This research investigates the significance and risk-adjusted performance of Asia-Pacific property that could provide invaluable roles in mixed-asset portfolios, both locally and internationally. Despite some critical trends in the global property investment universe, such as expected growth in the Asia-Pacific property markets for the next 20 years and increased institutional investors' interest in unlisted property funds and sub-sector real estate investment trusts (REITs) in the Asia-Pacific region, very little research has been done on the role of Asia-Pacific property, especially in the areas of unlisted property funds and sub-sector REITs. This thesis is one of the first studies to focus on an empirical analysis of the performance and role of Asia-Pacific unlisted property and sub-sector REITs. There are three major analysis parts to this research. The first is performance analysis, focused on the risk-adjusted returns. The second is a diversification benefit analysis, which shows the potential benefits of investing in unlisted property funds and sub-sector REITs in domestic mixed-asset portfolios. The third analysis part of this research involves portfolio analysis and optimal asset allocation using Modern Portfolio Theory (MPT); the efficient frontier and optimal asset allocation diagrams are used for a full understanding of these analyses. This study also examines the impact of the smoothing effect on unlisted property funds and direct properties, which might overstate the performance and role of these property assets. An analysis on the long- and short-term linkages of unlisted property funds with other asset classes has been undertaken to understand the relationships between asset classes. In regard to international performance and portfolio analysis, the research uses three-month forward contracts as a hedging tool, and then hedged and unhedged risk-returns are analysed and compared with USD returns in the Asia-Pacific property markets. The analysis of Asia-Pacific unlisted property funds covers the three largest property markets in Asia-Pacific; namely, Australia, Japan and China. The sub-sector REITs analysis in the Asia-Pacific region includes Australia, Japan, Singapore, Hong Kong and Malaysia, the five most active REIT markets in Asia-Pacific. The sample period for the analyses is from Q1 2010 to Q4 2015 and quarterly total return indices or returns are used for investigating this performance. The results from the three analyses show some key outcomes: Unlisted property funds have superior risk-adjusted return characteristics to local shares (Australia and China), property companies (China) and REITs (Australia), while Japan unlisted property funds failed to provide any superior risk-adjusted return to local assets, including shares, REITs and bonds. Unlisted property funds in Australia, Japan and China show very low correlations with local shares and bonds (Australia and China only), indicating excellent diversification benefits in domestic mixed-asset portfolios. The roles of unlisted property funds in domestic mixed-asset portfolios are significant, having average allocations, without restriction, to the mixed-asset portfolio of 34.9%, 18.5% and 50.7% in Australia, Japan and China respectively. With a 10% maximum asset allocation restriction, unlisted property funds accounted for 9.6% in Australia, 8.1% in Japan and 8.8% in five-asset mixed portfolios. De-smoothing affected the risk levels in unlisted property funds (with 66%, 76% and 120% higher risk in Australia, Japan and China respectively than original smoothed data), but their roles in mixed-asset portfolios remained almost the same in Australia and China and dropped significantly in Japan. No long-term linkages were found between unlisted property funds and other assets in Australia, Japan and China, including both smoothed and de-smoothed analyses. Sub-sector REITs provide better risk-return performance than local benchmark REITs. In Australia, four (all except the diversified REITs sub-sector) out of five sub-sector REITs outperformed local benchmark REITs and five (all except office) out of six sub-sector REITs in Japan, three (office, industrial and health care) out of six in Singapore, two (diversified and retail) out of four in Hong Kong and one (Islamic) out of two in Malaysia sub-sector REITs achieved higher returns than local benchmark REIT returns. At the portfolio level, by including specialty REITs (Australia), hotel REITs (Japan), health care REITs (Singapore), diversified REITs (Hong Kong) and Islamic REITs (Malaysia) instead of local benchmark REITs in the mixed-asset portfolios, the portfolios could enjoy additional 1.2%, 2.8%, 1.1%, 1.9% and 0.5% returns per annum at the same levels of risk respectively. Returns on international mixed-asset portfolios are significantly affected by hedging strategies. For example, a hedging strategy (using three-month forward contracts) affected negatively in Australia and Japan, but positively in China. The roles of Asia-Pacific property assets in international mixed-asset portfolios are significant in Australia, Japan and China. Without restrictions on asset allocations, portfolio returns are enhanced 8.2% (Australia), 4.0% (Japan) and 6.4% per annum (China) by adding three Asia-Pacific property assets to local shares and bond portfolios. After imposing 10% asset allocations to all Asia-Pacific property assets in five-asset portfolios, portfolio returns are enhanced 1.9% (Australia), 0.7% (Japan) and 1.4% (China) per annum. These results provide valuable knowledge to many institutional investors not only in the Asia-Pacific regions, but also global institutional investors who are interested in entering these fast-growing property markets and seeking to implement diversified property investment strategies. Theoretically, this study could be a good guide for future research on unlisted property funds, sub-sector REITs in the Asia-Pacific region and the role of Asia-Pacific property in international mixed-asset portfolios. In particular, the findings of this study on sub-sectors for unlisted property funds and REITs should prompt more interest from researchers, as the Asia-Pacific property markets grow in the next few decades. Practically, the global investment universe is becoming more and more complex and traditional investments are not able to satisfy the sophisticated and detailed demands of investors and fund managers. Thus, this new area of research and its findings will be an excellent tool for fund managers to rebuild and diversify their investment strategies to create better and more detailed investment targets to meet the needs of investors.
| Date of Award | 2016 |
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| Original language | English |
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