REAL570: Investment Analysis in International and Domestic Real Estate

This assignment solution focuses on real estate investment analysis, covering both international and domestic markets. It addresses key concepts such as capitalization rates, the relationship between asset and space markets using the four-quadrant model, and various types of investment risks, including systematic and unsystematic risks. The solution also explores risk measurement methods like beta, standard deviation, and scenario analysis. Furthermore, it delves into the calculation of expected returns, internal rate of return (IRR), and modified IRR (MIRR). The assignment also discusses Real Estate Investment Trusts (REITs) and strategies for increasing income, along with portfolio investment strategies, including asset allocation and correlation analysis. The document provides calculations and explanations related to returns, risk management, and investment performance, offering a comprehensive overview of real estate investment principles and practices. Desklib offers a wealth of similar resources for students seeking academic support.

Real Estate Investment
International and Domestic

TABLE OF CONTENTS
QUESTION 2...................................................................................................................................3
A..................................................................................................................................................3
B..................................................................................................................................................3
C..................................................................................................................................................4
QUESTION 3...................................................................................................................................4
A..................................................................................................................................................4
B..................................................................................................................................................5
C..................................................................................................................................................5
D..................................................................................................................................................5
E..................................................................................................................................................5
QUESTION 4...................................................................................................................................5
A..................................................................................................................................................5
B..................................................................................................................................................6
C..................................................................................................................................................6
QUESTION 5...................................................................................................................................6
A..................................................................................................................................................6
B..................................................................................................................................................6
C..................................................................................................................................................6
D..................................................................................................................................................6
E..................................................................................................................................................7
F..................................................................................................................................................7
REFERENCES................................................................................................................................8

QUESTION 2
A
In the present case of addresses state by the office building and renting it to different
companies involved different types of real estate market. The real estate market involved within
the present case is commercial market (Waldron, 2018). The reason underlying this part is that
the office building is being purchased for the commercial purpose. The capitalisation rate prices
and rent will be determined by the market forces that is accordance to the demand and supply
price equilibrium.
B
With the help of model of the skull and beaten describe the relationship of two real estate
Markets and they evaluated that a real estate market operates consequences in different manner.
Both the authors provided a graphical presentation how the rental prices and asset prices are
determined in proper and effective manner. This diagram outlines the relationship between the
demand existing stock prices Trend and the price of the investment. The relationship within the
northern quadrants of the model states that the demand and supply equal within this stage and it
determines the rent of the space market.

C
Real return Probability
Poor 4% 0.25
Normal 11% 0.4
Boom 17% 0.35
Expected
return (return a * probability a) + (return b * probability b).. 11.35%
QUESTION 3
A
In accordance to the CAPM that is Capital Asset pricing method the two different types
of risk are systematic risk and indiosyncratic risk. This type of risk and not be reduced by the

investors because these are not in hand of the investors. These risks occur in case of market
changes or any other and controllable event (Del Giudice and et.al., 2019). For example due to
the current pandemic, rates of real estate investment has reduced. This is not in hands of people
or the investor's and hence this risk cannot be managed.
B
Within the investment there are different measures through which the risk can be
measured. With respect to the Capital Asset pricing model and the linear regression the risk is
being measured with help of Beta. Other measures included for Risk measurement are Alpha,
standard deviation, Sharpe ratio and many other different tools. The coefficient represents
correlation between the risk and return with the investment will give in case the person selects
investment.
C
From the following the lowest liquidity risk is been possessed by 1000 shares of Apple.
This is particularly because of the reason that the shares can be sold at any point of time with just
the click of phone or laptop. In case of office buildings the person has to seek for the customers
to buy. But in case of shares just click will be enough to sell the shares.
D
The highest purchasing power rest will be in case of Hotel with constant adjustment of
overnight prices. The reason behind this fact is that the prices might not be fixed as these are
overnight Rises. And as a result of this there is purchasing power risk.
E
From the following options the lowest business risk is in case of store building in
Limassol rented for 15 years. The reason because of the lowest business risk is that the time
duration is less and this is a store building which can be used for any purpose.
QUESTION 4
A
Attached in excel

B
With the same required return that is 10% the optimistic IR involves 7%. Whereas the
Pessimistic IRR involves -2%. Further the standard deviation of all the scenarios combined is
3.97 %. This simply implies that the deviation from the mean IRR is 3.97 %.
C
The main advantage of using modified internal rate of return is that this improves the IRR
by assuming that all the positive cash flows are they invested at the cost of capital of the
company (Feng and et.al., 2021). This MIRR helps company in ranking the investment and then
invest within the business.
QUESTION 5
A
The REIT that is real estate investment trust can increase the income any good and
effective manner. The two ways in which are REIT can increase the income is best selling the
shares in the market or by the way of taking the debt.
B
With reference to the noise theory the fluctuations within the departures from the n a v is
majorly caused by changes within the investor sentiment. Thus in the situation when the investor
becomes irrational Pessimistic relating to the REIT then in that case the stock price of REIT will
be less than the net present Value.
C
The goal while making the investment including the portfolio investment is two on good
progress over the investments. This is particularly because of the reason that the investment is
being done with the sole objective of earning good amount of profit.
D
With the analysis of the correlation between the different types of properties that will be
used in order to invest is the apartment and houses. Another set of asset which will be used for
investment purposes will be retail and industrial (Fan and Zhou, 2019). The reason for choosing
both these a group of asset is that the correlation of these is maximum. This implies that the
change and the price of one will lead to higher profits.

E
a b c
R 11% 14% 16%
W 25% 45% 30%
Portfolio return 13.8500%
F
The proportion which will be selected for investment will be having asset be more. The
reason underlying this fact is that the standard deviation of asset B is more and this implies that
the deviation from the mean will be more in case of asset B. Further the correlation coefficient of
the return is -0.6 one that implies that it is negatively correlated (Kumar, Talasila and
Pasumarthy, 2021). Thus this simply states that the increase and one asset price will result in
decrease in the other assets price. Hence because of this asset B will be more within the
proportion.

REFERENCES
Books and Journals
Del Giudice, V., and et.al., 2019. Real estate investment choices and decision support
systems. Sustainability. 11(11). p.3110.
Fan, J. S. and Zhou, L., 2019. Impact of urbanization and real estate investment on carbon
emissions: Evidence from China's provincial regions. Journal of cleaner
production. 209. pp.309-323.
Feng, Z., and et.al., 2021. Geographic diversification in real estate investment trusts. Real Estate
Economics. 49(1). pp.267-286.
Kumar, S., Talasila, V. and Pasumarthy, R., 2021. A novel architecture to identify locations for
Real Estate Investment. International Journal of Information Management. 56.
p.102012.
Waldron, R., 2018. Capitalizing on the state: The political economy of real estate investment
trusts and the ‘resolution’of the crisis. Geoforum. 90. pp.206-218.