Towards a listed Real-Estate investment valuation model

Abstract

When considering the valuation techniques of income-producing property, various types of information should be obtained from the market in order to apply them to the valuation of the property under consideration. This includes the comparison with other properties sold in the market. However, due to the illiquid nature of property, especially those typically owned by institutional investors, such transactions do not take place every day. Therefore the necessary information is not always readily available, and also not of the required quality. In order to try and eliminate this problem, the study considers the possibility of using alternative information to indicate market activities. Various studies have considered the similarities of direct real estate and indirect real estate. Most of these studies compare the investment returns of the two markets. This study extends the research by specifically looking at the unique property loan stock structure of South Africa, and comparing the value of shares to the value of assets. It therefore offers a more comprehensive explanation of the factors over and above the return received on the investment. It furthermore considers the composition of the property portfolio and the possibility to measure individual property values within such a portfolio. The outcome of the study is a model that allows property valuation and market interpretation from fundamental principles, with supporting evidence from the listed-property investment market.