David Collett, Colin Lizieri and Charles Ward
Working Papers in Land Management and Development 03/00
pp. 16
Key Words: real estate investment; holding periods; sales rate; proportional hazards.
Abstract:
The literature on investors’ holding periods for equities
and bonds suggest that high transaction costs are associated with longer
holding periods. Return volatility, by contrast, is associated with short-term
trading and hence shorter holding periods. High transaction costs and the
perceived illiquidity of the real estate market leads to an expectation of
longer holding periods. Further, work on depreciation and obsolescence might
suggest that there is an optimal holding period. However, there is little
empirical work in the area. In this paper, data from the Investment Property
Databank are used to investigate sales rate and holding period for UK
institutional real estate between 1981 and 1994. Sales rates are investigated
using the Cox proportional hazards framework. The results show longer holding
periods than those claimed by investors. There are marked differences by type
of property and sales rates vary over time. Contemporaneous returns are
positively associated with an increase in the rate of sale. The results shed
light on investor behaviour.
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