PROPERTY MARKETA case study on return distribution between HK property market & stock market<br />Hong Kong Polytechnic Un...
Our Team<br />Student 1<br />Student 2<br />Student 3<br />2<br />
Overview<br />Introduction: Background Thought & Motivation<br />The Background: Hong Kong Property &   Equity Market<br /...
Introduction<br />Our Motivation & Project Descriptor<br />
Major Investment Tools to Hong Kong Property Market<br />5<br />
Background Thought & Motivation<br />Good economy  booming 1st & 2nd hand property market.<br />Recession  property mark...
Hong Kong Equity MarketHang Seng Index<br />Hang Seng Index<br />(Apr 1999 ~ Mar 2009)<br />Monthly Returns on HSI<br />(A...
Hong Kong Property MarketCenta-City Index (“CCI”)<br />Centa-City Index<br />(Apr 1999 ~ Mar 2009)<br />Monthly Returns on...
Hong Kong Property MarketCenta-City Leading Index (“CCL”)<br />Centa-City Leading Index<br />(Apr 1999 ~ Mar 2009)<br />Mo...
Hong Kong Property EquitiesREIT & Property & Construction Stocks<br />Monthly Returns on  REITs <br />(Nov 2007~ Mar 2009)...
Hong Kong Property Market & Equity Market<br />Monthly Returns between Equity Market (Hang Seng Index) and Property Market...
Hong Kong Property Market & REIT<br />Monthly Returns between Listed Property Equity (REITs) and Property Market (Centa-Ci...
Hong Kong Equity Market & REITs<br />Monthly Returns between Equity Market (Hang Seng Index) and Listed Property Equity (R...
The Objectives<br />To Study the return distribution of HK property market and its correlation to equity market, and <br /...
Our Findings<br />15<br />
The Background<br />Hong Kong Property, Stock Market, and REIT <br />
HK Property Market<br />Market was hard hit with further downward adjustments <br />Average effective office rental in the...
Centa-City Index –Measurement for Private Ownership<br />    To Provide information to the public as a source of reference...
Centa-City Index –Measurement for Private Ownership<br />    Centa-City Index (“CCI”)<br />    A monthly index based on al...
Centa-City Index –Measurement for Private Ownership<br />    Centa-City Leading Index (“CCL”)<br />    A weekly index base...
REITs –Measurement for Public Ownership<br />Real Estate Investment Trust ("REIT")provide similar structure for investment...
REITs –Measurement for Public Ownership<br /> 	The key statistics to look at in a REIT are its NAV (Net Asset Value), AFFO...
REITs –Measurement for Public Ownership<br />The Hang Seng REIT Index (“REIT Index”) is a benchmark that tracks the perfor...
Listed Equity in Property & Construction Market – as benchmark<br />The HSI – Properties Sub-Index is a benchmark that tra...
The Data<br />The Sampling Process & Data Description<br />
The Assumptions <br />Independent samples<br />Normal distribution<br />Similar properties & REITs face similar market con...
Data Description<br />27<br />
Sampling Process <br />The study period is 10 years, from Apr 1999 to Mar 2009.  <br />Due to limited data provided, the s...
Our Approach<br />The Analysis: Statistical & Quantitative Approach<br />
Assumption:  Property Returns Normally Distributed<br />Returns Distribution<br />Approximately normally distributed<br />...
Hypothesis Testing & Regression Analysis<br />	Hypothesis Testing or Regression will be preformed to exam the relationship...
CCI & REIT
CCI & properties & construction companies’ stocks
REIT & HSI</li></ul>Returns comparison between CCI and the followings<br /><ul><li>Market return,
Risk free rate,
REIT, and
Property & Construction companies stocks</li></ul>Economic Factors effects on CCI, such as unemployment rate, best lending...
Hypothesis Testing<br />1.  To test correlation between two returns, r1 & r2<br />2.  To test returns between two investme...
Regression<br />We use multiple regression model: <br />Dependent Variable: Property Market Return (i.e., CCI monthly retu...
Our Findings<br />Results & Limitation<br />
Results – Hypothesis Testing<br />35<br />
Results – Regression Analysis<br />36<br />
Upcoming SlideShare
Loading in …5
×

