Alternative Real Estate Research

Ling Hin Li

• Publisher: Taylor & Francis
• Year: 2014
• eBook ISBN: 9781317644835
• Edition: 1
• Topic: Business
• Subtopic: Business generale
• Index: Business

This book aims to provide insight into the "soft" side of real estate research and the interesting results and implications of the real estate research outside the traditional realm of investment/financial aspects. The book also attempts to answer what constitutes the so-called "soft-side" of real estate research if we shift our focus from the usual financial returns and investment analysis. It also attempts to address whether there is such thing as an alternative real estate research paradigm.

The book also argues that research in real estate should not only be limited to land and property market performance analyses as this may greatly impair the potential research implications of various real estate studies. The book argues that such analyses take on a very myopic view of real estate research.

This book will interest many who wish to learn more about the alternative aspect of real estate research which is more than just about investment analysis.

1 What is real estate research?

L.H. Li

Over the years, the term ‘real estate’ has been conveniently and automatically associated with ‘real estate development’ and ‘real estate investment’ especially in Hong Kong. I cannot resist the temptation of starting this book with two rhetorical questions: ‘What is real estate?’ and, hence, ‘what constitutes real estate research?’. A simple search on the Internet did not yield a direct definition for the phrase ‘real estate research’. Similarly, a search in the English-language Wikipedia afforded a response of ‘The page “Real estate research” does not exist’, with a large number of suggested sites in the area of real estate economics, real estate investment, real estate development and finance.¹ If there seems to be no definitive boundary for ‘real estate research’, we will first re-align our attention to just ‘real estate’.

According to Wikipedia and the Oxford Online Dictionary, ‘real estate’ is defined as property that consists of land and buildings.² However, most people tend to only associate ‘real estate’ with investment and monetary return rather than the presence and utilization of the physical structure of land and buildings. This is perhaps due to the fact that in some economies, such as Hong Kong, land and buildings tend to account for a relatively high value figure in the society and consequently also form a more effective vehicle for accumulation of wealth. This also explains why ‘real estate research’ tends to be investment-biased to the extent that some researchers would only regard research studies accepted by academic journals with a main focus on quantitative investment/financial analyses should be used as a benchmark for measuring different real estate (academic) institutions (Jin and Yu, 2011). Consequently, any research studies pertaining to the analysis of the impact of the use of buildings and land but not directly related to investment or business studies will be regarded as social science studies rather than real estate research. My third rhetorical question in this book therefore becomes, ‘does real estate research have to be just about pricing/investment analysis?’

Without an immediate answer for this question, let me point out that real estate as an investment vehicle is quite different from other investment opportunities. Apart from the monetary and financial return, real estate has a much stronger physical presence in society that makes people notice. It is this aspect that most conventional real estate research studies tend to pay less attention to. What I and some of my students would like to argue in this book is that there is also a ‘soft’ side of real estate research that would also provide the same interesting results and implications as the investment/financial side of real estate research already has. The next issue therefore is, what constitutes the so-called ‘soft’side of real estate research if we do not focus on pricing and investment analysis? Eventually, is there such thing as an alternative real estate research paradigm?

Alternative real estate research, as the title implies, is similar to other phrases with the same ‘alternative’ prefix, such as alternative medicine implies an alternative approach to achieve the same outcome. This outcome in the realm of real estate research is a more comprehensive understanding of how a certain real estate decision or strategy impacts on different aspects or networks of our society. Since real estate is defined as ‘buildings and land’, real estate decision or strategy therefore also encompasses land use strategies and decisions related to the use of buildings, which leads directly or indirectly to the consequences of the chains of events in these different aspects or networks of our society. Apparently, there are many socio-economic or even political issues that will fall into this category of definition than just business- or investment-related topics.

To delineate or even to revamp the boundary of real estate research is not an easy task, especially when there is a deeply rooted perception in our society in Hong Kong that the mere term ‘real estate’, or 房地产 in Chinese, has to evolve around the concept of money only. This is especially the case in the recent years of Hong Kong where the whole society has been inundated with an anti-real estate development (or developer) sentiment. Consequently, any term with any hint of association with ‘real estate’ is almost automatically pigeonholed into the ‘business’ and ‘investment’ department. When society starts to project a negative sentiment towards the business and investment sector, people also project the same magnitude of negative sentiment towards ‘real estate’ since the business/investment sector in Hong Kong is so intertwined with the ‘real estate development’ sector.

