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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

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

Agenda

Literature

Data

Analysis

Average Holding Periods

Determinants of Holding Periods

Holding Periods & Performance

Conclusion

data set

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)

data set1

Data Set

51.110 Observations... ...from 5 European Countries

analysis

Analysis

Average Holding Periods

average holding periods all years

Average

Median

Top 10%

Upper Q.

Lower Q.

Bottom 10%

Average Holding Periods (all years)

problem sample selection bias due to different time periods of data sets

Problem: sample selection bias due to different time periods of data sets

reducing datasets to the same time period:

1995-2012

average holding periods 1995 2012

Average

Median

Top 10%

Upper Q.

Lower Q.

Bottom 10%

Average Holding Periods(1995-2012)

problem holding periods are only observed for sold properties held properties are ignored

Problem:Holding periods are only observed for sold properties, held properties are ignored

”Survival Rates”

survival rates 1995 2012

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.

analysis1

Analysis

Determinants of Holding Period length

slide23

Problem:Censored data – Holding periods are only observed for sold properties, held properties are ignored

Heckman Correction

…in progress…

analysis2

Analysis

Holding Periods & Performance

conclusion i

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

conclusion ii

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

conclusion iii

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

thank you for your attention

Thank you for your attention.

Jan Reinert

jan.reinert@ipd.com

Portfolio Analyst, IPD Germany

PhD Candidate, University of Regensburg