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    The impact of residential property investors on house price escalation in Auckland, New Zealand : research report in fulfillment of the requirements for Doctor of Philosophy in Property, School of Economics and Finance, Massey University, New Zealand
    (Massey University, 2024-07-24) White, David Jon
    Affordability and home ownership in Auckland New Zealand has been in decline over the past decade. Since the Global Financial Crisis in 2008, house affordability has decreased at an unprecedented rate, largely attributed to house price escalation with some mitigation from wage growth and interest rate decreases. The decline in the affordability of owner-occupation compared to renting has been particularly pronounced in Auckland and this has led to a decline in home ownership and political interest in the role of investors that could contribute to price escalation. This perceived role of investors has resulted in policy changes aimed at discouraging speculation. This research investigates the pricing decisions of investors in the Auckland housing market and the link to house price escalation and affordability of housing. This research investigates whether this sustained escalation in prices can be explained by bounded rationality in pricing decisions by comparison to a normative model. The methodology adopted is a mix of qualitative and quantitative methods. Qualitative methods are used to gather the stated preference of investors in relation to their investment motivations and pricing decisions was obtained via structured interviews with investors and institutional influencers, with reference to behavioural economic concepts and frameworks. Quantitative methods are used to quantify at the aggregate market level the deviation from normative pricing, and to quantify for explanatory purposes those components of pricing decisions that contribute to overpricing, using the user-cost equilibrium model. It is concluded that investors are inclined to over-price houses compared to what is predicted by a normative model, largely due to an over-estimation of capital gain expectations and an under-estimation of systemic risks. This over-estimation of capital gain expectation is self-reinforcing and leads to sustained over-pricing which influences the market in aggregate and therefore house price escalation.
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    Essays on China's real estate market : a thesis presented in fulfilment of the requirement for the degree of Doctor of Philosophy in Economics at Massey University, Manawatu Campus, New Zealand
    (Massey University, 2024-04-10) Mao, Yiran
    This thesis examines the factors that affect the real estate market in China from the perspectives of sentiment, place-based policies, and tariff shocks. The results are presented in three stand-alone empirical chapters. Chapter 2 probes the influence of sentiment on house prices within China. We construct a novel social media sentiment index, which quantified the tone of Weibo posts relating to "housing market'' from 2010 to 2020 across China's 35 largest cities. This index can predict house price changes up to six quarters ahead, even after factoring in economic fundamentals. These findings, robust to numerous checks, are not driven by announced policy modifications, unobserved fundamentals, or censorship bias and therefore reinforce theories of social learning and, to a minor degree, of animal spirits. Chapter 3 investigates the impact of the merger of suburbs into urban districts on property prices, using Beijing as an example and utilizing a difference-in-differences approach, within an event study framework. The results show that such mergers lead to a substantial surge in house prices in the rezoned areas. In contrast, the non-rezoned border districts experience a decline, with localized impacts in both scenarios. The merger negatively affects the economically disadvantaged, evident by the pronounced decline in house prices for low-priced properties in non-rezoned border districts and a smaller increase in rezoned ones. Further analysis reveals that the merger has a positive spillover effect in surrounding counties, with the effect decreasing as the distance to the rezoned districts increased. Chapter 4 analyzes the impacts of the US-China tariff war on commercial building rents across Chinese cities using Bartik-style tariff exposure proxies. This analysis finds a one percentage point increase in the US tariff exposure resulted in a 1.03 percent decrease in commercial building rent growth after one quarter, ceteris paribus. In contrast, China's retaliatory tariff has no significant impact on the growth of commercial building rents. Additionally, the analysis reveals differences in rent responses, with areas of elevated US dependence showing intensified detrimental effects, while superior financial conditions, societal stability, innovation, and geographical placement showing mitigated effects. Furthermore, the chapter reports that tariff exposures from the US and China exerted their influences through different channels, subtly affecting rent growth. The insights derived from this thesis are pivotal for policy formulation in developing nations. Firstly, sentiment, prominently reflected through social media, exerts a tangible and foreseeable impact on real estate valuations. This indicates that policymakers should monitor public sentiment as a precursor for probable escalations or depreciation in property markets. Secondly, urban planning and rezoning decisions can induce significant impacts on housing values in local and neighboring markets. Thus, it is imperative for policymakers to judiciously evaluate the implications of such initiatives, particularly their repercussions on less affluent demographics. Lastly, external economic disruptions, like the US-China tariff war, can profoundly influence commercial real estate rents, especially those cities intertwined with international trade. The adverse effects are palpable in both China and the US, indicating a need for policymakers to fortify the robustness of property markets against external perturbations by diversifying economic partnerships and instituting provisional strategies.
