Real Estate Finance in the New Economy

The financial deregulation of the last quarter century has meant large flows of funds around the world seeking the highest risk-adjusted return for investors. Real estate is now established as an important asset class and advances in information technology provide the necessary tools to complement global developments in real estate finance and investment. A variety of investment vehicles have emerged, andReal Estate Finance in the New Economy examines these along with financing and risk in the context of globalization, deregulation and an increasingly integrated international world economy by exploring questions like: How have real estate financial structures evolved as economies grow and become internationalised? What role do economic change and financial systems play in the development of real estate investment? Are the risks associated with the new economy really new? What is the future direction for real estate financing? The authors develop an economic framework for discussions on individual financial products to examine how real estate financial structures change with economic growth and internationalisation and also to show how developments in real estate finance impact economic growth.

The financial deregulation of the last quarter century has meantlarge flows of funds around the world seeking the highestrisk-adjusted return for investors. Real estate is now establishedas an important asset class and advances in information technologyprovide the necessary tools to complement global developments inreal estate finance and investment.A variety of investment vehicles have emerged, andReal EstateFinance in the New Economy examines these along withfinancing and risk in the context of globalization, deregulationand an increasingly integrated international world economy byexploring questions like:* How have real estate financial structures evolved as economiesgrow and become internationalised?* What role do economic change and financial systems play in thedevelopment of real estate investment?* Are the risks associated with the 'new economy'really new?* What is the future direction for real estate financing?The authors develop an economic framework for discussions onindividual financial products to examine how real estate financialstructures change with economic growth and internationalisation andalso to show how developments in real estate finance impacteconomic growth.

Preface xiAcknowledgements xiii1 International Economic Developments since the 1970s1Introduction 1International trade theories: Setting the scene 2International goods and capital flows 3Theoretical models of trade 7The Dunning eclectic paradigm 19Porter's model of competitive advantage of nations 24Trading blocs and globalisation 27Conclusions 28Notes 28References 282 International Real Estate Markets: Evolution 31Introduction 31Size of property market 33User market 35Investment market 42Investor profile 48Development 50Financing of property 52International real estate activity and trade models 55Conclusions 59Note 60References 603 Financial Systems, Flow of Funds to Property andInnovations 63Introduction 63Bank-based and market-based financial systems 64Property investors and intermediaries 67Investment mechanisms 68Innovations 74Economic assessment of investment mechanisms 76Impact of new investment mechanisms on business culture andpractices 81Conclusions 82References 834 Property Investors, Investment Vehicles and Strategies85Size of property 85Investment and investors 86Property in investment portfolio 92Investment strategies 98Property investment and leverage 101Conclusions 103Appendix 4.1 104References 1075 Financial Markets, the New Economy and the Risk 109Introduction 109Value determinants of real estate in the twenty-first century112Theorising real estate linkages in the new economy 116Financing of real estate in new economy 119Leverage and risks 123Conclusions 126References 1266 Real Estate Asset Bubbles 129An introduction to cycles in real estate 129Expectations and bubbles 136Formation of real estate bubbles and its detection 139Key patterns of past real estate bubbles 140Explanations in the literature, new economy and role of credit149Conclusions 152References 1527 International Capital Flows in Property: PortfolioDiversification or Return Chasing 155Introduction 155Theoretical considerations in portfolio investment 159Direct property in multi-asset portfolios 162Direct property in property-only portfolios 164Indirect property investment in multi-asset portfolios 165Indirect real estate investment in real estate-only portfolios166Contradictions in research on diversification benefits frominternational property investment 167Capital flows and property returns 168Conclusions 170References 1708 International Financial Innovation, Real Estate and theMacroeconomy 175Introduction 175Real estate and macroeconomic interactions: Cycles and trends175Market cycles, risk and regional offices 187Bubbles in asset markets 209Risk management 210Observations and conclusions 212Notes 214References 2149 International Financial Innovation and Real Estate MarketPerformance 219Introduction 219Mortgage product development 219Why use debt? 220Risk analysis 222Variable risk 223The secondary mortgage market 224Institutions and market performance 228Cycles in real estate and the availability of finance 233Conclusions 235References 23710 Real Estate in the New Economy 239Introduction 239The new economy and world economic structure 240Real estate in the new economy 252Overview and conclusions 255Note 258References 259Index 261