Academic journal article Journal of Real Estate Literature


Academic journal article Journal of Real Estate Literature


Article excerpt


Globalization of all forms of real estate investment has increasingly demanded that performance benchmarks of high quality and international standards be made accessible to investors and fund managers. For the first time in Ghana, residential price and rent series are developed from hedonic models. These time series are used to generate other performance indicators-measures of investment yields and total returns (nominal and real)-in a rapidly growing residential real estate market, using transaction-based data from Accra and Tema. Overall, residential total returns have run at annualized rate made up of a relatively stable income return and highly volatile capital growth between 1992 and 2007. Across investment markets, the differences in long-run returns have been in large part driven by variation in rates of rental value growth.

The development of real estate performance indicators such as price indices, yields, and total returns-real and nominal-promotes improvements in the analysis of markets and risk. Performance indicators provide knowledge and a better understanding of market dynamics. These indicators, in turn form the basis for modeling the causal relationships between real estate markets and the economy, and may provide insight into a market's contributions to national development. Perhaps, of supreme importance is the opportunity that well-constructed performance benchmarks provide for individual assets as well as portfolios of real estate investments that can be compared to other asset classes such as Treasury bills and equities or stocks.

Signals generated by real estate price indices assist investors, analysts, and researchers with making more informed investment decisions. In addition, these indices are likely to facilitate the creation of real estate indirect investment products. Real estate price indices as a deflator of property expenditures are relevant in real estate finance.

Real estate is a highly heterogeneous good that is transacted in markets with inextricably intertwined high transaction costs. Liquidity issues and government intervention in the markets further complicate the observation of general price changes. The difficulty in observing the true price movements of real estate markets is a fundamental concern that underpins the construction of a real estate price index.

Within Europe, the United Kingdom has the richest experience in the construction of real estate performance indices. Some of the indices were established in the 1970s and have been met by a wide range of competing indices constructed by actuaries and non-real estate specialists such as Combined Actuarial Performance Services (CAPS).

Fundamentally, and most importantly, there is the need to compare returns from the various investment vehicles and consider their levels of risk. In the U.K., for example, the quantitative movement rooted in the 1960s and 1970s resulted in a growing demand to analyze the returns and risks associated with investments. External pressure created by deregulation of the U.K. Stock Exchange in 1986 further increased the demand for quantitative analysis to support asset class decision-making. For real estate to be included in this framework as well as the debate of its continuance as an asset class, it became necessary for its performance to be quantifiable.

Ghana is a West African country with Cote d'Ivoire, Burkina Faso, and Togo as neighbors. It gained independence from Britain on March 6, 1957 and has a population estimated at 24 million with 52% located urban centers (World Bank, 2012a). Since 1992, the country has had a stable democracy and is widely considered as a regional model for political and economic reform in Africa. Rich in natural resources such as gold, diamonds, manganese, bauxite, timber, and oil, Ghana is the world's second largest producer of cocoa. It is classified as a lower middle income economy with an annual GDP growth pegged at 5.7%; inflation is still high at 10. …

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