Real Estate Chapter 23. Students Should Be Able to:  Calculate the real and nominal cost of capital for real estate.  Analyze the effects of changes.

Slides:

Advertisements

Similar presentations

Short Selling the Real Estate Bubble in China

Advertisements

Developments in Australian balance sheet estimates - Quarterly household balance sheet - Measurement issues - Analytical opportunities.

CONGRESSIONAL BUDGET OFFICE Billions of 2005 Dollars Real Gross Domestic Product Gross Domestic Product (GDP): The total market value of goods and services.

 $2 000 billion: the total value of the real estate assets that should be disposed of by 58 European banks within 2 years, according to the IMF. EMBA.

Credit Risk Management Chapters 11 & 12. Credit Risk Management  uniqueness of FIs as asset transformers –What do we mean? –What type of risk do FIs.

1 Sources of Capital SECTION 1: Saving SECTION 2: Investing SECTION 3: Stocks, Bonds, and Futures SECTION 4: Borrowing and Credit CHAPTER 9.

Chapter 16 Analyzing Income- Producing Properties.

Value Price and Rental Price © Allen C. Goodman 2009.

Expenditure Chapter 12. Four Components of Expenditure Personal Consumption Expenditure Government Consumption Expenditure Investment Net Exports Consumption,

The Link Investment in Real Estate Investment Trusts (REITs)

Real Estate Investment Trusts REITs Cody Draper Valiant Evans Ryan Weight.

Chapter 8 The Foreign- Exchange Market and Exchange Rates.

Sources of Capital CHAPTER 9 SECTION 1: Saving SECTION 2: Investing

Types of Investment Business fixed investment: businesses’ spending on equipment and structures for use in production Residential investment: purchases.

Finance Structures and Issues in the UAE Financial structure is a mixture of long–term debt and equity that a company uses to finance its operations, it’s.

McGraw-Hill/Irwin © 2009 The McGraw-Hill Companies, All Rights Reserved Chapter 9 The Financial System, Money, and Prices.

Investment Chapter 14. Hong Kong Real Estate  According to the planning department rental yields on residential apartments are more than 5%.  Rental.

June 1, 2010 Commercial Real Estate Fundamentals.

Financial Aspects of a Business Plan

Chapter 16 Real Estate and High-Risk Investments.

Introduction to Business and Marketing Chapter 32.1.

Small Business Loans We Deserve the Money, See our Business Plan!

©OnCourse Learning. All Rights Reserved.. Investing in Real Estate ©OnCourse Learning. All Rights Reserved. Chapter 24.

© OnCourse Learning Chapter 27 : Investing in Real Estate.

C H A P T E R C H E C K L I S T When you have completed your study of this chapter, you will be able to Define GDP and explain why the value of production,

© The McGraw-Hill Companies, Inc., 2008 McGraw-Hill/Irwin Chapter Thirteen Financial Statement Analysis.

Real Estate (REITS)

Money Management Strategy

Chapter 3 1) What is the first step in money management? – Organize your financial documents 2) What are two benefits to having your financial documents.

Financial Analysis Chapter #3. Net Worth Statement (Balance Sheet) Net Worth = Assets - Liabilities Net Worth (Owner's equity)

The McGraw-Hill Companies, Inc. 2008McGraw-Hill/Irwin CHAPTER 13 Financial Statement Analysis.

Do Now: 1) What is the general relationship between the flow of water into a bathtub and the amount of water that is in the tub? 2) If the person filling.

Review of the previous lecture 1. All types of investment depend negatively on the real interest rate. 2. Things that shift the investment function: 

Chapter 13Copyright ©2009 by South-Western, a division of Cengage Learning. All rights reserved 1 ECON Designed by Amy McGuire, B-books, Ltd. McEachern.

Personal Finance Chapter 3 Section 3.1 and 3.2.

Financial System Liquidity, Asset Prices and Monetary Policy Hyun Song Shin 2005 Reserve Bank of Australia conference July 11-12, 2005.

Chapter 20 Financial Aspects of Household and Firm Behavior ©2000 South-Western College Publishing.

An Introduction to Basic Finance

Intro to Financial Management Understanding Financial Statements and Cash Flows.

Chapter 7 Commercial bank financial statement Salwa Elshorafa 2009 © 2005 Pearson Education Canada Inc.

Chapter 8 Presentation 2. Determinants of Consumption and Saving ***The amount of DI is the basic determinant of consumption and saving There are also.

McGraw-Hill/Irwin Copyright © 2008 The McGraw-Hill Companies, Inc., All Rights Reserved. CHAPTER 1 Investments - Background and Issues.

Real Estate Principles and Practices Chapter 16 Investment and Tax Aspects of Ownership © 2014 OnCourse Learning.