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    Conceptualizing the challenges and contextual factors affecting property crowdfunding in New Zealand, and the response strategies of the real estate project finance industry : a thesis submitted in partial fulfilment of the requirements for the degree of Doctor of Philosophy, Massey University
    (Massey University, 2023) Montgomery, Nicolle A.
    During the past decade, property crowdfunding (PC) platforms in overseas markets such as USA and UK have grown rapidly and raised billions of dollars of finance for real estate projects. Yet, PC is struggling to gain acceptance in New Zealand, and the reasons why are not fully understood. It is also unknown how incumbents in the real estate project finance industry may strategically respond to PC, if or when it grows in the future. This study is a qualitative investigation into the challenges and contextual factors impeding the growth of PC in New Zealand, and the response strategies of the incumbents. In-depth one-to-one semi-structured interviews were conducted with 31 knowledgeable and experienced research participants from diverse stakeholder groups including PC platforms, bank and non-bank real estate project financiers, and the property industry. The research participants were largely from New Zealand, with a few from USA, Europe, and Australia. The primary data from interviews was complemented with extensive secondary data. The disruptive innovation theory (DIT) was used as the main theoretical tool, supported by literature on organizational legitimacy and reputation building for young firms, as well as legitimacy building in crowdfunding. The research showed that PC in New Zealand is small and nascent. PC platforms in New Zealand face several limitations, specifically, lack of: (a) transparency, (b) due diligence, (c) exit strategies and/or secondary markets, (d) scale and diverse properties, and (e) “crowds” of investors ready to invest. The study also found that numerous contextual factors are hindering the growth of PC in New Zealand, categorised as: (a) property developers, investors, and the construction industry, (b) cultural and behavioural factors, (c) regulatory framework for PC, and (d) population and income factors. Based on analysis of successful platforms in overseas mature PC markets, the study found that these limitations are solvable for New Zealand. Despite the challenges PC is currently facing, which must be resolved if it is to realize its potential, PC in New Zealand has a positive future outlook. Incumbents such as banks can strategically respond to PC in three main ways: (a) ignore PC, (b) collaborate with PC platforms, and (c) strengthen own business model, products and services. The study advanced a conceptual framework on challenges and contextual factors affecting PC in New Zealand, response strategies of the incumbents, and recommendations on how to solve the problems impacting PC platforms. This research makes several academic contributions. First, it contributes to build knowledge on PC in New Zealand, a hitherto unresearched and little understood topic. Second, the study contributes to DIT by testing its tenets, predictions, and conjectures in a previously unexamined context of PC in New Zealand. Third, this study contributes towards alleviating some of the inherent limitations and weaknesses of DIT. Fourth, the study found that New Zealand has a particularly high concentration of several adverse or unfavourable contextual factors in one single market that are impeding PC, and the real estate project finance industry has a low disruptive susceptibility. These findings have important implications for DIT. Fifth, the study delivers a comprehensive literature review from multiple disciplines, thereby contributing to the knowledge base in the PC field. Sixth, this study makes a methodological contribution. The qualitative methodology used has not yet been seen in previous studies on PC. By utilizing a qualitative methodology and collecting extensive primary data through comprehensive interviews with diverse stakeholders, the study shows the complexity of introducing a new innovation, from a contextual and behavioural perspective. Lastly, this study’s findings can benefit other small advanced economies. The challenges and problems faced by PC in New Zealand suggest some important lessons to be learnt by other similar small advanced economies. Numerous practical, policy, and social implications arise from this study. It makes specific recommendations to different stakeholders of PC, including PC platforms, developers, banks, investors, and the PC regulator in New Zealand, namely the Financial Markets Authority.
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    Ground leaseholders' perception of rent review risk : the impact of the availablilty heuristic : a thesis presented in partial fulfilment of the requirements for the degree of Doctor of Philosophy (Property) at Massey University, Albany, New Zealand
    (Massey University, 2019) Pope, Alan R.
    The aim of this thesis is to explore the adequacy of investor perception of market ground rent review risk, on ground leasehold value. Ground rent levels are a function of freehold value levels, so if at the time of review there have been freehold price increases, it follows that ground rents will increase. Increased ground rent at rent review time, will lead to lower ground leasehold value, as the cost obligations increase for the ground leasehold. Reports of ground leaseholder discontent with ground rents are therefore not surprising, however the literature to date does not appear to robustly explain how individuals anticipate and quantify this risk when making ground leasehold purchase decisions. Investigating if behavioural theory explains the relationship between a ground rent review and a ground leasehold purchase is undertaken. The objective is to determine if the ground leasehold tenure type is flawed by not being appropriately designed to account for ground leaseholder thinking. In order to form a hypothesis for testing, twenty-five semi-structured interviews with ground leaseholders were carried out. The semi-structured interviews pointed to ground leaseholders linking freehold and ground leasehold value increases together, not considering that the ground rent increases reduce the ground leasehold value, especially at rent review time. This incorrect correlation of freehold value growth to ground leasehold value growth, suggests that ground leaseholders are susceptible to the availability heuristic. In order to robustly test the application of the availability heuristic, experimental scenarios were put to forty property investors. The investors either completed a scenario with freehold growth as a manifestation of the availability heuristic (treatment), or not (control). The results showed that there was a statistical difference between the treatment and control groups, and in the posited direction, indicating that the availability heuristic explains the ground leasehold valuation behaviours of investors. These results are important because they show that knowledgeable market participants, in this case property investors, are not fully accounting for the ground leasehold rent review risk. Ground leaseholder concerns about ground rent review levels aired in the semi-structured interviews are genuine. The ground leasehold rent review procedures are not designed to account for ground leaseholders thinking and the tenure form accordingly requires revision where possible.
