Finance Assignment: Property, Market, Rental, and Growth Analysis

This finance assignment analyzes a property located at 2204/250 Elizabeth Street, Melbourne, VIC 3000. It includes a description of the apartment, comparable property analysis, and calculations of gross annual rental revenue, annual rental costs, and the annual growth rate of rents. The assignment utilizes data from Domain.com.au and Smartasset.com, as well as Australian Bureau of Statistics (ABS) data on house and equity prices. The student calculates the implied total required rate based on the net annual rent. The assignment also involves the splicing of data from different ABS tables to analyze market trends and financial metrics related to property investment.

FINANCE
1

2

QUESTION 1
a) Description about the property
Address- 2204/250 Elizabeth Street, Melbourne VIC 3000
Type of property- Apartment
Features- 2 Bedroom ad 1 bathroom
Condition of house- Unfurnished house
Floor space- 55 m²
Amenities- Central bathroom, separate kitchen with gas cook top, large king/queen size bedroom
with inbuilt wardrobe and one study room. Video security intercom, gym and swimming pool
Near by places- This place is closer to Myer, David Jones, china town as this particular place is
located in the famous street.
Rent per week-
3

4

5

b) Comparison of one property with another
Details of Comparable House Prices
Address
Be
d-
ro
o
m
s
Flo
or
spa
ce
(m
^2)
Last
sale
date
Last
sale
price
Location Bond
Compared
Average sale
price
2204/250 Elizabeth
Street, Melbourne
VIC 3000
2 55 08/0
5/17
$550/
per
week
Elizabeth
Street
$2,390.00 $550.00
1303/620 Collins
Street, Melbourne
VIC 3000
2 55 19-
05-
201
$590/
per
week
Collins
Street
$3,540.00 $590.00
6

7
Compared average
price
$570/per
week
c) Estimate the gross annual rental revenue from leasing this house
Rental value per week in Elizabeth Street= $550 per week
Monthly rent = $1500*4
= $6000
Annual rent revenue= $6000*12
= $72000
Source: 2204/250 ELIZABETH STREET, Melbourne VIC 3000, 2016. Available through: <
https://www.domain.com.au/2204-250-elizabeth-street-melbourne-vic-3000-11344720>.
[Accessed on 2nd May 2017].
d) Estimate the annual rental costs of leasing your home
Market value of property Amount
Average Sale price of apartment in Melbourne $550,000.00
Annual gross rents $26,400.00
Gross Rent multiplier 20.83
Property value Annul gross rents*Gross rent multiplier
Property value 26400*20.83
Market value of Property in Elizabeth street in
Melbourne
$550,000.00
Calculate of rent charged by landlord
Market value Amount
Property in Elizabeth street in Melbourne $550,000.00
Rent percentage(1% standard charged on
market value)
550000*1%
Rental charge $5500/ monthly
Annual gross rent $66,000.00
7

Source: Charge for rent, 2016. Available through: <https://smartasset.com/mortgage/how-much-
you-should-charge-for-rent> [Accessed on 2nd May 2017].
e) Estimate the annual growth rate of rents
According the fact and figures of Australian Bureau of statistics there is 8.2% rise in the
prices of property located in Melbourne which count as increase in the rent rates
f) Calculate implied total require rate
Particular Amount
Gross rental revenue 72000
Less: rental costs -66000
Net annual rent 6000
Price= Net rent/(r-g)
=6000/(72000-8%)
= 6000/(66240)
= 9.05%
QUESTION 2
Visit the following links and download the ABS data on house and listed equity prices
Table 1
Residential Property Price Index ;
Weighted average of eight capital
cities ;
Unit Index Numbers
Series Type Original
Data Type INDEX
Frequency Quarter
Collection Month 3
Series Start Sep-2003
8

Series End Dec-2016
No. Obs 54
Series ID A83728455L Quarterly returns
Sep-2003 69.0
Dec-2003 71.6 3.77%
Mar-2004 71.3 -0.42%
Jun-2004 70.6 -0.98%
Sep-2004 70.6 0.00%
Dec-2004 71.8 1.70%
Mar-2005 71.7 -0.14%
Jun-2005 72.2 0.70%
Sep-2005 72.1 -0.14%
Dec-2005 73.5 1.94%
Mar-2006 74.3 1.09%
Jun-2006 77.0 3.63%
Sep-2006 78.4 1.82%
Dec-2006 79.8 1.79%
Mar-2007 80.5 0.88%
Jun-2007 84.1 4.47%
Sep-2007 87.1 3.57%
Dec-2007 90.4 3.79%
Mar-2008 90.8 0.44%
Jun-2008 90.0 -0.88%
Sep-2008 88.0 -2.22%
Dec-2008 86.8 -1.36%
Mar-2009 86.6 -0.23%
9

