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Direct Investment in Real Estate: Momentum Profits and Their Robustness to Trading Costs

This article studies the ability of momentum strategies to generate extra-profits in private real estate markets. We test a variety of frequencies of portfolio re-weighting and periods over which winner and loser segments are identified. Finally, since real estate returns tend to be highly persistent, we also test whether our results are sensitive to the presence of smoothing.We find strong potential gains from momentum strategies based on preceding returns over a six to twelve month period. Whether these gains are attainable to real world investors depends on assumptions on transactions costs. However, we find some momentum strategies still produce excess returns when net returns are used. Finally, our findings hold even if returns are unsmoothed to reflect underlying market prices.