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From 2005 through the first half of 2007, construction was one of the most important growth sectors in the Turkish economy. Private con- struction projects and public investments supported this growth. But, by the end of 2007, construction activity stagnated. Rising prices of commodities, including iron, copper, steel and cement have con- tributed to increased construction costs. The real estate market has also seen a slowdown in growth since late 2006, affected success- ively by the economic turmoil of May-June 2006, an unease in domestic markets due to political tensions surrounding the 2007 elections, global market volatility due to the subprime mortgage crisis. | The Benefits of Real Estate Investment Georgi Georgiev Ph.D. Candidate University of Massachusetts CISDM CISDM Working Paper March 1 2002 Please Address Correspondence to Thomas Schneeweis CISDM School of Management University of Massachusetts Amherst Massachusetts 01003 Phone 413 - 545-5641 Fax 413 - 545-3858 Email Schneeweis@som.umass.edu 1 The Benefits of Real Estate Investment Despite the recent focus on stocks and bonds real estate remains a significant part of the institutional investment portfolio. This article reviews the existing literature and theory on commercial real estate as an investment vehicle and examines the investment benefits of real estate as a part of a diversified portfolio. The results suggest that direct real estate investment provides diversification benefits while securitized real estate REIT investment does not. The conclusion is twofold 1 real estate returns are determined by factors different from those driving the returns to other asset classes and hence may produce diversification benefits and 2 REIT investment is an inadequate substitute for direct investment in real estate. 2 I. Introduction Real estate investment represents a significant part of many institutional portfolios. Since real estate is not directly traded on a centralize exchange the physical real estate market is characterized by relative lack of liquidity large lot size and high transactions costs with properties that are locationally-fixed and heterogeneous. The low transparency of the real estate marketplace also results in potential asymmetric information. The potential existence of asymmetric information also provides a source of relative high risk adjusted returns to those individuals for who can obtain costless quality information. Further the lack of frequent transaction data for the analysis of return distributions necessitates the use of appraisal-based series. As for other less liquid investments e.g. hedge funds emerging market debt equity exchange-traded
