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Simulating the cyclically adjusted returns to UK property lending

Simulating the cyclically adjusted returns to UK property lending Purpose – 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. Design/methodology/approach – 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. Findings – 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. Research limitations/implications – No account taken of risk mitigation strategies used by lenders such as cross-collateralisation. Practical implications – 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. Social implications – Reduced chance of resource misallocation and recession due to excess real estate lending. Originality/value – Very limited information on private real estate debt returns. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Property Investment & Finance Emerald Publishing

Simulating the cyclically adjusted returns to UK property lending

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1463-578X
DOI
10.1108/JPIF-06-2014-0045
Publisher site
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Abstract

Purpose – 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. Design/methodology/approach – 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. Findings – 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. Research limitations/implications – No account taken of risk mitigation strategies used by lenders such as cross-collateralisation. Practical implications – 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. Social implications – Reduced chance of resource misallocation and recession due to excess real estate lending. Originality/value – Very limited information on private real estate debt returns.

Journal

Journal of Property Investment & Finance – Emerald Publishing

Published: Feb 2, 2015

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