Academic journal article Journal of Real Estate Literature

The Swedish Property Index and Its Usefulness for Research

Academic journal article Journal of Real Estate Literature

The Swedish Property Index and Its Usefulness for Research

Article excerpt

Abstract

This study presents the extensive dataset that has been created by the Swedish Property Index, SFI/IPD. The paper focuses on the general usefulness and availability of the SFI/IPD dataset for research purposes within property performance, management, operation and appraisal. Important dataset variables are discussed, possible research topics are outlined and some illustrative empirical analyses are presented. Furthermore, a brief review of property indices and related literature is presented.

Introduction

Not more than two decades ago, only two nationwide property performance indices existed, the American Russell-NCREIF and the British IPD indices. However, the number of property performance indices for various property markets over the world is gradually increasing. This is hardly surprising. As international property investment is still severely restricted by lack of transparency, it is rather a wonder that property indices are not yet established in many more, not to say most, markets. See Exhibit 1 for a list of some important nationwide property performance indices.1

The international investor needs information on the institutional framework in foreign markets, as well as reliable measures of risk and return in the various sub-markets of each national market. Property performance indices provide investors with both. From a financial point of view, this is their most important purpose.

The second major role of property performance indices is to provide property owners, in particular the index member companies, with information that is useful for evaluating property management and investment profitability. Property owners use index results as benchmarks when analyzing the past performance of their own portfolio, and when forming strategies for future investment activities. See Brennan (1991) and Huele, Hordijk, Seyffert and Dijkstra (1997) for further discussion regarding the benefits of property performance indices and the problems associated with developing them.

Property indices are presently building up impressive datasets. Firstly, these datasets can of course be regarded as a cross-section, or a series of different cross-sections. Secondly, after a sufficient number of years there are enough data points to apply time-series analyses. Thirdly, as each individual piece of property can be identified over time, it is possible to treat the dataset as a panel, applying cross-section time-series analyses.

Variable definitions, appraisal guidelines, sub-market aggregation, etc., vary over different indices. Furthermore, the number of variables that are collected for each property differs from one index to another. It is therefore relevant to keep the international property research community updated on these differences, as well as the research possibilities that are unique to each index.

In this article information regarding one of the younger indices, namely the Swedish SFI/IPD is presented. The index has only been reported from 1997, and only annually, but it is still highly interesting for a property research audience because of the rich number of variables collected.2 Furthermore, SFI/IPD encourages academic researchers to perform analyses of the data that can improve the transparency of the Swedish property market. Thus, the dataset is comparatively accessible for researchers.

Descriptive statistics on national property performance indices have previously been reported in the Journal of Real Estate Literature and elsewhere and several empirical studies have used property index data for the analyses. Diehl (1993) presents the NCREIF Index in the United States. He discusses the purpose, background and content of the index. The seven annually collected variables in the dataset are defined and return series for the index and sub-indices are reported. He discusses limitations in the use of the index, but emphasizes the excellent research possibilities that the index provides. …

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