Jun-2009 90.2 4.16%
Sep-2009 94.0 4.21%
Dec-2009 99.2 5.53%
Mar-2010 102.3 3.13%
Jun-2010 104.3 1.96%
Sep-2010 103.0 -1.25%
Dec-2010 103.6 0.58%
Mar-2011 102.7 -0.87%
Jun-2011 102.0 -0.68%
Sep-2011 100.2 -1.76%
Dec-2011 99.4 -0.80%
Mar-2012 100.0 0.60%
Jun-2012 100.4 0.40%
Sep-2012 100.2 -0.20%
Dec-2012 102.4 2.20%
Mar-2013 103.1 0.68%
Jun-2013 105.7 2.52%
Sep-2013 108.3 2.46%
Dec-2013 112.6 3.97%
Mar-2014 114.2 1.42%
Jun-2014 116.4 1.93%
Sep-2014 117.8 1.20%
Dec-2014 120.2 2.04%
Mar-2015 122.1 1.58%
Jun-2015 127.8 4.67%
Sep-2015 130.4 2.03%
10

Dec-2015 130.6 0.15%
Mar-2016 130.4 -0.15%
Jun-2016 133.0 1.99%
Sep-2016 135.0 1.50%
Dec-2016 140.6 4.15%
Table 8
Price Index of Established
Houses ; Weighted Average of 8
Capital Cities ;
Unit Index Numbers
Series Type Original
Data Type INDEX
Frequency Quarter
Collection Month 3
Series Start Jun-1986
Series End Jun-2005
No. Obs 77
Series ID A2333613R Quarterly returns
Jun-1986 61.3
Sep-1986 61.5 0.33%
Dec-1986 62.2 1.14%
Mar-1987 62.9 1.13%
Jun-1987 63.6 1.11%
Sep-1987 64.7 1.73%
Dec-1987 67.8 4.79%
Mar-1988 70.8 4.42%
Jun-1988 74.6 5.37%
Sep-1988 81.9 9.79%
Dec-1988 90.1 10.01%
Mar-1989 97.4 8.10%
Jun-1989 99.3 1.95%
Sep-1989 99.3 0.00%
Dec-1989 99.6 0.30%
Mar-1990 100.1 0.50%
Jun-1990 101.0 0.90%
Sep-1990 100.1 -0.89%
Dec-1990 100.7 0.60%
Mar-1991 100.6 -0.10%
11

Jun-1991 101.8 1.19%
Sep-1991 104.9 3.05%
Dec-1991 104.9 0.00%
Mar-1992 104.2 -0.67%
Jun-1992 104.5 0.29%
Sep-1992 104.6 0.10%
Dec-1992 105.6 0.96%
Mar-1993 106.6 0.95%
Jun-1993 107.3 0.66%
Sep-1993 107.4 0.09%
Dec-1993 108.4 0.93%
Mar-1994 109.6 1.11%
Jun-1994 110.9 1.19%
Sep-1994 112.6 1.53%
Dec-1994 112.1 -0.44%
Mar-1995 113.2 0.98%
Jun-1995 112.4 -0.71%
Sep-1995 112.6 0.18%
Dec-1995 112.4 -0.18%
Mar-1996 112.2 -0.18%
Jun-1996 113.6 1.25%
Sep-1996 114.0 0.35%
Dec-1996 114.3 0.26%
Mar-1997 115.3 0.87%
Jun-1997 116.8 1.30%
Sep-1997 118.9 1.80%
Dec-1997 121.2 1.93%
Mar-1998 124.2 2.48%
Jun-1998 126.9 2.17%
Sep-1998 126.9 0.00%
Dec-1998 129.0 1.65%
Mar-1999 131.3 1.78%
Jun-1999 134.3 2.28%
Sep-1999 136.8 1.86%
Dec-1999 141.3 3.29%
Mar-2000 143.9 1.84%
Jun-2000 147.3 2.36%
Sep-2000 147.1 -0.14%
Dec-2000 150.6 2.38%
Mar-2001 153.9 2.19%
Jun-2001 159.4 3.57%
Sep-2001 167.7 5.21%
Dec-2001 174.0 3.76%
Mar-2002 180.6 3.79%
12

