to hold or not to hold? an analysis of holding periods in five european property markets jan reinert...
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To Hold or Not to Hold?
An Analysis of Holding Periods in Five European Property Markets
July 2013Portfolio Analyst, IPD GermanyPhD Candidate, University of Regensburg
Agenda
• Literature
• Data
• Analysis• Average Holding Periods• Determinants of Holding Periods• Holding Periods & Performance
• Conclusion
Literature
LiteratureRESEARCHERS MARKET TIME
PERIOD METHOD HOLDING PERIOD OTHER FINDINGS
Collett, Lizieri& Ward(2003)
London, UK
1981-1998
Cox proportional
hazard model
7-12 years (median for
standard shops)
Decreasing holding periods over time,holding periods differ by size & sector,
negative relationship between return volatility & holding period
Gardner & Matysiak
(2005)
London, UK
1983-2003
Based on sold
properties
4.6-7.0 years (median over
time)
Decreasing holding periods over time,holding periods differ by location & investor type,
25% of properties are resold after 3 years,declining pattern of return over holding period
Brown & Geurts(2005)
San Diego, United States
1970-1990
Based on sold
properties, OLS
regression
4.5 years(average for apartment buildings)
Property characteristics (besides size) do not affect holding periods
Fisher & Young (2000)
United States
1980-1998
Time until 50% of
sample has been sold
8.6-13.7 years (median
depending on sector)
Decreasing holding periods over time,holding periods differ by sector,
returns converge to market average as tenure lengthens
Cheng, Lin& Liu
(2010)
United States
1978-2008
Model for ex ante optimal holding period
4.3-5.3 years (expected optimal
holding period)
higher transaction costs lead to longer holding periods while price volatility decreases it
Data
Data Set
...supplied by IPD:
TransactionInformation
(purchase & sale dates.price. transaction costs)
PropertyCharacteristics
(location. sector. age. size.market rent)
PerformanceMeasures
(total return. income return,capital value growth)
MarketPerformance
(National IPD Indices)
InvestorInformation(Investor Type)
Data Set 51.110 Observations... ...from 5 European Countries
AnalysisAverage Holding Periods
Average Holding Periods (all years)
Bottom 10%
Top 10%Upper Q.
Lower Q.
AverageMedian
Distribution of Observations (by year of purchase)
Problem:sample selection bias due to
different time periods of data sets
reducing datasets to the same time period:1995-2012
Average Holding Periods (1995-2012)
Bottom 10%
Top 10%Upper Q.
Lower Q.
AverageMedian
Problem:Holding periods are only observed for sold properties, held properties are ignored
”Survival Rates”
Median
50% of properties in Sweden were sold after 6 ½ years while 50% of properties in
the UK were sold after 9 years.
10% 20% 30% 40% 50%
UK 1.8 years 3.0 years 4.3 years 6.1 years 9.1 years
Germany 4.2 years 8.3 years
France 3.0 years 4.9 years 7.8 years
Netherlands 2.5 years 4.7 years 6.3 years 9.4 years
Sweden 1.3 years 1.9 years 3.1 years 4.5 years 6.5 years
Survival Rates (1995-2012)
After what time have XX% of properties been resold?
