Estimating Quality Adjusted Commercial Property Price Indexes Using Japanese REIT Data

Chihiro Shimizu, Walter Diewert, Kiyohiko Nishimura and Tsutomu Watanabe
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Chihiro Shimizu: Reitaku University; University of British Columbia
Kiyohiko Nishimura: Deputy Governor, Bank of Japan
Tsutomu Watanabe: Graduate School of Economics,University of Tokyo

No 4, UTokyo Price Project Working Paper Series from University of Tokyo, Graduate School of Economics

Abstract: We propose a new method to estimate quality adjusted commercial property price indexes using real estate investment trust (REIT) data. Our method is based on the present value approach, but the way the denominator (i.e., the discount rate) and the numerator (i.e., cash flows from properties) are estimated differs from the traditional method. We estimate the discount rate based on the share prices of REITs, which can be regarded as the stock market’s valuation of the set of properties owned by the REITs. As for the numerator, we use rental prices associated only with new rental contracts rather than those associated with all existing contracts. Using a dataset with prices and cash flows for about 500 commercial properties included in Japanese REITs for the period 2003 to 2010, we find that our price index signals turning points much earlier than an appraisal-based price index; specifically, our index peaks in the first quarter of 2007, while the appraisal-based price index exhibits a turnaround only in the third quarter of 2008. Our results suggest that the share prices of REITs provide useful information in constructing commercial property price indexes.

Keywords: REIT; quality adjusted price index; hedonic regression; Tobin’s q; risk premium (search for similar items in EconPapers)
JEL-codes: E3 G19 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2012-05, Revised 2013-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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http://www.price.e.u-tokyo.ac.jp/img/researchdata/pdf/p_wp004.pdf Revised version, 2013 (application/pdf)

Related works:
Journal Article: Estimating quality adjusted commercial property price indexes using Japanese REIT data (2015)
Working Paper: Estimating Quality Adjusted Commercial Property Price Indexes Using Japanese REIT Data (2015)
Working Paper: Estimating Quality Adjusted Commercial Property Price Indexes Using Japanese REIT Data (2015)
Working Paper: Estimating Quality Adjusted Commercial Property Price Indexes Using Japanese REIT Data (2013)
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