8. International Financial Innovation, Real Estate and the Macroeconomy

  1. Piyush Tiwari1 and
  2. Michael White2

Published Online: 21 FEB 2014

DOI: 10.1002/9781118836651.ch8

Real Estate Finance in the New Economy

Real Estate Finance in the New Economy

How to Cite

Tiwari, P. and White, M. (2014) International Financial Innovation, Real Estate and the Macroeconomy, in Real Estate Finance in the New Economy, John Wiley & Sons, Chichester, UK. doi: 10.1002/9781118836651.ch8

Author Information

  1. 1

    Faculty of Architecture, Building and Planning, University of Melbourne, Australia

  2. 2

    School of Architecture, Design and the Built Environment, Nottingham Trent University, UK

Publication History

  1. Published Online: 21 FEB 2014
  2. Published Print: 14 MAR 2014

ISBN Information

Print ISBN: 9781405158718

Online ISBN: 9781118836651

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Keywords:

  • Real estate market models;
  • efficient Market hypothesis;
  • conditional volatility;
  • error correction;
  • risk management;
  • adjustment processes;
  • optimal portfolio allocation

Summary

This chapter will examine historic changes that have occurred in the financial sector and how they have impacted on the real estate market. The interaction between the macroeconomy and the real estate sector is also highlighted as financial change has strengthened the link between them. Cycles and trends in real estate are discussed before being modelled using an error-correction framework to identify market adjustment processes. The chapter proceeds to examine bubbles in asset values, risk, regional office market performance and optimal portfolio allocations to real estate sectors across regional markets. The methods of analysis can be used to compare international real estate investment alternatives. The models presented in the chapter for rents, cap rates and conditional volatility reflect the types of analyses undertaken by investors and investment analysts when advising on real estate investment decisions. The chapter hence seeks to describe current practice in industry and also reflects on the fact that such methods of decision making have come from the wider investment industry.