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The Rate of Return on Real Estate: Long-Run Micro-Level Evidence

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David Chambers
  • Function : Author
Eva Maria Steiner
  • Function : Author

Abstract

Direct real estate investments are less profitable and more risky in the long run than previously thought. We hand-collect property-level financial data for four large U.K. institutional investors—Oxbridge colleges—for the period 1901–1970. Gross income yields initially fluctuate around 5%, but then trend downward (upward) for agricultural and residential (commercial) real estate. Net yields are about one third below gross yields on average. Long-term real income growth rates are close to zero. These findings imply real annualized net total returns of less than 4% across all property types. Moreover, real estate investments are associated with considerable idiosyncratic risks.

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hal-02896386 , version 1 (10-07-2020)

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David Chambers, Christophe Spaenjers, Eva Maria Steiner. The Rate of Return on Real Estate: Long-Run Micro-Level Evidence. 2020. ⟨hal-02896386⟩

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