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    Essays on the information-usefulness of changes in fair values to investors and debtholders, and its effect on audit fees : evidence from Australian real estate industry : a thesis presented in partial fulfilment of the requirements for the Degree of Doctor of Philosophy in Accountancy at Massey University, Auckland, New Zealand
    (Massey University, 2019) Sangchan, Pinprapa
    This research investigates the decision usefulness of changes in fair value (hereafter, CFV) of investment property reported under IAS 40 and IFRS 13 to capital providers (i.e., equity investors and debtholders), using Australian Real Estate Industry data.¹ The motivation for this study stems from the ongoing debate on the beneficial effects of fair value reporting and their associated reliability trade-off (Barth, 2018; Power, 2010). This research further investigates the effect of change in fair value (CFV) of investment property on the monitoring cost proxied by audit fees in order to picture the pros and cons of the subjectivity involved in the fair value accounting-model. The alert issued by the International Auditing and Assurance Standards Board (IAASB) to discuss challenges in auditing fair value accounting estimates, and inconsistent evidence on the effect of the fair value application on audit fees motivate me to study the association between fair value application and monitoring cost. The decision usefulness of CFV study and the effect of fair value reporting on audit fees are organised into three different research essays: (i) value relevance of CFV and measurement-related fair value disclosure to equity investors; (ii) the decision usefulness of CFV and cost of debt; and (iii) fair value exposure, CFV, and audit fees. Essay One investigates the value-relevance of changes in fair values of investment property recorded under IAS 40 and IFRS 13. Using hand-collected data from the Australian Real Estate Industry, I find that changes in fair values of investment property are value-relevant for equity investors. I further find that the use of unobservable inputs in an active market (Level 3 inputs) does not diminish the fair value information content. I document that properties valued exclusively by directors have a significantly reduced value-relevance for their value changes, whereas property valuations made collectively by both directors and independent valuers have superior value relevance, possibly owing to the combination of inside knowledge and externally imposed monitoring. Collectively, the findings suggest that, in the real estate industry, where unobservable inputs are commonly used to determine fair values of properties, the fair values determined subjectively are perceived to be sufficiently informative and relevant. My findings have important implications for accounting standard-setters in considering whether an external valuation should be required and whether the extensive measurement-related fair value disclosure requirements are useful. Essay Two examines the decision usefulness of CFV of investment property reported under IAS 40 and IFRS 13 to debtholders. Using hand-collected data, the findings suggest that CFV of investment property lowers the cost of debt, implying that the fair value information is decision-useful to debtholders. The effect is more pronounced when the CFV is recognised as a gain. The results further suggest that unobservable inputs used for fair value measurement in an active market (Level 3 inputs) do not necessarily damage fair value information content. I also document that using the stand-alone director valuation in fair value estimates for investment properties diminish the information content of such fair value changes, even though director valuation is insightful in terms of asset-specific knowledge. In addition, I report that an extensive fair value measurement-related disclosure does not enhance the information content of fair value changes. Collectively, the findings suggest that in the real estate industry, where unobservable inputs are predominantly used to measure fair values of properties, debtholders view fair values sufficiently faithful and decision useful. Essay Three investigates the relationship between audit fees and both fair value exposure (the proportion of investment property to total assets), and changes in fair value, of investment properties. This study is motivated by the limited and inconclusive evidence on the effect on audit fees of full fair value reporting for illiquid assets. Using hand-collected data from the Australian real estate industry, I find a negative (positive) association between audit fees and fair value exposure (changes in fair values of investment properties). Findings also indicate that the use of unobservable inputs in fair value estimates for investment properties does not significantly increase audit risk and audit fees. Further, I find that audit fees are higher for firms having fair values of investment properties estimated by external and mixed valuers, compared to firms having fair values estimated by directors alone. This study enriches the audit fee literature by documenting auditors’ pricing decisions in an area that involves significant estimation and valuation risks. ¹ Decision-usefulness versus information usefulness are used interchangeably in this thesis.