Private Real Estate: Valuations and Sale Price Comparison Report 2015 results
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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.
To measure each index’s synchronization of price and value, MSCI compares professionally generated valuations against subsequent transaction prices on a sample restricted to properties traded out of fully measured portfolios. Although valuations and transaction prices may differ significantly at the individual asset level, the MSCI tests are designed to quantify aggregate spreads and thus identify any tendency for valuations to consistently under- or over-state market movements, across countries or time-periods.