Jun-2002 189.5 4.93%
Sep-2002 196.7 3.80%
Dec-2002 206.1 4.78%
Mar-2003 213.1 3.40%
Jun-2003 223.8 5.02%
Sep-2003 231.3 3.35%
Dec-2003 245.1 5.97%
Mar-2004 251.3 2.53%
Jun-2004 252.1 0.32%
Sep-2004 250.3 -0.71%
Dec-2004 251.7 0.56%
Mar-2005 252.2 0.20%
Jun-2005 251.9 -0.12%
Splicing of data
Price Index of Established
Houses ; Weighted Average of 8
Capital Cities ;
Unit Index Numbers
Series Type Original
Data Type INDEX
Frequency Quarter
Collection Month 3
Series Start Jun-1986
Series End Jun-2005
No. Obs 77
Series ID A2333613R Quarterly returns
Jun-1986 61.3
Sep-1986 61.5 0.33%
Dec-1986 62.2 1.14%
Mar-1987 62.9 1.13%
Jun-1987 63.6 1.11%
Sep-1987 64.7 1.73%
Dec-1987 67.8 4.79%
Mar-1988 70.8 4.42%
Jun-1988 74.6 5.37%
Sep-1988 81.9 9.79%
Dec-1988 90.1 10.01%
Mar-1989 97.4 8.10%
Jun-1989 99.3 1.95%
Sep-1989 99.3 0.00%
13

Dec-1989 99.6 0.30%
Mar-1990 100.1 0.50%
Jun-1990 101.0 0.90%
Sep-1990 100.1 -0.89%
Dec-1990 100.7 0.60%
Mar-1991 100.6 -0.10%
Jun-1991 101.8 1.19%
Sep-1991 104.9 3.05%
Dec-1991 104.9 0.00%
Mar-1992 104.2 -0.67%
Jun-1992 104.5 0.29%
Sep-1992 104.6 0.10%
Dec-1992 105.6 0.96%
Mar-1993 106.6 0.95%
Jun-1993 107.3 0.66%
Sep-1993 107.4 0.09%
Dec-1993 108.4 0.93%
Mar-1994 109.6 1.11%
Jun-1994 110.9 1.19%
Sep-1994 112.6 1.53%
Dec-1994 112.1 -0.44%
Mar-1995 113.2 0.98%
Jun-1995 112.4 -0.71%
Sep-1995 112.6 0.18%
Dec-1995 112.4 -0.18%
Mar-1996 112.2 -0.18%
Jun-1996 113.6 1.25%
Sep-1996 114.0 0.35%
Dec-1996 114.3 0.26%
Mar-1997 115.3 0.87%
Jun-1997 116.8 1.30%
Sep-1997 118.9 1.80%
Dec-1997 121.2 1.93%
Mar-1998 124.2 2.48%
Jun-1998 126.9 2.17%
Sep-1998 126.9 0.00%
Dec-1998 129.0 1.65%
Mar-1999 131.3 1.78%
Jun-1999 134.3 2.28%
Sep-1999 136.8 1.86%
Dec-1999 141.3 3.29%
Mar-2000 143.9 1.84%
Jun-2000 147.3 2.36%
Sep-2000 147.1 -0.14%
14

Dec-2000 150.6 2.38%
Mar-2001 153.9 2.19%
Jun-2001 159.4 3.57%
Sep-2001 167.7 5.21%
Dec-2001 174.0 3.76%
Mar-2002 180.6 3.79%
Jun-2002 189.5 4.93%
Sep-2002 196.7 3.80%
Dec-2002 206.1 4.78%
Mar-2003 213.1 3.40%
Jun-2003 223.8 5.02%
Sep-2003 231.3 3.35%
Dec-2003 245.1 5.97%
Mar-2004 251.3 2.53%
Jun-2004 252.1 0.32%
Sep-2004 250.3 -0.71%
Dec-2004 251.7 0.56%
Mar-2005 252.2 0.20%
Jun-2005 251.9 -0.12%
Table 47
Amounts outstanding at end of
period ; Total (Financial
sectors) ; Total (Counterparty
sectors) ;
Unit $ Millions
Series Type Original
Data Type STOCK_CLOSE
Frequency Quarter
Collection Month 3
Series Start Jun-1988
Series End Dec-2016
No. Obs 115
Series ID A3425417X
Jun-1988 147140
Sep-1988 146811 -0.22%
Dec-1988 145276 -1.05%
Mar-1989 142464 -1.94%
Jun-1989 150160 5.40%
Sep-1989 167708 11.69%
Dec-1989 160449 -4.33%
Mar-1990 151189 -5.77%
Jun-1990 146563 -3.06%
15

