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Does Reit Offer A Better Risk And Return Contour To The New Zealand Residential Property Investors?

Author

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  • CHONG Fennee

    (Auckland University of Technology, New Zealand)

Abstract

New Zealanders’ overwhelming favour of residential property investment has resulted in residential properties being overvalued with a house-price-to-income multiple equals to 5.9 for the country and 10 for its largest city – Auckland. With the deterioration in housing affordability; currently ranked the fourth worst in the world for Auckland (the largest city in New Zealand), investing directly in residential property become riskier. Under this scenario, a more passive property investment option such as REIT could be more viable. The objective of the paper is to assess whether REIT could offer a better risk and return contour then direct residential property option to potential property investors in New Zealand. Empirical findings from this study show that there is a significant difference between the rates of return of these two types of property investment options. Further analysis using Treynor ratio indicates that investing in REITs generated a higher return on a risk-adjusted basis. This finding has implications for investors looking for a more affordable and liquid way to tap into the property asset class.

Suggested Citation

  • CHONG Fennee, 2018. "Does Reit Offer A Better Risk And Return Contour To The New Zealand Residential Property Investors?," Studies in Business and Economics, Lucian Blaga University of Sibiu, Faculty of Economic Sciences, vol. 13(2), pages 61-68, August.
    • Handle: RePEc:blg:journl:v:13:y:2018:i:2:p:61-68
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    File URL: http://eccsf.ulbsibiu.ro/RePEc/blg/journl/13205chong.pdf
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    References listed on IDEAS

    as
    1. Calista Cheung, 2011. "Policies to Rebalance Housing Markets in New Zealand," OECD Economics Department Working Papers 878, OECD Publishing.
    2. Faye Braithwaite & Simon Kemp, 2007. "Safe as houses: Investor confidence in New Zealand," New Zealand Economic Papers, Taylor & Francis Journals, vol. 41(2), pages 225-236.
    Full references (including those not matched with items on IDEAS)

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