Pricing of Specific Real Estate Market Risks for 66 Countries Worldwide

I address the construction of hurdle rates for 66 countries that adequately compensate investors for the specific real estate market risks involved when investing, operating and exiting a foreign market. To estimate the market-based framework, I run random-effect panel regressions over a six-year period (2004-2009) using IPD direct property market returns and a recently developed, integral composite index that takes into account all real estate market and investment-specific conditions. The regression results demonstrate that an increased perception of risk and instability in the countries' socio-economic conditions and institutional frameworks imply higher investor return expectations. Finally, the results provide international investors with an absolute hurdle rate that prices the risks and opportunities of national real estate markets and guides investors in the decision between a core, value-add, or opportunistic investment strategy