Sep-1990 137174 -6.41%
Dec-1990 127642 -6.95%
Mar-1991 141479 10.84%
Jun-1991 150740 6.55%
Sep-1991 161350 7.04%
Dec-1991 170392 5.60%
Mar-1992 166495 -2.29%
Jun-1992 174375 4.73%
Sep-1992 186901 7.18%
Dec-1992 196940 5.37%
Mar-1993 215837 9.60%
Jun-1993 227922 5.60%
Sep-1993 265304 16.40%
Dec-1993 300999 13.45%
Mar-1994 290882 -3.36%
Jun-1994 286701 -1.44%
Sep-1994 295041 2.91%
Dec-1994 280474 -4.94%
Mar-1995 279282 -0.42%
Jun-1995 295815 5.92%
Sep-1995 319560 8.03%
Dec-1995 324056 1.41%
Mar-1996 329179 1.58%
Jun-1996 336925 2.35%
Sep-1996 356886 5.92%
Dec-1996 383628 7.49%
Mar-1997 387874 1.11%
Jun-1997 435174 12.19%
Sep-1997 451889 3.84%
Dec-1997 502624 11.23%
Mar-1998 534295 6.30%
Jun-1998 549897 2.92%
Sep-1998 546664 -0.59%
Dec-1998 590640 8.04%
Mar-1999 627716 6.28%
Jun-1999 635910 1.31%
Sep-1999 629822 -0.96%
Dec-1999 719445 14.23%
Mar-2000 729993 1.47%
Jun-2000 742708 1.74%
Sep-2000 732466 -1.38%
Dec-2000 706987 -3.48%
Mar-2001 697071 -1.40%
Jun-2001 774465 11.10%
16

Sep-2001 680524 -12.13%
Dec-2001 764686 12.37%
Mar-2002 770022 0.70%
Jun-2002 729669 -5.24%
Sep-2002 678133 -7.06%
Dec-2002 694953 2.48%
Mar-2003 666296 -4.12%
Jun-2003 703755 5.62%
Sep-2003 748427 6.35%
Dec-2003 800143 6.91%
Mar-2004 827144 3.37%
Jun-2004 863906 4.44%
Sep-2004 900083 4.19%
Dec-2004 933382 3.70%
Mar-2005 963641 3.24%
Jun-2005 982655 1.97%
Sep-2005 1075841 9.48%
Dec-2005 1121670 4.26%
Mar-2006 1212390 8.09%
Jun-2006 1216039 0.30%
Sep-2006 1242002 2.14%
Dec-2006 1407354 13.31%
Mar-2007 1505636 6.98%
Jun-2007 1606005 6.67%
Sep-2007 1656964 3.17%
Dec-2007 1629149 -1.68%
Mar-2008 1371430 -15.82%
Jun-2008 1342765 -2.09%
Sep-2008 1177538 -12.30%
Dec-2008 952628 -19.10%
Mar-2009 939844 -1.34%
Jun-2009 1079726 14.88%
Sep-2009 1324702 22.69%
Dec-2009 1377885 4.01%
Mar-2010 1384100 0.45%
Jun-2010 1228092 -11.27%
Sep-2010 1322577 7.69%
Dec-2010 1400633 5.90%
Mar-2011 1428540 1.99%
Jun-2011 1328703 -6.99%
Sep-2011 1162201 -12.53%
Dec-2011 1153420 -0.76%
Mar-2012 1245044 7.94%
Jun-2012 1162929 -6.60%
17

Sep-2012 1240057 6.63%
Dec-2012 1320225 6.46%
Mar-2013 1408014 6.65%
Jun-2013 1347900 -4.27%
Sep-2013 1471736 9.19%
Dec-2013 1524178 3.56%
Mar-2014 1547159 1.51%
Jun-2014 1558836 0.75%
Sep-2014 1535546 -1.49%
Dec-2014 1580331 2.92%
Mar-2015 1723286 9.05%
Jun-2015 1616186 -6.21%
Sep-2015 1518099 -6.07%
Dec-2015 1627506 7.21%
Mar-2016 1566638 -3.74%
Jun-2016 1617091 3.22%
Sep-2016 1693606 4.73%
Dec-2016 1757818 3.79%
Line graph of house price index and listed shares
06/01/1988 06/01/1996 06/01/2004 06/01/2012
0
200000
400000
600000
800000
1000000
1200000
1400000
1600000
1800000
2000000
Index line graph of House price and listed shares
House price
Listed shares
Question 2b Computation of beta variance and covariance
Price index
Share
return SLOPE
0.003262643 -0.002 -0.07
0.011382114 -0.010
18

