Tag Archives: real estate investments

Real Estate Derivative

Real estate has less correlation to bond and stock investments, but selling and buying physical property is not as simple as it always seems.

While entering a property derivative or real estate derivative, investors gain exposure to the real estate asset class, without actually buying or selling a property by substituting the performance of a real estate return index with the real property.

The bases of all these derivatives are simply swaps, in which one party swaps its exposure with the other party.

All this provide investors a great deal exposure to real estate equity or debt, without making it necessary to buy a real estate asset or lending the capital with real estate as the collateral. National council for real estate investment property Index is the accepted index generated in order to provide an instrument to judge investment performance of the commercial real estate market.

Though this has been in existence for more than the two decades, yet it is only recently that data has become clear enough to allow it to appropriately and accurately track the work of equity real estate. All because today real estate data have become more transparent and transaction information is easier and less costly to retrieve, real estate indexes have become relevant, heading towards the creation of an incremented efficient derivatives market.

Real estate derivatives provide a way for the investors to obtain exposure to the asset class without letting the necessity of buying or selling properties get too much importance by replacing the exposure of the real property to the work of a real estate return index, which allows any investor to lessen his or her capital upfront requirement and allows them to shelter their real estate portfolios on the downside, at the same time providing for some alternative risk management techniques.

To get a better understanding of real estate and its derivative one must get a clear overview of commercial real estate investments which can be categorized into the following investment types: 1) Private debt, 2) Private equity, 3) Public debt and 4) Public equity.

The swaps based on the NPI were generated for the private equity sector and they were the alarming feature for the rest of the real estate derivatives developed till date. One method is replicating the exposure of buying properties or replicating the exposure of selling properties while another method is swapping the total return broken down by property sector, which allows the investors to make a position in another property sector which they may not own, thus this allows investors to swap returns from office real estate to retail real estate. This swap allows two investors while swapping to execute real estate techniques that cannot be gained in the private real estate market. Therefore, one would have to sell or buy assets with varying exposures of little chance of gaining the same assets at same investment basis in order to reverse the strategy. Swapping thus allows the investors to skillfully rebalance or change their concerned portfolios. For more information on Bajwa Developers and the best Sunny Enclave Plots check out our website

Real Estate Finance

Finance can be defined as the branch of economics dealing with the management of money and other assets. The management of credit and banking and the commercial activities of providing funds and capital for investment also fall under the umbrella of finance.

The Effective Management of Assets

Finance is the pivotal feature of any business organization which has the utmost responsibility of raising funds for its corporation with practicing a stable balance between risk and profitability. Real Estate Finance can be defined as a branch of economics which deals with investing money or wealth acquisition in real estate. It is the allocation, generation, and use of monetary resources over time which is invested in the real estate business. Like any other aspect of finance, real estate finance also has risks associated with it –the effective management of assets, which will maintain or increase in value over time, will eventually result to a good investment yield of the project.

The Difference between Real Property and Personal Property

Real estate investment essentially means investing in immovable properties such as land and everything attached to it such as buildings, also known as properties. The difference between a real and personal property (called chattels) is the right for the transfer of title to the property in question in real property whereas the right to personal property or ownership to personal properties cannot be transferred.

Real Estate Can Be Used to Secure a Loan

Real estate investment can be viewed as a handsome business opportunity as real estate can be pledged as collateral to secure a loan for a business venture, to offset otherwise taxable income through cash savings on tax-deductible interest rate losses or rental income can also be derived from a real estate property. A common example of real estate financing occurs whenan individual owning multiple pieces of real estate and use one as his primary residence while others can be rented out. Profits, known as capital gains from real estate financing, can be reaped from real estate financing as a result of appreciation of real estate property prices .

Real estate financing is long term in nature and investment professionals have always maintained that at least 15%-20% of one”s investment portfolio should be devoted to real estate. Real estate financing can either be on residential or commercial properties, which have different tax implications. Real estate investment and financing decisions are inextricably linked and equity investors or borrowers treat real estate investment as much as a financing decision. The most recent development in the field of real estate finance has been the rise of real estate mortgaging business. A mortgage is defined as the conditional pledge of one”s property for the repayment of a debt obligation or a loan. The borrower is called the mortgagor and the lender, the mortgagee.

Another feature associated with real estate financing is the Real Estate Investment Trust (REIT). A real estate investment trust is a corporation investing in real estate that reduces or eliminates corporate income taxes. In return, REIT”s are required to distribute a majority of their taxable income to their shareholders. This proportion is fixed at 90% for the USA and 90% in case of the UK. India is yet to pass legislation on REIT”s and only a handful of Asian economies such as Japan, Malaysia and Singapore have REIT”s in place. REIT”s can be both privately and publicly held (they are listed in public stock exchanges).