Survival Rates (1995-2012)
Holding Periods over Time (by year of purchase)
Holding Periods over Time (by year of sale)
AnalysisDeterminants of Holding Period length
Average Transaction Costs (1995-2012)
Risk/Return Profiles (1998-2012)
1-for-1-trade-off
HPMONTHSINSURANCE 3.4**
PENSION 11.9***OPENFUND 4.8***
CLOSEDFUND 12.7***LISTEDCOMP 3.4*
UNLISTEDCOMP 1.3PRICEPURCH -0.0
PRICESALE 0.0***TCPURCH 0.1
TCSALE -0.0TR -2.9***RR 3.3***
STDEVRR -0.2***NETHERLANDS 18.8***
SWEDEN -46.5***FRANCE 23.6***
GERMANY -6.2**CONSTANT 84.3***
R2 0.22
OBS 9,723
Regression HPMONTHS
Y1995 22.7***Y1996 23.3***Y1997 14.6***Y1998 10.6***Y1999 5.0***Y2001 -4.8***Y2002 -1.6Y2003 -5.8***Y2004 -11.7***Y2005 -22***Y2006 -36.6***Y2007 -47.5***Y2008 -50.1***Y2009 -42.9***Y2010 -42.8***Y2011 -55***
METRO 0.6OFFICE -5.8**RETAIL -3.7
INDUSTRIAL 0.3RESIDENTIAL 8.2***
Regression UK NETHERLANDS SWEDEN FRANCE GERMANY
Y1995 23.1*** 50*** Y1996 24.7*** 43.6*** Y1997 18.1*** 37.9*** 43.2*** -1.1***Y1998 12.3*** 34.7*** 29.3*** 8.4Y1999 8.5*** 14.7*** -3.2 -33.5*** 14.1Y2001 -6.3*** -17.3*** -49.3*** -7.7 -4.6*Y2002 -5.3*** -26.2*** -99.1*** -10.6 -12.4Y2003 -4** -23.5*** -28*** -36.5*Y2004 -9.4*** -29.7*** 29.6 -47.7*** -27***Y2005 -26.1*** -22.1*** -8.5 -52.3*** -43.7***Y2006 -50.2*** -34.2*** -20.2* -57*** -40.9***Y2007 -75.5*** -73*** -47.2*** -79.8*** -48.1***Y2008 -82.8*** -158.1*** -69.2*** -91.1*** -60.7***Y2009 -46.9*** -67.7***Y2010 -35.7*** -52.9*** -73.7***Y2011 -60.2***
METRO 0.2 3.7 1 0.7 4.7***OFFICE -9.7*** -29.7*** -25.7** -18.4** 11.1RETAIL -9.6*** -6.8 -10 -0.2 1.2*
INDUSTRIAL -1.8 -10.8 0.4 -24.8*** 5.2RESIDENTIAL 17*** -8.4 3.9 -21.4* -15.9INSURANCE 2.2 -18.3*** 2.8 14.2** -25.4*
PENSION 10.5*** 10.8* 8.5 -94.5***OPENFUND 1.2 -3.8 18.2* -16.2***
CLOSEDFUND 4.7 0.5 -1**LISTEDCOMP -1.8 11.4** 15.7*** -27
UNLISTEDCOMP 0.8 -10.5*** 13.5* -3.3 -0.6*PRICEPURCH 0*** 0 0* 0 0
PRICESALE 0*** 0*** 0*** 0 0***TCPURCH 0 0 3.9*** 1.2** 0.4***
TCSALE -0.2 -0.6 -1.8** 2.9*** 0.3TR -4.2*** -13.5*** 7.4*** -3.9*** 10.8RR 4.8*** 15.9*** -7.4*** 4.1*** -11.1***
STDEVRR -0.2*** -0.4** -0.1 0 -0.3***CONSTANT 103.5*** 233.6*** 134.7*** 131.8*** 56.1
R2 0.24 0.58 0.49 0.51 0.67
OBS 8257 591 393 330 152
Heckman Correction…in progress…
Problem:Censored data – Holding periods are only observed for sold properties, held properties are ignored
AnalysisHolding Periods & Performance
Holding Period & Excess Return (1995-2012)
Holding Period & Excess Return (all years)
Conclusion
Conclusion I• Holding periods seem to differ by country: between 1995-2012 the
Netherlands had the longest while Sweden had the shortest simple average holding period
• Survival rates show that after 9 years 56% of properties in Sweden had been sold again while only 21% of properties in Germany had been resold
• 50% of properties in the UK and Sweden had been resold after 9 and 6 ½ years respectively
• Over the period of analysis less than 50% of properties in the Netherlands, France and Germany had been resold
• Holding periods in the UK seem to be declining since 1980 but the same cannot be said for the Netherlands and Sweden
Conclusion II• Transaction costs were lowest in Sweden (which also had the shortest
average holding period)
• France had the highest average transaction costs (especially for sales)
• Between 1998-2012 the UK market displayed the highest volatility while Germany was the least volatile (Sweden displayed the 2nd highest volatility)
• A regression over all countries showed that transaction costs did not influence holding periods (differening results in individual countries)
• Relative return had a positive impact on holding periods while return volatility had a negative impact
• In line with other studies, a pattern of declining excess return over holding period length was identified
Conclusion IIIHolding period analysis is constrained by the problem of
CENSORED DATAHolding periods of properties still held by investors are
unobservable.
This can explain:
a) differing average holding periods across countries
b) declining holding periods over time
c) pattern of declining excess return over holding period
Thank you for your attention.
Portfolio Analyst, IPD GermanyPhD Candidate, University of Regensburg