Cadim: the China and India Real Estate Market Entry Decisions Case Study Solution
Introduction
Cuisse de Depot et Placement du Quebec is the largest fund management company in Canada. CADIM is the real estate arm of the company. The president of CADIM is considering to enter into international market in order to diversify its real estate holdings. The main emphasis is on China and India, as these both companies are growing rapidly.
The amount of investments that would be made in order to make investment would be amounted to hundred million dollars which will be generating higher return. However, investment with a big amount also carry the risks associated with it. There are many issues which are involved with management of international real estate portfolio. As well as its detailed overview of India and China have been discussed.
Problem Statement
The management of the company wants to decide which country, India or China or both the countries would generate higher profits.However, the decision would cause the loss of hundred million dollars of pension which is the source of retiree’s income.
Analysis
In order to make analysis of the case, following points are considered:
Benefits of international diversification:
International diversification in real estates have many benefits. Some of the benefits includes the risk which is the least among all other investment opportunities such as stocks, options and others. Moreover, by diversifying it further and making it a portfolio would further reduces the risks.
Global edge is also achieved when diversifying in different countries. By expanding investments in different countries, it would result in increasing real estate networks. These networks would help to increase the knowledge as well as macro and micro elements of different markets have also been analyzed by the investor.
Greater financial rewards are achieved by making diversification in international investment. Moreover, it also facilitate investors with the opportunity to earn profit from both the expanding and flourishing markets. As different markets in different countries do not always move in same direction. Therefore, with the fluctuations of diversified and different markets, the risks and rewards are compensated.
Pros and cons of international diversification in real estate:
Pros:
There are many benefits to make diverse investments such as diversifying in real estate investment. Some of the pros in making diversified real estate investments are:
- Diversifying investment would increase the opportunities for individuals or companies. These opportunities increase the level of growth that could be achieve when exploiting them.
- The diversification would distribute the eggs of risks in different markets. Not only the level of opportunities are increasing, but level of risk is also decreasing over time.
- The real estate performance has been increased when compared to other investment opportunities such as stocks and other options. Moreover, international stock options are also very fluctuating and carry risks.
Cons:
Beside the advantages of international real state diversification, it also holds some disadvantages. These disadvantages includes:
- Every country holds its own political and economic risks. Therefore, the investment made in different countries may get impacted by the risks in different countries.
- Investment in foreign market has been made by using different currencies, despite of single currencies. However, different currencies have different risks. Therefore, with the increase or decrease in different currencies, it may also impact the property.
- Many countries lack the regulations of accounting and financial reporting. It is possible that the information related to real estates may be incomplete or incorrect which may cause loss to the investor.
Strategies used to mitigate risks:
- Currency risk which is associated with diversification of real estate investment can be managed by hedging currency, the hedging can be done through two options, futures and currency swaps.
- In order to manage regulatory risk of different countries, the investor should hire local lawyer or accountant in order to manage the risks of regulations
- To mitigate Political risks, the investor should develop its association with different centers such as Multilateral Investment Guarantee Agency or World Bank.
CADIM Decision Making Process
The decision process used by CADIM is the evaluation of country, its corruption rate and the real estate market. Moreover, the funding of new investment would be the pension of retired people. This act would not be ethically acceptable. The investment should be made with the earnings, remaining profit after fulfilling all moral, social and financial obligations of the company...................
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