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To Hold or Not to Hold?

To Hold or Not to Hold?. An Analysis of Holding Periods in Five European Property Markets. Jan Reinert jan.reinert@ipd.com July 2013 Portfolio Analyst, IPD Germany PhD Candidate, University of Regensburg. Agenda. Literature Data Analysis Average Holding Periods

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To Hold or Not to Hold?

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  1. To Hold or Not to Hold? An Analysis of Holding Periods in Five European Property Markets Jan Reinert jan.reinert@ipd.com July 2013 Portfolio Analyst, IPD Germany PhD Candidate, University of Regensburg

  2. Agenda Literature Data Analysis Average Holding Periods Determinants of Holding Periods Holding Periods & Performance Conclusion

  3. Literature

  4. Literature

  5. Data

  6. Data Set Property Characteristics (location. sector. age. size. market rent) Investor Information (Investor Type) ...supplied by IPD: Transaction Information (purchase & sale dates. price. transaction costs) Performance Measures (total return. income return, capital value growth) Market Performance (National IPD Indices)

  7. Data Set 51.110 Observations... ...from 5 European Countries

  8. Analysis Average Holding Periods

  9. Average Median Top 10% Upper Q. Lower Q. Bottom 10% Average Holding Periods (all years)

  10. Distribution of Observations(by year of purchase)

  11. Problem: sample selection bias due to different time periods of data sets reducing datasets to the same time period: 1995-2012

  12. Average Median Top 10% Upper Q. Lower Q. Bottom 10% Average Holding Periods(1995-2012)

  13. Problem:Holding periods are only observed for sold properties, held properties are ignored ”Survival Rates”

  14. After what time have XX% of properties been resold? Median Survival Rates(1995-2012) 50% of properties in Sweden were sold after 6 ½ years while 50% of properties in the UK were sold after 9 years.

  15. Survival Rates(1995-2012)

  16. Holding Periods over Time (by year of purchase)

  17. Holding Periods over Time (by year of sale)

  18. Analysis Determinants of Holding Period length

  19. Average Transaction Costs (1995-2012)

  20. 1-for-1-trade-off Risk/Return Profiles(1998-2012)

  21. Regression

  22. Regression

  23. Problem:Censored data – Holding periods are only observed for sold properties, held properties are ignored Heckman Correction …in progress…

  24. Analysis Holding Periods & Performance

  25. Holding Period & Excess Return(1995-2012)

  26. Holding Period & Excess Return(all years)

  27. Conclusion

  28. 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

  29. 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

  30. Conclusion III Holding period analysis is constrained by the problem of CENSORED DATA Holding periods of properties still held by investors are unobservable. This can explain: differing average holding periods across countries declining holding periods over time pattern of declining excess return over holding period

  31. Thank you for your attention. Jan Reinert jan.reinert@ipd.com Portfolio Analyst, IPD Germany PhD Candidate, University of Regensburg

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