Real estate of course entails the purchasing and selling of land and properties, and hence investment return and analysis from such activities is an important element in real estate research. To conclude that research in real estate should only be limited to land and property market performance analyses is to greatly impair the potential research implications of various real estate studies, not to mention that this is a very myopic view of real estate research. The question is, are real estate decisions solely business decisions, in that only a business view can help decipher a more rational approach in making such decisions?

Real estate decisions do not just impact on the business community or financial consequences as real estate decisions include two sets of outcomes. First of all, there will be financial and business outcomes as real estate activities involve monetary transaction, and real estate assets are probably one of the few commodities that will have an increased value even though they have been utilized and occupied before. However, even in the case of real estate investment trusts (REITs) where trading of the investment is based on share prices, some forms of built structure would be involved that also determines the performance of this investment. As such, there is always a saying in the market that real estate investment is in fact buying bricks and mortar. This contrasts distinctively with other forms of investment which can be purely paper-based or even in electronic format. This leads to the second type of real estate decision outcome, namely built structure of various scales. This built structure represents part of the physical framework of our society that will eventually impact on how we carry out our daily activities in all other aspects within this physical envelope, including of course business activities.

Even in the simplest form of real estate decision, such as a family purchasing a new flat, it would trigger a set of consequences including the financial burden pertaining to this purchase, as well as adjustment of the family members to the new physical environment surrounding the new home. Consequently, family members may have to adjust to the new home-to-work or home-to-school commuting routes, new neighbours as well as new community culture. These new adjustments all originate from that real estate decision at the very beginning. If real estate is simply regarded as part of business studies, then the role of real estate research as a multi-disciplinary academic research field will be greatly diminished. This again feeds into the vicious cycle that real estate will be forever associated with investment and business analyses in the eyes of the general public as well as in the academic world, and the latent impact of this research field in our society will not be fully explored.

I have had numerous experiences of facing dubious looks from the other side of the table when elaborating this belief to people that there is an alternative set of real estate research studies that go beyond mere business and investment analyses. Senior members in the university have questioned the rationale for staff, such as myself, with a background in real estate to wander into this ‘alternative’ side of real estate research topic areas. Such experiences range from research grant application to a description of research profiles in internal promotion exercises. To me, real estate research sits comfortably as a bridge linking the quantitative and numerical side of investment and economic research to the relatively social and qualitative side of social science research (as depicted in Figure 1.1 on page 4). Real estate research should therefore be regarded as the overlapped area between the two subsets of academic research fields, namely social science research and economic research.

I have also been cast with dubious looks when I tried to explain that a researcher with a traditional education in real estate, and professional experience in general practice surveying (again, such as myself!) should not be barred from attempting to apply his or her knowledge in the real estate market or real estate research to explain other aspects in society that may not be ‘real-estate-related’ in the conventional sense. After all, most of the human activities in the urban environment take place within a certain real estate environment one way or another. Educational research, for example, cannot avoid the issue of school location and neighbourhood land use planning, which is to a certain extent a consequence of some real estate decisions. Urban studies cannot distance itself from understanding how land and the housing markets work. If researchers are to be confined to a narrowly defined research field and not encouraged to explore the potential application of their own expertise in other possible frontiers, a lot of ground-breaking work might not have happened in the academic world. I wish to quote Professor Clive Granger in his Nobel Lecture in Economics acceptance speech in December 2003 to illustrate this point. While explaining his important work in the field of cointegration, he said,

Before considering the usefulness of the new methods of analysis, I would like to take a personal detour… Previously in my career, I have been Chair of two economics departments, yet I have received very little formal training in economics…Whatever other knowledge I have, it has come from living amongst economists for about forty years, by osmosis, attending seminars, having discussions with them, and general reading. My question is: does this say something about me, or something about the field of economics? I think it is true to say that I am not the first Nobel Prize Winner in economics to have little formal training in economics… Economics does have a multitude of different aspects, applications, and viewpoints which has to each for their own basis, at least in practice… (pp. 363–4).³

Figure 1.1 Positioning of real estate research.

It would be grossly pretentious of me to try to compare myself with a Nobel laureate, but I find a lot of truth in Prof. Granger’s interesting statement and wish to elaborate in this book that it is highly possible to examine various socioeconomic issues from a real estate research angle, even though I was not formally trained as a sociologist or social scientist. There is indeed an alternative aspect of real estate research than just investment analysis.

