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Research

29 ABR. 2018

Monitoring, managing and mitigating property ‘market’ risk

This paper examines portfolio risk management techniques and tools, commonly used in equity and bond portfolios to: measure, manage and mitigate property market risk / “beta”. The techniques used to measure and manage property market risk uses annual historical capital value returns of UK indices (Peter Scott’s data from 1920 and MSCI-IPD data from 1972).

These historical capital values are then adjusted for inflation and a trend line is established to form a dynamic gauge identifying where we are in the property cycle by indicating when the market is over / undervalued, based off historical metrics. By measuring and monitoring the property market practitioners (asset allocators / fund managers / risk managers) can use an innovative beta risk management tool (MSCI-IPD futures) to apply “risk on” / “risk off” strategies at specific points in the cycle.

Whilst the analysis and approach was applied to the UK property investment market, the approach can be applied to any property market where high quality historical data is evident and where a listed futures market has developed.

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