Addae-Dapaah, K; Ho, DK; Tan, YF; (2010) Value versus growth real estate investment strategy: is the win a flash in the pan? In: Lombardi, SM, (ed.) Real Estate Investment Market. (pp. 31-74). Nova Science: New York, NY, USA.

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Abstract

The superiority of the contrarian investment strategy, though well attested in the finance literature, is being questioned in some quarters on the pretext that the gap between the performance of value and growth investment narrows over time. If this is proven to be true, it would imply that value real estate investment may not be advisable given that real estate is a medium to long term investment. This paper uses empirical real estate investment return data from 1985Q1 to 2005Q3 for US, and some Asia Pacific cities to ascertain whether the superiority of "value" over "growth" real estate investment is a "flash" in the pan, i.e. unsustainable. The office, industrial and retail property investments are examined in the context of the value-growth paradigm, and complemented with mean reversion and stochastic dominance tests. In addition to confirming the relative superiority of "value" over "growth" property investment, the results show that office and industrial property investments exhibit return reversal. This implies that the "win" is sustainable. Although the returns from retail property investment display inertia, the results of stochastic dominance test validate the relative superiority of "value" over "growth" property investment for all the three sectors. This implies that fund managers who traditionally have been favoring prime (i.e. growth) property investment may have to reconsider their investment strategy if they want to maximize their return.

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