Road to Retirement Course. Introduction to Investing “When you’re making money doing what you love, you are already retired.” “Many describe the new retirement.

©CourseCollege.com 1 16 Long Term Debt Long term debt - liabilities with due dates greater than one year. Learning Objectives 1.Explain accounting for.

money you have in a bank either in checking (where you can use the money with an ATM card or by writing a check) or savings (where you earn interest)

© 2010 by Cengage Learning Chapter 27/ Chapter 25 ________________ Investing in Real Estate.

12 CHAPTER Financial Markets © Pearson Education 2012 After studying this chapter you will be able to:  Describe the flow of funds through financial.

©2011 Cengage Learning. Chapter 16 ©2011 Cengage Learning SUMMARY OF REAL ESTATE INVESTMENT PRINCIPLES.

Analyzing Financial Statements

Inflation’s Impact In The 1970’s WINNERS BORROWERS INVESTORS IN REAL ESTATE INDIVIDUALS WITH HIGH SKILLS AND/OR JOB MOBILITY INDIVIDUALS EMPLOYED IN GROWTH.

money you have in a bank either in checking (where you can use the money with an ATM card or by writing a check) or savings (where you earn interest)

Consumption & Investment Supplement. Multiplier Effect  An exogenous change in demand has a larger effect on total demand, the larger is the effect of.

Real Estate Principles and Practices Chapter 16 Investment and Tax Aspects of Ownership © 2010 by South-Western, Cengage Learning.

Chapter Ten The Investment Function in Financial- Services Management Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin.

Chapter 36 Financing the Business Section 36.1 Preparing Financial Documents Section 36.2 Financial Aspect of a Business Plan Section 36.1 Preparing Financial.

Macro-Financial Review H June Key Messages External Risks remain elevated and have increased since the last Macro-Financial Review A Brexit.

Macro-Financial Review H June 2016

Lecture 15 Commercial Financing.

Financial Statement Analysis

The 2007 Financial Crisis Who is to blame?.

Business Finance Chapter 28.

Personal Finance Balance Sheet

Overview of Financial Management and the Financial Environment

Chapter 2 Personal Financial Statements Bell work Question:

Commercial Real Estate Why the is in More Demand?.

INFLATION’S IMPACT IN THE 1970’S

Intro to Financial Management

How Housing Has Affected the Economic “Ecology”

Chapter 27/ Chapter 25 ________________ Investing in Real Estate

Presentation transcript:

Real Estate Chapter 23

Students Should Be Able to:  Calculate the real and nominal cost of capital for real estate.  Analyze the effects of changes of different elements of cost of capital on rental yields and real estate prices.

Hong Kong Real Estate  According to the planning department rental yields on residential apartments are more than 5%.  Rental yields are the annual rent divided by the price level.  But interest rates on mortgage loans are 2.5%.  Why don’t people want to borrow at 2.5% to make 5.1% returns?

Property the ultimate non-traded asset!

Real Estate  Real Estate is an important type of physical capital investment and a special type of financial investment. Uniqueness- Each location of property is unique, making it harder to value. Illiquid – Harder to sell than paper financial assets, longer lead times for building real property. Large share of the wealth of middle income households.

Rental Yields & Cost of Capital  Payoff to owning property is rent, R.  Define rental yield, y, as the ratio of rent to property prices, P PE.  Capital cost of real estate includes Interest rate, i Depreciation/Maint enance Costs δ Property Taxes: τ Other Costs: c Capital Gains,

Cost of Capital Theory & Real Estate  Constructing New Buildings has long lead times. For a fixed stock of buildings we can use cost of capital theory (y = ck RE ) to derive prices as a function of rents.

Ceteris Paribas CurveP RE R ↑ →↑ i ↑ ←↓ δ ↑ ←↓ tw ↑ ←↓ c ↑ ←↓ ↑ →↑

Real Estate Pricing P RE 45% P*

Expectations  A key determinant of the price of real estate is the expected capital gain.  Expected deflation explains why rental yields are so much higher in HK than mortgage rates.  Waves of optimism and pessimism may lead to persistent fluctuations in property prices.

HK Property Prices

Credit Cycles: Real Estate  Much of corporate collateral is real estate.  Real estate is good collateral because it cannot be easily moved and its value is relatively easy for outsiders to derive.  Fluctuations in property price have effects on cost of capital and investment.

Adverse Economic Shock Declining corporate net worth Lower investment and reduced demand for real estate Falling Real Estate Prices Falling collateral values and worsening bank balance sheets lead to declining bank loans Fire sales of commercial property to pay back bank loans leading to further declines in prices The Financial Accelerator