I have asked my student to help me on a very quick search of our online library to see if there has been any research done into crossing real estate and other academic disciplines. Interestingly enough, he found a number of multidisciplinary studies, including (but not limited to) such areas as real estate and green building (Wedding, 2008; Aroul, 2009); real estate and tree protection (Gerstle, 2008); real estate and nuclear waste transportation (Conway, 2004); and real estate and IT revolution (Dickson, 2002). Again, it seems that real estate forms a good basis for an understanding of various social issues that are not at all related to financial or business analyses, but have an angle in the utilization of land and buildings.

Real estate market – what is it?

I usually start my first lecture in the first year programme with a simple question: ‘What is the real estate market, and where is it?’ In essence, what do we see in the real estate market? Is it purely a group of businessmen or investors trying to maximize their profit through buying, selling and renting, similar to the famous board game ‘Monopoly’? If this is the case, of course, real estate market warrants attention from merely the fields of business, economics and investment, in a way that other financial assets such as the stock market would. But we know that a lot of concerns in the real estate market are not just about whether it is making adequate investment return, but rather whether real estate is affordable. While no one would advocate the government make the share price of some listed companies in the stock market or the price of gold more affordable to the general public, similar demand has been made in the real estate market. In recent years, the phrase ‘stabilizing property market’ has become an integral part of the political slogan adopted by our government to deal with the runaway housing market in Hong Kong. Slogan aside, can the property market be stabilized and what are the consequences of stabilizing the property market?

In the period between early 1996 to September 1997, the general property price in Hong Kong took a quantum jump of 64.9 per cent,⁴ and at the same time, the average number of monthly transactions within this period was 13,810. This came to a peak in April 1997, when it exceeded 23,000 transactions in that month. Two years later, the market collapsed at an unprecedented rate when average residential price level plummeted by 45 per cent by the end of 1999 compared to September 1997. Transaction volume shrank to an average of 8,400 per month, with the lowest point in February 1998, when it just hit slightly above 4,200. This pattern of low-property-price–low-transaction-volume and high-property-price–high-transaction-volume repeated itself during the 2003 SARS epidemic and when hot money flew in during the recovery from the financial tsunami in early 2009.

What do these figures tell us? They tell us that basic consumer behaviour in the property market (as well as investment market in general) is quite different from the expected rational behaviour in any other consumer product markets. In most markets selling consumer durables, such as clothing, toys or mobile phones, consumers defer purchasing when faced with price increases. When taxi fares increase, more people take buses or the underground railway. On the other hand, when price drops, they tend to buy more. This is a rational behaviour generally predicted under the laws of demand and supply. In the real estate market, things work differently because consumers sometimes behave differently or even irrationally. In this market, consumers make a purchase decision on two aspects. There is a consumption requirement (namely for immediate occupation) similar to other products, and there is a long-term investment purpose that is dependent on future re-sale value and cash income flow in between. To make it more complicated, sometimes, it can be both. Consequently, demand factor is more volatile in the housing market compared to commodities, or even other investment products. Therefore, the government will not face that kind of social pressure for action and response if the stock market index in Hong Kong, the Hang Seng Index, soars to more than 35,000 points (at the time of writing, it is around 22,000 points). One would therefore ask what is the government supposed to do when property prices rise too swiftly and by too much? To answer that, one needs to answer another question: What do people want from government action in the housing market?

Homeownership is different from just accommodation, although a direct and core reason for homeownership is to achieve a decent level of accommodation. While accommodation needs cannot be satisfied in a deferred manner, homeownership needs can be. In other words, people do not need to be a homeowner in order to be housed. Renting is always an option as far as finding an accommodation is concerned. However, renting is not normally preferred because, to most people, rental payment is a cost and cannot be re-captured at the end of the accommodation period, unlike mortga...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• List of figures
• List of photographs and map
• List of tables
• Notes on contributors
• Acknowledgements
• 1 What is real estate research?
• 2 Welfare housing – friends or foes?
• 3 Children’s perception of the built environment
• 4 Environment and children – how do children sense their land use environment?
• 5 Market behaviour and real estate
• 6 Built environment and senior citizens
• 7 Housing choice and community attachment
• 8 Conclusion: can real estate research have a ‘soft’ side?
• Bibliography
• Index