Upload
ginger-norris
View
215
Download
1
Embed Size (px)
Citation preview
INTERNATIONAL REAL ESTATE INVESTMENT RISK
Abdul Jalil Omar
INTRODUCTION
Risk in international trade Trade off between risk and return What are the risks associated with
international real estate. Market (specific) risks is similar to
investing in domestic market. Additional risks (similar to international
trade).
WHY INVEST IN REAL ESTATE?
Yield Excellent current return generating asset
class Diversification
Historically strong returns with lower risk Tax benefits
Ability to shelter portfolio ordinary income with ordinary losses
Price appreciation Long term returns Inflation hedge
ELEMENTS OF REAL ESTATE INVESTMENT RISK
Business risk → macroeconomic trends Inflation risk → time value loss Liquidity risk → real estate is illiquid Financial risk → loss of principal
Influenced by capital structure and interest rates Execution risk → management Legislative risk → change in the rules Environmental risk → exposure to hazards
BUSINESS RISKS
Changes in occupancy rates, level of new construction
Anything that affect demand for space. This may also relate to economic risk –
whereby may affect consumer’s purchasing power.
Delay in initiating a development project due to permit requirement, different labour culture etc.
POLITICAL RISKS
Risk analysis involve country’s economic outlook and government stability.
Other factors – corruption level, crime rate. Specific for real estate – change in
regulation, tax law, rent control, zoning etc. Greater political stability – safe investment
environment. Another indicator – seriousness of capital
flight out of a country by its citizen.
FOREIGN EXCHANGE MARKET
Market of converting currency of one country into that of another country.
Exchange rate: conversion rate Function of foreign exchange market Currency conversion Insuring against foreign exchange risk TERM: currency speculation – short term
movement of fund from one currency to another
CURRENCY HEDGING
Spot exchange rates – money exchange counter
Forward exchange rates – a contract for deferred payment
Currency swap – involve two ways trade between two countries. Import and at the same time export to the same country.
INTERNATIONAL MONETARY SYSTEM
Institutional agreement that govern exchange rates.
Floating exchange rate Pegged exchange rate Dirty float Fixed exchange rate