared to other Hong Kong REITs. The limited history of CRCT suggests that when a well‐structured REIT holding Chinese assets can perform very well. We also infer that performance is closely linked to portfolio composition and diversification, growth st...

Oligopolistic bidding and pricing in real estate development

Real estate developers often operate in oligopolistic environments. Pricing strategies must be made in an interactive framework that makes empirical evaluation difficult. This study appeals to economic experiments to examine how developers price their properties, especially when there is an option to market pre‐completed units. In addition, the interaction between bidding for land and pricing the end product is examined. The results indicate that competitor actions are important considerations in pricing decisions. In particular, the profit maximizing pricing strategy depends critically on being competitive, not necessarily being the most aggressive. Interestingly, pre‐completed units sell only at prices that incorporate future price expectations, and successful bids tend to precipitate more aggressive pricing. Finally, competitive bidding and pricing strategies appear to the best profit maximizing strategy.

Asset allocation: International real estate investment strategy under a workable analytic hierarchy process (AHP)

Purpose – The purpose of this paper is to conceptualise a workable strategic asset allocation (SAA) model, given the data paucity problem, and involve an ex ante framework that is distributional free. Design/methodology/approach – The SAA model is developed within a semi‐quantitative and expert‐based framework – the analytic hierarchy process (AHP) – and not a purely time‐series one. It is developed on the basis of consensus by a group of real estate investment experts, who agree on a fixed investment time horizon so that the time factor is disregarded as a variant. The SAA becomes the interface around which a set of tactical bands is imposed, subject to the Markowitz mean‐variance optimisation, and utilizing the total‐return data set of the Jones Lang LaSalle Real Estate Intelligence Service‐Asia. The lower and upper limits of the tactical bands represent the cyclical attractiveness of the various Asian office markets as growth and value‐added markets Findings – The SAA‐AHP model robustly reflects expert judgement among a cohesive group of real estate investment experts, with regard to a Pan‐Asia office market portfolio of eight major Asian cities. Through pair‐wise comparisons and subject to consistency checks in terms of the consistency ratio of <0.10, then the comparative expert assessment of the macro‐economic and the real estate specific factors driving individual Asian real estate markets, would be consistent (i.e. non conflicting). Then the total weighted evaluations of individual markets are derived and deployed as the SAA portfolio mix. This portfolio mix thus becomes the appropriate interface, around which the tactical asset allocation (TAA) is developed within defined tactical bands. These bands must be in line with the underlying Asian real estate market analysis and their cyclical positions. The TAA is obtained through the Markowitz mean‐variance portfolio optimisation, with the objective of locating the optimally efficient TAA on the Markowitz efficient frontier, under a maximising risk‐adjusted‐return Sharpe ratio. Originality/value – The SAA‐AHP model is reliant on an ex ante assessment of alternative asset allocation strategies on the basis of expert judgement of the macroeconomic environment and the Asian office markets. It is an appropriate SAA alternative to one based on the typical economic‐sized indicators, for example, the urban GDP.

Developing the real estate derivative market for Singapore: issues and challenges

Purpose - While the development of real estate derivative contracts has important implications for real estate as an asset class, it has not been widely accepted in Asia. This paper aims to examine the issues involved in developing the real estate derivative market for Singapore. Design/methodology/approach - The concept of real estate derivatives is reviewed. The limitations to the extant real estate index are discussed. Different approaches to constructing real estate indices are discussed in particular reference to the features of the Singapore real estate market. Findings - The Singapore residential market is dominated by public housing, heterogeneity and relatively low turnover. The applicability of repeat sales approach may not be well suited. Geostatistical models appear promising. The commercial real estate market suffers from even lower turnover. The most appropriate commercial real estate index could be similar to that offered by IPD. Several issues were also highlighted. First, the index must pass the stringent scrutiny of academia and experts. Second, the index must be well understood and accepted by the industry. Third, the index must be published in a timely fashion and without biases. Fourth, there must be a trustworthy producer of the index. Research limitations/implications - For an index to be accepted, it must satisfy the issue of fungibility. International investors looking for exposure or hedging strategies are likely to be familiar with established methodologies such as the repeat sales and appraisal-based approaches. Practical implications - Market acceptability of RED. If the experience in Europe is anything to go by, this is not an insurmountable issue that cannot be addressed with education and knowledge dissemination. Originality/value - While real estate derivatives have immense potential and a tremendous growth in its development in Europe has been witnessed, it is clear that the real estate derivative industry is in its infancy. The paper examines the issues peculiar to Singapore with regard to the establishment of real estate derivative contracts. The paper is of interest to policy makers and industry practitioners.

Price Premium and Foreclosure Risk

Many previous studies identify loan, property, borrower and environmental factors that impact the probability of foreclosure. Implicit in these studies is the assumption that the property was purchased at fair value. We question this assumption based on several empirical findings regarding property value uncertainty. In contrast to previous research, we explicitly quantify the price premium from a hedonic pricing model. Using a comprehensive database of real estate transactions in Singapore during 1989-2000, we document a price premium associated with properties that are subsequently foreclosed based on actual sales transactions. In addition, we find that the premium paid at purchase significantly increases the probability of foreclosure. These results are robust and continue to hold after controlling for other property-specific factors, time-varying macroeconomic conditions, alternative model specifications and definitions of price premium. Copyright 2006 American Real Estate and Urban Economics Association

Asset-Backed Securitization in Singapore: Value of Embedded Buy-Back Options

Asset backed securities have been promoted as an important financing instrument for property developers to raise capital in Singapore. In 1999 alone, S

Aborted property transactions: seller under‐compensation in the absence of legal recourse

1.92 billion worth of bonds have been issued via the securitization of six commercial properties and one residential condominium project under construction. Buy-back option is a unique feature embedded in the asset-backed securitization (ABS) in Singapore, which allow the originator to retain a contingent claim on the upside potential of the asset price. Based on the multi-period binomial option pricing framework proposed by Cox et al. (1979), the prices of the options embedded in the ABS contracts are estimated. Using the securitization of the 132,111 square feet 268 Orchard Road office building for illustration, the premium of the options embedded in the 10-year ABS deal was estimated at S

Mortgagor Motivations in Prepayments for Adjustable Rate Mortgages

28.47 million, or 15.48 percent of the bond value. Recognition of the value of embedded options is important for structuring a fair and transparent ABS deal.