Getting to know C&I property: Why invest in property?

Posted On Tuesday, 18 February 2003 02:00 Published by eProp Commercial Property News
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Giving real estate another dimension.

Jonathan SmithReal estate investment is essentially the conversion of space-time into money-time. In other words, the correct view of investment in
real estate is that of the use of the three-dimensional bricks and mortar through the sale of time, which adds a fourth dimension to fixed property.


Property economists thus regard the money-time concept as being of the utmost importance, and it is on this criterion that they evaluate
the subject investment. This investment environment consists of three groups:

  •  Investor developers, who provide space over time;
  •  Consumers, who use the space over time;
  •  and government, which provides the infrastructure within which the
    transactions take place.

    Although the central objective of property investors is the achievement of a positive return in excess of the opportunity cost of
    their capital, property investors may also have other objectives, such as:
  •  Pride of ownership
  •  Portfolio acquisition
  •  Security of capital
  •  Leverage for other investments
  •  Tax shelters
  •  Capital appreciation as a hedge against inflation

    There are also certain disadvantages:
  •  Illiquidity and time constraints
  •  Management burdens
  •  Depreciation of value
  •  Government controls
  •  The requirement for equity capital
  •  The unpredictability of real estate cycles
  •  Legal complexity
  •  Lack of information


PROPERTY CYCLES
An appreciation of business and property cycles can play an important role in ensuring that returns are optimised. If one considers how the property cycle emulates the economic cycle, investment in the property sector can be altered in accordance with predictable movements.
Business cycles are recurrent - but not periodic - fluctuations in aggregate economic activity. Each cycle consists of a lower turning point, an expansion, an upper turning point and a contraction. The use of business cycles in the property sector entails the ability to predict the correct investment point by ascertaining the lag in the property cycle behind the business cycle.


Last modified on Monday, 26 May 2014 14:01

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