Simulating the cyclically adjusted returns to UK property lending. Issue 1 (2nd February 2015)

• Record Type: Journal Article
• Authors: Barkham, Richard; Frodsham, Malcolm
• Is Part Of: Journal of property investment & finance. Volume 33:Issue 1(2015)
• Page Start: 66
• Page End: 80
• Publication Date: 2015-02-02
• Subjects: Real estate investment -- Great Britain -- Periodicals; Real property -- Valuation -- Great Britain -- Periodicals; Real estate development -- Great Britain -- Finance -- Periodicals; 332.6324094105
• DOI: 10.1108/JPIF-06-2014-0045
• Languages: English
• ISSNs: 1463-578X

Abstract

<abstract> <title> <x content-type="archive" xml:space="preserve">Abstract</x> </title> <sec> <title content-type="abstract-heading">Purpose</title> <p> – The purpose of this paper is to provide an indication of the returns to commercial property lending over the last 30 years in the UK. </p> </sec> <sec> <title content-type="abstract-heading">Design/methodology/approach</title> <p> – There is no long-term index of the returns to commercial property lending in the UK. This paper provides a partial solution by simulating the performance of bullet loans of various vintages, based on the value movements of the IPD index. </p> </sec> <sec> <title content-type="abstract-heading">Findings</title> <p> – On average over the long-term debt returns are higher than equity returns. However, in certain periods, the losses incurred by real estate lenders are very large. </p> </sec> <sec> <title content-type="abstract-heading">Research limitations/implications</title> <p> – No account taken of risk mitigation strategies used by lenders such as cross-collateralisation. </p> </sec> <sec> <title content-type="abstract-heading">Practical implications</title> <p> – Provides an alternative approach to that recommended by the recent IPF "Vision For Real Estate Finance" Document based on the use of ICR. Makes the case for a loan equivalent of the IPD index. </p> </sec> <sec> <title content-type="abstract-heading">Social implications</title> <p> – Reduced chance of resource misallocation and recession due to excess real estate lending. </p> </sec> <sec> <title content-type="abstract-heading">Originality/value</title> <p> – Very limited information on private real estate debt returns.</p> </sec> </abstract>