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Real Estate Home Bias - An Australian Case Study

The erosion of the real estate home bias: an australian case study in risk diversification.

As an asset class, real estate investing typically has a high degree of home bias, especially when compared to equities and fixed interest. However, this real estate home bias is starting to erode, with asset owners in most countries already investing internationally or actively exploring the options for building offshore exposures. Some of these asset owners are motivated purely by pricing, but many are also seeking diversification. This trend towards offshore investing is running in parallel with greater scrutiny from investment risk managers who want to integrate real estate risk analysis with other asset classes. The perceived diversification benefits of investing internationally may motivate risk managers to increase international exposure, but there are variations from country-to-country and investor-to-investor when it comes to the potential benefits. In several recent papers, MSCI has explored the diversification benefit of international real estate for a number of markets including the United States, United Kingdom, and Sweden. In this Research Spotlight, we focus on Australia, a lower-risk market with established and highly transparent real estate market, but even there we find similar benefits from international diversification.

The authors

Oleg Ruban

Vice President and Head of Analytics Applied Research for Asia Pacific

Bryan Reid

Senior Associate,Research