An empirical study on the effect of real estate factors on the Hong Kong REITs during economic recession /$c by Chan Yuet Ming

Abstract

The study firstly evaluates the conventional asset pricing models of the Capital Asset Pricing Model (CAPM) and Fama-French Factors Model in HK-REIT. Next, the study provides a different perspective of pricing models from the angle of real estate and property by incorporating the real estate factors (average rental growth rate, occupancy rate, property diversification level and regional diversification level) into the multi-factor model. Utilizing the linear regression framework, the dissertation explains the significance of these real estate factors towards the return of HK-REIT, covering 11 existing HK-REITs from 2006 to 2023. The regression is also examined with statistical test in the aspects of multicollinearity and heteroscedasticity. The result suggests that the extensive real estate factors on the multi-factor model demonstrates limited improvement in the explanatory power (with less than 0.1 increase in R-square value). Besides, the rental revenue risks (average rent growth and occupancy rate) are more statistically significant whereas the diversification risks (property diversification level and regional diversification level) are not. Besides, the Pearson correlation test suggests the absence of multicollinearity across the variables whereas the Breusch-Pagan-Godfrey test on the other hand showcases the presence of heteroscedasticity. Furthermore, the study concluded with the limitations of the proposed model and the recommendation for further studies such as the exploration of new factors and the application to larger and mature REIT-market for higher validity and data availability.