QM Project presentation - HK Property Market Return

2,024 views

Published on

This presentation was prepared by MCF student for QM subject

Published in: Business
0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
2,024
On SlideShare
0
From Embeds
0
Number of Embeds
15
Actions
Shares
0
Downloads
0
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide
  • Correlation betweenProperty Market &amp; Stock MarketProperty Market &amp; REITREIT &amp; Stock Market REIT’s excess returns &gt; 0? In view of Market return (Ri – Rm) HKMA saving rate (Ri – Rf)Impact of economic factors to IPO stock performance (such as growth of GDP, CPI, stock market index, risk-free rate, … etc)
  • 中原城市指數 Centa-City Index (“CCI”)The &quot; Centa-City Index &quot; is a monthly index based on all transaction records as registered with the Land Registry to reflect property price movements in previous months.
  • 中原城市領先指數 Centa-City Leading Index (“CCL”)The “ Centa-City Leading Index ” is a weekly index based on the current preliminary contract prices in Centaline Property Agency Limited transactions that monitors the up-to-date property price variations.
  • To be updated
  • IntroductionWhat is IPO?Incentives for going public in HK market
  • Sampling processAssumptionsRandom sampling
  • Normal distribution?Hypothesis testingRegression analysis
  • Property Market &amp; Stock MarketProperty Market &amp; REITREIT &amp; Stock Market
  • ResultsLimitation
  • Conclusion
  • QM Project presentation - HK Property Market Return

