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Real Estate - an alternative investment(一)

作者:不是人 整理:本网站论文网 录入时间:2011-12-13 23:15:33

  ● 潘树盛 By Roy Phua

  Asia''s all enduring preoccupation with real estate is

  undergoing a reality check as a conse-quence of the economic

  crisis. Private residen-tial property prices in Singapore,

  have collapsed by over 45% from its peak in for example,

  1996. The shock and dismay of die-hard real estate believers

  is not surprising. For many, however, the rationale that

  underpinned that real estate investment is showing

  surprising flaws. Arguments such as "land is finite"

  persuade in boom years, but are now denounced by some as

  intellectual garbage. The long-term prospects of real estate

  investment, while not entirely mis-placed, are subject to

  investment cycles, interest rates and changes in government

  policies, like all other forms of investments. Putting all

  of one''s investment eggs in the property basket, as many

  Asians have been inclined to do in recent years, is

  unlikely to hatch a balanced invest-ment strategy. This

  article examines the possi-bilities.

  Real estate investments are very long term in nature and

  possess two important characte-ristics that are often less

  than understood: leverage and illiquidity. These factors

  accen-tuate the capital gains on real estate in boom times

  and magnify the loss on the downturn. If one were to invest

  $200,000 (borrowing $500,000) to purchase a $700,000

  property for example, a simple 10% rise in property price a

  year would translate into about a 21% return on the original

  investment, net of interest expense assumed at 5.5% p.a..

  With that same interest assumption, a 10% fall in property

  price how-ever would translate into a loss of about 48% on

  that same $200,000 investment, the tragic con-sequence of

  leverage working in reverse. The illiquidity of real estate

  is another important factor for consideration. Exiting a

  real estate in-vestment often requires time and patience,

  par-ticularly so in a less favourable environment. The

  average investor needs to consider the sheer amount of the

  financial investment and the uni-queness of each property

  asset. The illiquidity limits the flexibility investors have

  when they need to realign their investments in accordance

  with changing market conditions or changes in investment

  needs.

  The long-term nature of real estate in-vesting requires

  it to be matched with stable, long-term cash flows.

  Assumptions on income growth, interest rate trend and rental

  yields are important, and when they do not materialise as

  planned (or hoped for), the investment goes awry. In

  addition, the size of the upfront capital commitment in real

  estate investing makes di-versification within the asset

  class difficult to achiev

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