Is Real Estate Real Case Study Solution
It can be said that there are many qualities and attributes of property as a whole and each subclass of property which makes it unique and attractive as compare to other investment opportunities such as common stocks, preferred stocks and loan notes. Furthermore, the properties could also be used as a hedging instrument in order to protect the investor from earnings and cash flow volatility.
The main attribute of the property as a whole is the nature of the property, the property has no fixed maturity date which means that it could be hold till perpetuity. It is on the wish of the investors to which extent they want to hold the property.
Although the properties such as buildings and hotels have definite useful life but the useful life of the property is usually very long which makes this more suitable for long-term investment as compare to bonds and stocks. Unlike bonds which have a fixed maturity period the property investment don’t have per-defined maturity period which allows the investors to hold the property and dispose it when the property gives maximum return. (Woychuk)
Another main attribute of the property as a whole is that it could generate more positive returns for the investors as compare to stocks and loan notes. The stock might give more return sometimes but equity instruments can be regarded as more risky than property investment thus resulting in another unique attribute of the property.
Despite the general attributes of the property, there are other qualities as well only due to the specific nature of the properties. For example lands have a unique quality i.e. their indefinite useful life. It can be said that land is more durable than buildings although the apartments and hotels are also very durable but the lands can be defined as multi-generational investments.(Vazquez, 2015)
On the other hand, the hotels have a very unique characteristic which is that they can generate significant higher returns as compare to the other types of properties. The apartments and industrial properties can also generate good income but their level of returns might be lower from the hotel properties in almost all the cases. However, it can be argued that more investment and capital expenditure is required in hotels as compare to the other types of properties.(Wargent, 2013)
Another subclass of property is apartments, the main characteristic of the apartment property is that it is most liquid property type. They can be sold out very quickly and they can also be rented out more quickly than land and industrial properties. Furthermore, the investments in land could also be made for short term purposes as the apartments are rented and sold in good numbers. The industrial and hotel properties could take very long time in buy and sell and it will also require substantial time of the investor to rent and sell out these properties because of the level and nature of investment.
The main unique attribute of the industrial property is their usage, the industrial properties cannot be used for other purposes such as they cannot be converted into other properties like apartment or hotels. Unlike industrial properties, the hotels and apartments could also be used for other purposes as well.
It can be said that there is a difference between a short horizon and long horizon inflation-hedging ability, the short horizon investments are expected to generate lower returns thus have poor inflation-hedging ability. Whereas the long horizon investments are expected to generate more stable and positive returns thus they have good inflation-hedging ability.
The different property classes have different exposure to inflation and economic growth risk. It can be said that the industrial properties and apartments are more exposed to inflation risk while the hotels are less exposed to the inflation risks. Generally, the industrial, office are rented out for long-term and their rents and growth in rents are decided in advance, which makes them less vulnerable to the increase in inflation. Whereas, the hotels are rented out for short term purposes and their rents could be altered given the appropriate inflation levels in the country.
On the other hand, all types and classes of properties are highly exposed to the economic growth risk, if the economy of the country is poor it is highly likely that the industrial properties will be rented out for less rent in order to attract the investors. Moreover, the hotels are also expected to rent out for less rent because of poor aspects of tourism industries. The residents of the country will also live in the less expensive apartments which makes the apartment properties more exposed to this risk.
Despite the positive features of the properties there are many factors which could undermine the returns and performance of the property, the team, strategies of the team and management style of the team are the primary factors which could affect the returns from the property investment......................
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