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Kim Hiang Liow: School of Building and Estate Management, National University of Singapore, Singapore
Introduction
Indirect property investment vehicles such as real estate investment trusts (REITs) or stocks of listed property companies have been considered as substitutes for direct real estate investments (Venmore-Rowland, 1989). An investor with limited capital may consider the alternative of investing in property stocks or REITs as means of accessing direct property exposures without introducing excessive illiquidity into his portfolio. To do so requires a great deal of understanding of the risk and return characteristics and performance of indirect property. The task is made more complicated as indirect real estate vehicles, although "property-backed", trade in the stock market. This means that indirect property returns may exhibit market return characteristics associated with both the property and stock markets. However, the degree of dependency of risk/return performance of indirect property on the behaviour of the two markets is an unsettled issue.
In the Singapore context, the only form of indirect property vehicle is through investment in shares of listed property companies. Moving in tandem with rapid economic growth, the Singapore property market has experienced a steady rise in demand both in the residential and commercial sectors in the last few years. The strong performance of direct property has also been translated into higher profits and better performance return for many property stocks listed on the Stock Exchange of Singapore (SES). As at December 1995, investment in listed Singapore property stocks reported a market capitalization of approximately S$27.16 billion (a 14.6 per cent increase over that of 1994) which is about 13 per cent of the value of the market. The 17 companies represent a combination of both investment and development. Most of the companies are traded at a higher price-earnings ratio, which reflects the confidence and interest investors have in the Singapore property market and in the property stock sector. Many of the companies have built up their land banks in recent years, engaged in huge property projects locally and have also embarked on major property developments in the neighbouring Asian countries as well as China, India and Vietnam.
This paper investigates the long-term performance of Singapore property stocks from 1975 to 1995. It addresses four specific issues. The first issue is...