    1. 1. PROPERTY MARKETA case study on return distribution between HK property market & stock market<br />Hong Kong Polytechnic University <br />AF4343 Quantitative Methods for Finance <br />(Block VI 2008/09)<br />Student 1<br />Student 2<br />Student 3<br />June 14, 2009<br />
    2. 2. Our Team<br />Student 1<br />Student 2<br />Student 3<br />2<br />
    3. 3. Overview<br />Introduction: Background Thought & Motivation<br />The Background: Hong Kong Property & Equity Market<br />The Data: The Sampling Process & Data Description<br />The Analysis: Statistical & Quantitative approach <br />Findings<br />Summary<br />Reference<br />3<br />
    4. 4. Introduction<br />Our Motivation & Project Descriptor<br />
    5. 5. Major Investment Tools to Hong Kong Property Market<br />5<br />
    6. 6. Background Thought & Motivation<br />Good economy  booming 1st & 2nd hand property market.<br />Recession  property market going down? (oop! ~ some noise!)<br />Does the property market go with the same direction as the stock market? Especially during recession.<br />Most people consider REITs as an alternative way to invest the property. In terms of class of properties, is the potential return of private sector higher than that of <br /> REITs? (i.e., should investors invest in REIT <br /> rather than property market?)<br />6<br />
    7. 7. Hong Kong Equity MarketHang Seng Index<br />Hang Seng Index<br />(Apr 1999 ~ Mar 2009)<br />Monthly Returns on HSI<br />(Apr 1999 ~ Mar 2009)<br />7<br />Sources: www.yahoo.com.hk<br />
    8. 8. Hong Kong Property MarketCenta-City Index (“CCI”)<br />Centa-City Index<br />(Apr 1999 ~ Mar 2009)<br />Monthly Returns on CCI <br />(Apr 1999 ~ Mar 2009)<br />8<br />Sources: www.centadata.com<br />
    9. 9. Hong Kong Property MarketCenta-City Leading Index (“CCL”)<br />Centa-City Leading Index<br />(Apr 1999 ~ Mar 2009)<br />Monthly Returns on CCL<br />(Apr 1999 ~ Mar 2009)<br />9<br />Sources: www.centadata.com<br />
    10. 10. Hong Kong Property EquitiesREIT & Property & Construction Stocks<br />Monthly Returns on REITs <br />(Nov 2007~ Mar 2009)<br />Monthly Returns on Property & Construction Equities (Mar 03 ~ Mar 2009)<br />10<br />Sources: www.yahoo.com.hk<br />
    11. 11. Hong Kong Property Market & Equity Market<br />Monthly Returns between Equity Market (Hang Seng Index) and Property Market (Centa-City Index) – Apr 1999 ~ Mar 2009<br />11<br />
    12. 12. Hong Kong Property Market & REIT<br />Monthly Returns between Listed Property Equity (REITs) and Property Market (Centa-City Index) – Nov 2007 ~ Mar 2009<br />12<br />
    13. 13. Hong Kong Equity Market & REITs<br />Monthly Returns between Equity Market (Hang Seng Index) and Listed Property Equity (REITs) - Nov 2007 ~ Mar 2009<br />13<br />
    14. 14. The Objectives<br />To Study the return distribution of HK property market and its correlation to equity market, and <br />To answer the following questions:<br />Correlation Test:<br />Property Market (CCI) to Equity Market (HSI), <br />Property Market (CCI) to REITs<br />Property Market (CCI) to Equities of Property & Construction Companies<br /> (P&C Constituent), and <br />Equity Market (HSI) & REITs<br />Return Comparison: is property market do better than<br />Market return (RCCI – Rm) <br />HKMA saving rate (RCCI – Rf)<br />REIT (RCCI – RREIT)<br />Equity of Property & Construction Companies (RCCI – Rppty_stock)<br />Impact of economic factors to Property Market’s performance (sensitivity analysis of CCI’s response to various economic factors, such as GDP, inflation rate, HSI, unemployment rate, risk-free rate, lending rate, agreement of sales & purchase of property … etc. By running regression and ANOVA)<br />14<br />
    15. 15. Our Findings<br />15<br />
    16. 16. The Background<br />Hong Kong Property, Stock Market, and REIT <br />
    17. 17. HK Property Market<br />Market was hard hit with further downward adjustments <br />Average effective office rental in the Grade A market slipped further <br /> by 15.7% quarter vs quarter to HK$47.56 per sq ft per month <br />Average luxury residential price declined 7.4% quarter vs quarter <br /> to HK$10,630 per sq ft <br />Retail property adjustment was less severe than that in 2003 <br />Industrial rentals fell 9%-10% quarter vs quarter <br />17<br />
    18. 18. Centa-City Index –Measurement for Private Ownership<br /> To Provide information to the public as a source of reference on trends in Hong Kong's property market, Centaline Property Agency Limited and City University of Hong Kong jointly developed a index that reflect the Hong Kong property price trend. <br />Centa-City Index (“CCI”)<br />Centa-City Leading Index (“CCL”)<br />18<br />
    19. 19. Centa-City Index –Measurement for Private Ownership<br /> Centa-City Index (“CCI”)<br /> A monthly index based on all transaction records as registered with the Land Registry to reflect property price movements in previous months.<br />  <br />19<br />
    20. 20. Centa-City Index –Measurement for Private Ownership<br /> Centa-City Leading Index (“CCL”)<br /> A weekly index based on the current preliminary contract prices in Centaline Property Agency Limited transactions that monitors the up-to-date property price variations <br />20<br />
    21. 21. REITs –Measurement for Public Ownership<br />Real Estate Investment Trust ("REIT")provide similar structure for investment in real estate as mutual funds provide for investment in stocks. <br />It can be publicly or privately held. Public REITs are traded on public stock exchange, like HKEx. <br />REITs is a tax designation for a corporation investing in real estate that reduces corporate income taxes. In return, it is required to distribute 90% of their income to investors. <br />21<br />Source: HKEx, HSI<br />
