What is a property index?

A property index (the Index) is a real estate investment performance index, and generally shows the investment return in a certain investment period. The Index is used as a reference when making decisions concerning investing in real estate, and also serves as an index to measure and evaluate the investment result. Specifically, the Index is comprised of the income return from rental income, the capital return from changes in real estate value, and the total return of the two.

What is the purpose to the property index?

Generally, investors can take advantage of the Index in three ways. First, the Index can be used to seize the trend of the real estate investment market. Second, the Index could help investors plan asset allocation and investment strategy more effectively by quantitatively estimating risk and return characteristics. Third, it might be used as a "Benchmark Index" to measure investment results and evaluate the performance of fund managers. In the Eurozone and the U.S., where such indices are generally utilized by investors, the indices are referred to when selecting real estate and evaluating investment performance.

Differences from market price indicators

The Index is classified as the performance indicator and calculated from income and capital appreciation gained in a certain investment period. It shows the performance of real estate investment in the period. On the other hand there are other indices such as price index and rent index in the real estate market. but these indices are classified as price indicator based on the market price, and different from the Index.

Differences from securities indices

In the case of securities investment including stocks and bonds, a group of securities (called a universe) that can be available for investment from the perspective of liquidity is designated, and the indicator compiled from the average return of the universe serves as the index. Investors decide on the asset allocation after considering a combination of the expected return and risk based on the index. Investors' performance is measured by the relative assessment of the index.

On the other hand, in the case of real estate investment, real estate cannot be traded in the same way as is the case with securities products, and it’s not frequently traded. Therefore, in the real estate investment, it is impossible for investors to construct the same portfolio as the designated composite of the universe as securities investment.