Chapter 5 Conclusions and Discussion
5.1 Conclusions
It has been five years since the first T-REITs launched in 2005, but most literature regarding T-REITs focus on legal system and institutional framework. There is still insufficient discussion regarding the performance of T-REIT markets.
Therefore, this study intends to explore the T-REITs performance and the relationship among T-REITs, macroeconomic variables and commercial real estate market.
This study first constructs longer T-REITs index to demonstrate the T-REITs price movement and market performance, including all 8 issued T-REITs. Through the T-REITs index, we can learn that there is a stable growth trend for T-REITs when the first 6 T-REITs were intensively distributed, and there is an obvious life cycle after 2006. In addition, the overall performance of T-REITs usually reaches the pick around March each year. The reason might be the prosperous trading in real estate market during March, which is called the 329 schedule. During study period, T-REITs experience poor performance of Trident and Kee Tai Star, thereby affecting their overall performance. Moreover, the U.S. subprime mortgage in 2007 also lead to T-REITs' sluggish performance.
In addition, this study examines the long-run relationship among T-REITs, macroeconomic variables and commercial real estate markets. The first step is to determine whether cointegration exists between T-REITs and other variables. Results suggest that the equilibrium relationship exists between T-REITs and the stock price index, T-REITs and commercial rents, as well as T-REITs and commercial price.
Moreover, the stock price index and commercial rent are positively correlated to T-REITs, and the commercial price is negatively correlated to T-REITs. T-REITs and inflation and T-REITs and interest rate are not cointegrated, implying that inflation and interest rate only have short-run effect on T-REITs. However, inflation rate is positively correlated to T-REITs, and the interest rate is negatively correlated to T-REITs, which is consistent with practical experiences. Interestingly, results in this study suggest that T-REITs and stock price index are cointegrated, which is contrary to other relevant domestic results. The possible answer may be that the study period in this study is longer than previous studies, and the long-run relationship just begins to
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emerge.
According to the Granger causality results, the stock price index and inflation rate can act as a leading indicator of T-REITs volatility, and the commercial rents can also serve as an indicator. Investors may employ those indicators to forecast the T-REITs volatility for investment decision making.
In conclusion, through the observation of different interaction between T-REITs and other markets can understand price fluctuations and future market trend. This study also finds that the wealth effect does exist between T-REITs and stock price, and that T-REITs can serve as hedging goods. However, the T-REITs price and return changes could be affected by agency problems, thereby affecting T-REITs actual market performance.
5.2 Limitations
The limitation in this study is the time length. Since there have only been five years the T-REITs launched, using the cointegration test can show that whether T-REITs are cointegrated with other variables, but the time length is not long enough to conclude the general long-run relationship. In addition, the commercial rents in this study are not monthly data, which might generate some bias when analyzing the relations between variables.
5.3 Recommendations for Further Research
The variables in this study are the basic effects in the macroeconomic and real estate markets, the further research can try to add the T-REITs volumes in the analysis, and find out the relationship between T-REITs’ price and volume. If the daily data can be found in the macroeconomic variables, applying the daily information to discussion the relationship among T-REITs and other variables could be more convincing. Furthermore, the REITs market in Asia is under continuous growth and prosperity, however, the national economy and the real estate market structure are different. So this study suggests that except for continuous observation of T-REITs, the REITs performance between Taiwan and other Asian countries should also be analyzed to investors a cross-border investment reference.
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