    22. 22. REITs –Measurement for Public Ownership<br /> The key statistics to look at in a REIT are its NAV (Net Asset Value), AFFO (Adjusted Funds From Operations) and CAD (Cash Available for Distribution). REITs face challenges from both a slowing economy and the global financial crisis, depressing share values by 40 to 70 percent in some cases<br />22<br />Source: HKEx, HSI<br />
    23. 23. REITs –Measurement for Public Ownership<br />The Hang Seng REIT Index (“REIT Index”) is a benchmark that tracks the performance of REITs listed in Hong Kong.<br />Launch in late Oct 2007<br />Moderate correlation with Hang Seng Index<br />Constituents: <br />23<br />Source: HKEx, HSI<br />
    24. 24. Listed Equity in Property & Construction Market – as benchmark<br />The HSI – Properties Sub-Index is a benchmark that tracks the performance property and construction companies listed in Hong Kong.<br />High correlation with Hang Seng Index<br />Constituents:<br />24<br />Source: HKEx, HSI<br />
    25. 25. The Data<br />The Sampling Process & Data Description<br />
    26. 26. The Assumptions <br />Independent samples<br />Normal distribution<br />Similar properties & REITs face similar market condition and have their returns behaved similarly<br />26<br />
    27. 27. Data Description<br />27<br />
    28. 28. Sampling Process <br />The study period is 10 years, from Apr 1999 to Mar 2009. <br />Due to limited data provided, the study on HK REITs is limited to a relatively short period of time, from Dec 2007 to Mar 2009. <br />For each of them, calculated descriptive statistics and correlation among each investment tools<br />Then, apply quantitative tests to answer our questions<br />28<br />
    29. 29. Our Approach<br />The Analysis: Statistical & Quantitative Approach<br />
    30. 30. Assumption: Property Returns Normally Distributed<br />Returns Distribution<br />Approximately normally distributed<br />Symmetric around 0<br />Bell-shaped<br />Affected by sample size<br />30<br />
    31. 31. Hypothesis Testing & Regression Analysis<br /> Hypothesis Testing or Regression will be preformed to exam the relationship between property market and various financial tools in view of:<br />Correlation <br /><ul><li>CCI & HSI
    32. 32. CCI & REIT
    33. 33. CCI & properties & construction companies’ stocks
    34. 34. REIT & HSI</li></ul>Returns comparison between CCI and the followings<br /><ul><li>Market return,
    35. 35. Risk free rate,
    36. 36. REIT, and
    37. 37. Property & Construction companies stocks</li></ul>Economic Factors effects on CCI, such as unemployment rate, best lending rate, GDP, price level, deposit saving rate, … etc.<br />31<br />
    38. 38. Hypothesis Testing<br />1. To test correlation between two returns, r1 & r2<br />2. To test returns between two investment tools, r1 & r2<br />Ho: ρ1,2 = 0<br />H1: ρ1,2 ≠ 0<br />Choose t test (∵assume normally distributed & unknown variance)<br />5% & 10% level of significance<br />Degree of freedom = n - 2<br />Two- tailed test<br />Reject Ho if t value > ± t(α/2, df)<br />Ho: r1 – r2≥ 0<br />H1: r1 – r2< 0<br />Choose t test (∵assume normally distributed & unknown variance)<br />5% & 10% level of significance<br />Degree of freedom = n1 +n2-2<br />One- tailed test<br />Reject Ho if t value > - t(α, df)<br />32<br />
    39. 39. Regression<br />We use multiple regression model: <br />Dependent Variable: Property Market Return (i.e., CCI monthly returns)<br />Candidate of Independent Variable: <br />Equity Market Return (i.e., Hang Seng Index)<br />Price Level (i.e., CPI or inflation rate)<br />Best lending rate<br />Unemployment rate<br />GDP<br />Risk free rate(HKMA exchange fund bill yield rate)<br />Saving deposit rate<br />Agreement of sales & purchase<br />33<br />3. Regression Analysis<br />
    40. 40. Our Findings<br />Results & Limitation<br />
    41. 41. Results – Hypothesis Testing<br />35<br />
    42. 42. Results – Regression Analysis<br />36<br />
    43. 43. Limitation<br />Strict assumption:<br />Returns are normally distributed,<br />linearity effect: The R2 between CCI and HSI only suggests that there’s no linear relationship. How about any others non-linear function such as , 2nd order, logarithm function, etc.<br />Data on REIT is relatively short period<br />HK land supply policy is tight which has <br /> significant impact on property pricing<br />Seasonal factor does not included in <br /> this model<br />Time lagged effect – unknown period <br /> of time & issue on auto-correlation<br />37<br />
    44. 44. Summary<br />Our conclusion<br />
    45. 45. Conclusion<br />In terms of the hypothesis testing, regression analysis and designated quantitative approaches, investors investing in property market will gain better return than that of equity market over a mid to long-term investment horizon. (10-year investment period)<br />39<br />
    46. 46. Conclusion<br />Our Suggestions:<br />Other measureable factors in the real world should be considered:<br />Time lagged effect: need to estimate how many period of lag,<br />Seasonal effect: add 11 dummy variable<br /> Non-linear relationship between returns, such as 2nd order or natural-logarithm, to be considered.<br />40<br />
    47. 47. Reference<br />Centaline Property Agency Limited (www.centanet.com.hk)<br />Centadata (www.centadata.com)<br />Hang Seng Indexes (www.hsi.com.hk)<br />Hong Kong Exchanges and Clearing Limited (www.hkex.com.hk)<br />Hong Kong Monetary Authority (www.info.gov.hk/hkma)<br />The Land Registry (www.landreg.gov.hk)<br />Midland Realty (www.midland.com.hk)<br />Yahoo HK Finance (www.yahoo.com.hk)<br />Census and Statistic Department (www.censtatd.gov.hk)<br />Corridor International, the Knowledge<br />Corporate Finance – Theory and Practices, 2nd edition, Damodaran, Wiley<br />Econometric Methods, 4th edition, Johnston, DiNardo, McGraw-Hill <br />Essentials of Investments, 7th edition, Bodies, Kane, Marcus, McGraw-Hill<br />Quantitative Investment Analysis, 2nd edition, Defusco, McLeavey, Pinto, Runkle, Wiley<br />41<br />
    48. 48. 42<br />Questions and Discussion<br />

    ×