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留学生作业代写:Advantages and disadvantages of direct and indirect investment in real estate property

2017-06-05 来源: 51due教员组 类别: Essay范文

下面为大家整理一篇优秀的essay代写范文- Advantages and disadvantages of direct and indirect investment in real estate property,供大家参考学习,这篇论文讨论了直接和间接投资房地产的利弊。房地产最直接的投资方式就是购买住宅或商铺,其优点是对价值资产的增值,抵消了通货膨胀的影响。但这种方式资产流动性缓慢,投资额度要求高,还有很大的风险。而通过从房地产信托基金购买股票或证券的间接投资,可以在较低的成本下获得理想的流动资产,但投资者可能会遇到高信任管理成本和风险。

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Summary

The most common way for direct investment in real estate property is to purchase resident houses or commercial shops and its advantages for this investment are appreciation of value asset, offset the inflation impacts, opportunities for reinvestment and satisfaction from owning estate property. While, the disadvantages of direct investment are also apparent. The slow asset liquid and high degree of investment amount requirement makes the investors face a huge market fluctuation risks. Compared with the real estate property purchase, the indirect investment in this filed through buying stocks or securities from real estate trust and funds can gain a desirable liquid asset in a less cost. And the diversification of investment and specialized management of trust and funds managers can also bring benefits to decline the investment risks. However, the investors may encounter high trust management costs and risks from the managers lack of professional integrity.

Introduction

This paper aims to analyze the advantages and disadvantages of direct investment and indirect options in real estate property for a high net worth individuals with a personal wealth in excess of $50 million in Guangdong province China. The following analysis of real estate property will focus on the client’s perceived needs and some advisable recommendations for him will be put forward.

Client’s perceived needs

Apparently, my client is going to invest his personal wealth of $50 million to make it appreciation and hope a disable capitalization yield but in a steady way. However, my client knows little about the investment channel in real estate property filed. Thus, the following discussion will summary and analyze some main direct and indirect investment method to broaden his views as well as point out their merit and demerit for the client’s perceived needs. After communication with him, the priority of investment in his mind is to maintain steady and based on this increase earning yield as more as possible. In a word, he is a steady investor with risk aversion.

Advantages and disadvantage of direct investment

In regard to direct property investment, the most common to achieve it is to buy the house for resident or commercial shops and then rent them out for charging rental or resell them to other buyers for a higher prices. The advantages of direct investment for the investors are obviously numerous. First, it can make the appreciation of asset value in the long run. The land resources are always scarce relatively because the quantity of human beings is more and more, while the number of land is variable permanently. Thus, in the long term, the demand for land resources surpasses the supply (J Tian and YM Zhao, 2013). In this way, the direct property investment can also help to fight for the inflation. Inflation makes the money in the bank less value. But the property investment plays an active impact on the inflation fighting. Some study has proved that the price increasing of house is more fast than the inflation rate (C Akazawa, G Matsuzaki and T Nagao, 2008). Second, the property owner can reinvest to appreciate its asset value by mortgage its estate property to banks for funds, which can use for other investment such as stock or another real estate property investment. Last but not the least, owning a house is s symbol of upper class especially in the developing counties like China. In term of utility, the perceived value can also bring benefits for the property holder. “Chinese people usually think highly of the one who has its own house.”(Jiaowei SHANG, 2013). While, there are disadvantages for the direct investment of real estate property. First and the foremost, the liquidity of assets is slower compared with security and other fictitious assets. The one wants to realize its estate property usually suffering for a long time to look for and negotiate with buyers. In addition, the decision of purchasing real estate property often requires huge money for taxes, banks loans interest, acquisition and property management fee, etc. What’s even worse, the above disadvantages integrated could lead to a huge risk of purchasing estate property. The features of huge costs and uneasy realization make the direct investment of estate investment face tremendous market fluctuation risks. Once the economy goes down, the investors will lose lots of money in the real estate property.

Advantages and disadvantage of indirect investment

Indirect investment in real estate property for most individuals is the investment trust and real estate funds as well as stocks relating of real estate company. In other words, you buy the stocks or securities through these middleman and they endeavor to make good use of the funds for investment in real estate property. In this way, compared with the direct of investment in real estate property, the advantages is apparently. First, the asset liquid is more desirable than the fixed assets. The investors of real estate stocks and securities can gain money easily by selling them in the stock market. Secondly, the requirement of investment amount is small because the projects operated by the investment trust and funds usually broad and the apportioned cost in transaction and management is reduced. Third, the risks of indirect investment through trust and funds can be declined by the diversification of investment and expertise. The real estate trust can put the capital from lots of investors into different types and section of real estate, which can effectively bring down the investment risks. And the expertise in real estate filed can help to make right investment decisions too. As for the disadvantages of indirect investment, the management and service costs  including consulting costs, purchase costs and redemption charged by the trust should be considered. The charged cost is usually used for the payment of trust and funds managers as for the return of their specialized knowledge and management experience. Besides, the separation of investors and real estate property makes the investors indifferent to the property in some extent since what they really care about is the price of stocks or securities bought can rise or not instead of the real situation of the estate property. In addition, investors are also suffering moral risks from the trust or funds managers. Once, they cannot obey the professional integrity, it must lead to disaster for the fund owner investing their capital into the trust or funds.

Conclusion

Both direct and indirect investments in real estate property fields are not perfect. When choosing the investment way, the investors should consider its risk tolerance, risk appetites, related knowledge and fund quantity. As for my clients, it is suggested that the majority of capital can be invested by the indirect ways and put the remaining funds into direct investment.

Reference

J Tian and YM Zhao. (2013). Study of Divisional Appreciation Rate of Allocated Land in Market. Scientific & Technological Management of Land & Resources, 2013-03.

C Akazawa, G Matsuzaki and T Nagao. (2008). Inflation, Investment and Growth: a Banking Approach. Cardiff Economics Working Papers, 4(12):55-62.

Jiaowei SHANG. (2013). Book Review: "Annual Report on the Development of China's Real Estate No. 6". Chinese Journal of Urban & Environmental Studies, 2013, 01(1).

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