Private Real Estate: Valuations and Sale Price Comparison Report 2016 results

Research Paper
Bryan Reid
June 30, 2017
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For mainstream financial asset classes, investment performance measurement is based on transaction prices. In contrast, direct real estate is well known for being an illiquid and heterogeneous asset class, making the establishment of purely price-based indexes problematic. In order to overcome these obstacles, MSCI's private real estate indexes are constructed on the basis of professionally sourced open market valuations, i.e., price estimates based on a set of market process assumptions combined with available and relevant transaction evidence. Within these limits, Valuation Based Indexes (VBIs) aim to track actual agreed transaction prices as closely as possible. Therefore, it is of critical importance that users of these indexes can gauge how closely this goal has been achieved. For this reason, MSCI computes and discloses fair indicators comparing valuations and prices for assets that have come to the open market. The analysis in this year's report covers all countries included in MSCI's IPD Global Annual Property Index, except Finland. The representativeness of the valuations and the valuation based indexes of the underlying real estate investment market can be assessed by answering two questions:
  • How much do sale prices differ from previous valuations?
  • Are differences random, or were sale prices consistently above or below the latest valuations?
Bryan Reid
Bryan Reid
Executive Director, MSCI Research

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