The proceeds/profit from these sales will help to finance future purchases and schemes. Building construction companies Foreign investors Private individuals
Nominal and Real Returns on Investments Nominal return – a numerical measure only Say, RM10,000 invested 2 years ago has grown with interest to RM12,000 today. Nominal return is RM2,000 or 20% Real return – a measure of actual worth of purchasing power. Thus, if during the same 2 years investment average prices in the economy has risen by 10%; the real return or gain in the investment would have been only RM1,000 or 10% Increase in average price in the economy is inflation. The difference is the impact of inflation on real return. Whereby, nominal return ignores the impact of inflation. Therefore Real Return < Nominal Return: always.
The Ideal Investment The ‘ideal investment’, if it is ever existed would possess the following characteristics Total security of capital in nominal and real terms; Implies that there is no danger of the money being invested being lost by the investor. There is certainty that the money is safe. Absolute assurance of income in nominal and real terms; Implies income received from the investment will never decrease, and will always be at least what was expected at the time of the initial investment. Complete liquidity of capital; and To be completely liquid – investor should be able to sell the investment at extremely short notice and have ‘cash in hand’, paid immediately by the purchaser on sale. Absolute regularity of income with no inconvenience to the investor. Monetary income earned by investment will be paid in full as and when due – without any demand needing to be made by the investor, and therefore no management charges would be incurred.
Investment Characteristics of Real Estate Property is real asset and it wears out over time. The cash flow delivered by property asset is controlled/distorted by the lease contract. Supply inelastic. Returns influenced by appraisal smoothing. Highly illiquid. Property asset are generally large in term of capital price. Leverage is used in the vast majority of property transactions. It is hybrid asset in term of return characteristics. The risk of property appears low. Returns appear to be controlled by cycles of 8 to 9 years.
Property Depreciates “Property is real asset, and it wears out over time, suffering from physical deterioration and obsolescence, together creating depreciation” Real property is not like equities or gilt/bond – it is a physical asset. It is also not similar to personal property, it is durable and immovable also it is subject to deterioration and obsolescence that require regular management and maintenance. Physical deterioration, and functional and aesthetic obsolescence together create depreciation.
- Fall '13