Real Estate .Adding to and appraising the value of property - Essay Example

The size of the residential market has shown a consistent increase from ?753 billion in 2001 to ?2369 in 2009 (www. ipd.com/linkclick.aspx). According to the UK IPD residential index of 2009, based on a sample of 11,143 properties covering ?3.9 billion at the end of December 2009, the returns on residential complexes consistently increased in 2009. Moreover, out of the total capital market value of ?3.81 billion for the UK property market, 20.9% is based in the south east, the zone within which the city of Reading falls into.

In the south eastern area, the capital growth was 10% and income returns were 4.8%. Hence at the outset, it may be stated that this area generally appears to be a viable from the point of view of investment over a long term, because property values have generally been good over the long term. Income returns were 2.9% in 2009 and capital growth was 8.1 (www.ipd.com). For commercial properties, the income return was 7.4, but capital growth had dropped to -3.6. When returns are annualised over a period of five years, the south eastern region demonstrated income growth of about 5% but no capital growth (www. ipd.com/linkclick.aspx, p12). . The levels of associated risk were also higher for commercial properties, i.e, 13.0 as compared to a return of 6.0 (www. ipd.

com/linkclick.aspx, p21). Projections which have been made on real annualised returns from real estate show a loss of -11% over a three year period and -1% over a 5 year period, such that any proposal for the future on the Sulis property in reading needs to factor in some potential losses that could arise in the investment being considered. The real income growth has been steadily dropping in commercial real estate; when real capital growth in commercial property is taken into account over a fifty year period, i.

e, inflation minus 1.2% per year for commercial property (www. ipd.com/linkclick.aspx, p24). Annualised rental growth over a nine year period was 0.78% for commercial properties. In terms of current asking prices for commercial property, the general commercial locations around Valpy street in reading are being offered at prices ranging from 650 to 700 per square foot and the asking price rents for offices are in the range of ?1200 to ?2500 depending upon the size of the individual units. The economic recession over the past four years has impacted upon the real estate market in reading, as in other parts of the country, by creating a glut of distressed properties being offered for sale because they are foreclosed and unable to keep up with payments.

Interest rates have remained low, which has been a boon for those on mortgages with low interest payments. While low interest rates are advantageous for buyers at the present time because it allows them the opportunity to acquire a fixed rate mortgage, at the low rate, it also requires a much higher down payment,