Real estate is an illiquid investment with cyclical returns, so risk management\ntechniques should be used for sustainable returns. The risk management\ntechniques include asset based, portfolio, insurance and derivatives\nsolutions. Asset based solutions include the risk character of the real estate,\nbased on where it�s located and how well it is developed. Some property\nsuch as foreclosure and those require maintenance is riskier than others.\nPortfolio solutions allow real estate companies to include real estate with\ndifferent location and segments such as office and retail. Using this, the risk\nis limited to the systematic component, where asset based-idiosyncratic risk\nis tried to be reduced when included enough number of assets to the basket.\nThe management should be capable of determining which risks taking and\nwhich to transfer. Some risks such as earthquake, fire, vehicle crush, terrorist\nactivities are rare in nature but can cause severe damage when it takes\nplace. The insurance policies can cover these events which most of the time\nare reinsured. In addition derivatives are available to hedge some of the\nrisks. These can be traded on the market or over-the-counter. By using derivatives\nit is possible to hedge interest rate risk, inflation, currency risks,\nand property price changes. To hedge interest rate risk which is also studied\nin this paper, instruments such as cap, swap, and collar are available. The\nresearch is investigating the role of interest rate risk in the performance of\nreal estate management companies. The variables used in this research are\n30 years treasury yield, and exchange closing price for CBRE Group Inc.,\nColliers International Group, and Jones Lang LaSalle Incorporated. The data\nis daily for the period 16 June 2004 and 19 June 2015. The methods used are\nJohansen Cointegration and Granger Causality. The results of the study indicate\nthere is a short-run and long-run relationship between interest rate and\nreal estate management firm stock performance. In other words, interest rate\nfluctuation is a critical risk in performance of real estate management companies.\nIn the paper, it is also discussed risk mitigation ideas for controlling this and other risks that real estate management industry is exposed.
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