Financial & Asset Management in Real Estate Development: 'Discuss why the market value of commercial property can rise and fal - Essay Example

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FINANCIAL & ASSET MANAGEMENT IN REAL ESTATE DEVELOPMENT 1.0- INTRODUCTION Investment is aimed for the return and stable return can only be achieved from a well diversified portfolio. With recent fluctuation in equity market investors has realized the importance of diversifying their portfolio with increased options than limited investment choices…
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Financial & Asset Management in Real Estate Development: Discuss why the market value of commercial property can rise and fal
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Download file to see previous pages However; alike all asset classes real estate investment avenues also have business cycle. Real estate investment generates attractive returns in one phase of business cycle while on contrary to this it may also be unable to fetch similar returns in other business phase. Therefore, in order to gain the real and timely benefit from real estate it is necessary to understand factors causing rise and fall in the real estate value. These attributes include, though not limited to: initial considerations, risks, valuations, structures, costs; respective returns etc. In addition to this, understanding related to these factors would lead to the pro-active measures undertaking that result improved returns. Hence, given below is the discussion related to various aspects of the real estate investment developing insightful information 2.0- COMMERCIAL PROPERTY INVESTMENT Commercial property investment refers to an investment in property for yielding return for its owner by being used or occupied by businesses (Reita, n.d.). In UK ?762bn of property is accounted as commercial as compare to ?3,400 billion of residential property and ?1,781 billion invested in equity market. Of this stated investment in commercial property 90% comprises of commercial property while almost half of this is lend to tenants for return. The composition of UK investor in commercial property is as follows: (Adair et. al, 2009) With increase in volatility of equity stock market, investors have increasingly moved to commercial property investment. Moreover, with investment in commercial property directly being difficult from knowledge, legal and capital aspects individual investors in UK have opted for residential investment and lend it for return (Adair et. al, 2009). 3.0- PERFORMANCE OF REAL ESTATE IN PAST FIVE YEARS 3.1- IMPACT OF GLOBAL FINANCIAL CRISES ON UK AND ROLE OF PROPERTY INVESTMENT IN CRISES Followed in the autumn 2007 the credit crunch crises that hit US market was rejected by many unless the impact became evident as global financial crises. UK and other European markets that rejected US credit crunch impact apparently ignored the down side of the risk that has been spread round the world by means of diversification (Anderson, and Timmons, 2007). Specifically in 2007, analysis of Bank of England related to comparison of UK real estate market and U.S. situation went unnoticed until the crises landed on door stop (Bourke, 2007). Also among various risks calculated for the property market, fact remained that investor (backing investment from bank loan) were not giving attention to down-side of the risk that is increasing fragility of various asset based product. To rush with multitude momentum growth, this risk was assumed to self reduce with rise in property prices in case borrower defaults (Adair et. al, 2009). Of the total 9 trillion in mortgage debt in US, 900 billion constituting sub-prime paper on world’s balance sheet infuriated the problem on global level (Adair et. al, 2009). Oswald (2009) referred to decline in housing market as one of the major causes along with decline in oil prices; contraction of bank lending and lost in investors’ confidence in financial institutions. It burst the perception bubble like that of dot-com that there is no fall to this rise. Moreover, UK among all victims of financial crises was hence predicted and found to be biggest victim following growth of -0.2% in 2008. 3.2- IMPACT ON UK ...Download file to see next pagesRead More
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