The Role of Malaysian Reisdential Properties in a Mixed Asset Portfolio Tan Chu Yao

1. The Role of Malaysian Reisdential Properties in a Mixed Asset Portfolio Tan Chu Yao Ting KienHwa* MohdYunus Abdul Rahman UniversitiTeknologi MARA, Malaysia Mani Usilappan UniversitiTunHussseinOnn, Malaysia

2. Outline of Presentation 1. Introduction 2. Research Objectives 3. Literature review 4. Motivation of study 5. Data variables and source 6. Results 7. Conclusions 8. Implications

3. 1. Introduction • Residential property is a common investment asset in an individual’s overall wealth. • Each individual may own more than one residential properties. One of which will be an investment property.

4. 2. Research objectives (a) To investigate the effects and diversification benefits of incorporating residential properties in a mixed asset portfolio; (b) To determine which property types and locations contribute more towards the improvement of the overall portfolio performance; (c) To determine the optimal allocations of residential properties in an investment portfolio.

5. 3. Literature Review • Hoesli and Hamelink (1997): investigate the residential property diversification benefits to mixed asset portfolios during the period between 1981-1992, in two Swiss housing markets (Geneva and Zurich). • The study confirm earlier studies that housing assets are effective portfolio diversifiers for multi-asset portfolios • Furthermore, they also find that an investor who holds residential properties in one Swiss housing market would also gain benefits from investing in another Swiss housing

6. Tan and Ting (2004) examined the effects and diversification benefits of incorporating Malaysian residential property in a personal investment portfolio, which consist of shares and bonds over the 1989 – 2001 periods. Findings: An allocation of 50% to 65% to Malaysian residential property, mostly in terraced house, in any of the five main regions of Malaysia, and the remainder invested in bonds and shares will create a more superior personal investment portfolio, both in terms of higher risk-adjusted return and extensive reduction in overall risks. These findings clearly demonstrate the significance of diversification gain when residential properties and financial assets are invested as a portfolio.

7. 4. Motivation of study • To provide a guide on the property type and geographical location for residential property investment. • To examine the effect and contribution of residential property investments in an investment portfolio

8. 5. Data variables and source

9. Study period • Study period: Jan 2000 to Sept 2006 • Data frequency: Quarterly returns

10. 6. Results : Risk-return diagram for various investment options

11. Mixed asset portfolio performance – financial assets with residential property investment

12. Mixed asset portfolio performance – financial assets with two residential property investments

13. 7. Conclusion 1. Efficient mixed asset portfolios devote a significant proportion to residential properties. 2. Mixed asset portfolio could enjoy improved risk-adjusted performance of about 73% (from 0.758 to 1.317). 3. Malaysian mixed asset portfolio containing two residential properties are will enjoy improve diversification benefits .

14. 8. Implication The conclusion provide useful guide on the optimal asset allocations between residential investment and other financial assets. The findings provide useful guide on the preferred residential types and geographical locations which could provide better diversification benefits.

15. Thank you.