0.011254019 -0.019
0.011128776 0.054
0.017295597 0.117
0.047913447 -0.043
0.044247788 -0.058
0.053672316 -0.031
0.097855228 -0.064
0.1001221 -0.069
0.081021088 0.108
0.019507187 0.065
0 0.070
0.003021148 0.056
0.00502008 -0.023
0.008991009 0.047
-0.008910891 0.072
0.005994006 0.054
-0.000993049 0.096
0.011928429 0.056
0.030451866 0.164
0 0.135
-0.006673022 -0.034
0.002879079 -0.014
0.000956938 0.029
0.009560229 -0.049
0.009469697 -0.004
0.006566604 0.059
0.000931966 0.080
0.009310987 0.014
0.011070111 0.016
0.011861314 0.024
0.015329125 0.059
-0.004440497 0.075
0.009812667 0.011
-0.007067138 0.122
0.001779359 0.038
-0.001776199 0.112
-0.001779359 0.063
0.012477718 0.029
0.003521127 -0.006
0.002631579 0.080
0.008748906 0.063
0.01300954 0.013
0.017979452 -0.010
19

0.019343987 0.142
0.024752475 0.015
0.02173913 0.017
0 -0.014
0.016548463 -0.035
0.017829457 -0.014
0.022848439 0.111
0.018615041 -0.121
0.032894737 0.124
0.018400566 0.007
0.023627519 -0.052
-0.001357773 -0.071
0.023793338 0.025
0.021912351 -0.041
0.035737492 0.056
0.052070263 0.063
0.037567084 0.069
0.037931034 0.034
0.049280177 0.044
0.037994723 0.042
0.04778851 0.037
0.033964095 0.032
0.050211168 0.020
0.033512064 0.095
0.059662776 0.043
0.025295798 0.081
0.003183446 0.003
-0.007140024 0.021
0.005593288 0.133
0.001986492 0.070
-0.001189532 0.067
Q2C RISK free rate of return
Risk free rate of return 3.01% (Current interest rates, 2017).
Q2d Difference between (Rm-Rf)
ASX price at January 2017 was 5620 and value of same in the month of March 2017 was
5903. Comparison of both reflects that return of 5.03% is generated by the index. Thus, (RM-
RF) is equivalent to 5903-5620= 283.
Q2e CAPM model
RFR 0.03
RM 0.05
20

Beta -0.07
CAPM 0.03
QUESTION 3
Dividend discount model- This particular used by an entity owner in order to value all the
stocks which will be utilized by the firm in paying dividend. The final value of rate depends on
the market value of share prices.
Capital asset pricing model- It is regarded as the evaluation of various set of factors such as
expected rate of return and their comparison with the initial investment applied by the firm.
On analyzing both the technique on common measure of choosing the best suitable
project out of the two is CAPM as it considers various aspects rather than emphasizing on
amount of dividends.
QUESTION 4
On review of relevant article it is identified that relevant researchers believed that houses
are fairly valued and same are not overvalued. In research mentioned entity identify that house
prices increased at an average rate which is little lower then 2 ½ % since 1955. If same will
continue then houses will be issued fairly. In future it is expected that house price growth rate
may be below historic average (Is Housing Overvalued?, 2014). If same trend will remain
continue then in that it will be better to rent houses then buying same.
It is true to say that interest differential effect is zero for the first buyer as this will depend
on their willingness of purchasing first house who will purchase the house part from having
differences in the interest rates as they will pay the amount in lump sum which will not get rise
due to sudden increase in the rates. On the other hand, from the perspectives of tenant who
intends to take property on rent have estimated their monthly rental expenses which may get
fluctuated with the sudden increase in the interest rates as this will affect a tenant's overall aim of
purchasing property on rent.
In the given case scenario, the total required rate of return on the property purchases by
an individual in the Melbourne in Elizabeth Street is 9.05%.
21

REFERENCES
Charge for rent, 2016. Available through: <https://smartasset.com/mortgage/how-much-you-
should-charge-for-rent> [Accessed on 2nd May 2017].
2204/250 ELIZABETH STREET, Melbourne VIC 3000, 2016. Available through: <
https://www.domain.com.au/2204-250-elizabeth-street-melbourne-vic-3000-11344720>.
[Accessed on 2nd May 2017].
Is Housing Overvalued?, 2014. [Online]. Available through :<
https://www.rba.gov.au/publications/rdp/2014/pdf/rdp2014-06.pdf>. [Accessed on 2nd May
2017].
Current interest rates, 2017. [Online]. Available through :<
https://www.tcv.vic.gov.au/page/Market_Activity/Interest_Rates/Current_Interest_Rates/>.
[Accessed on 2nd May 2017].
22