Lectorial 1 Notes PDF

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Lectorial 1 Notes...

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Property and Capital Markets

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Tony McGough Senior Lecturer, Property Investment RMIT University, Melbourne

Module 1 Introduction to Property and Investment Course outline, Overview of assessments. Property Characteristics. Three market principle: space, property and capital markets.

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Introduction – Introduction – About me – Expectations for how the course runs – About the course – Assessment

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About me

Bath

Redruth

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How the course runs. • Lecture notes and tutorial questions will be put up the weekend before lectures start • Tutorial answers will be put up with a delay, a few weeks will come out every 3- 4 weeks • Please read announcements • If you email me a question which has been answered in announcements / the lecture, I shall reply read the course notes • I aim to answer emails in less than 48 hours, usually less than 24 hours – nudge me if you get no response • Keep on top of the course – do not start reading the notes in week 11 • Those people on-line during the Friday are free to ask questions and contribute on line

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Aims of this course:

About the Course

– To understand the reasons for investing in property and the role of property in the wider economy from an investment perspective. – To appraise the different property sectors and investment products which comprise the property investment market. – To evaluate the impact of equity and debt on the property investment market (financing of property). – To evaluate and analyse the roles and responsibilities of various property stakeholders. – To understand the capital markets (investment and finance sectors of the economy). RMIT University 2021

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Assessment

– 2 x Multichoice tests in Canvas worth 20% in total – Written Assignment on a REIT worth 30% in total – Final exam worth 50% in total

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Module/Content

1

Module 1 Introduction to Property as an Investment Course outline; Understand the different types of property. Detail the importance of diversification across the property sec tor. Identify the characteristics of property as an investment class.

Assessments

Explain the three market principle: space, property and capital markets. Module 2 Property and Capital Markets 2

Detail the fundementals of investing and the importance of income in real estate. Identify property stakeholders. Identify competing asset classes, detail why property offers unique opportunities.

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Detail the property investment universe, local and international property. Detail strategy to invest offshore and highlight benefits and issues with global property investment. Module 4 Understanding the Property Investment Markets

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Real Estate Investment Trusts – Understand the REIT structure and the difference between internal and external managed trusts. Examine REIT performance TEST 1; REITs allocated for your measures and discuss the role of property securitised funds. assignment Module 3 Introduction to Property Finance

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Understand the various types of finance and when and why they are used. Identify the key factors and considerations in financ ing property investments and developments.

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Property Financing, Examine of private and public debt structures and lending practices. Analysis the impact of debt on property performance. Understand the concept of leverage on investor property returns. Mid Semester Break Module 4 Understanding the Property Investment Markets - contd.

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Wholesale Unlisted Property Trusts – Discuss structure and market participants. Examine performance benchmarks and compare to alternative property asset Hand in Part A of your classes. assignment Property Syndication – Investigate the structure and market participants. Analysis the features of a property syndicate prospectus.

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Discuss the decision making process for investing in commercial property. Detail the various property investment vehicles. Identify investor types and their portfolios strategies. Module 5 Introduction to the Capital Markets

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Explain investment concepts and associated process. Detail risk and return performance measures. Discuss the Australian capital market structure and identify market participants. Understand key capital market determinants.

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Understand the operation of the equity markets and the role of Australian Stock Exchange. Understand the operation of the bon ds and cash markets.

TEST 2; Hand in Part B of your Assignment

Superannuation – Explain the concept of superannuation, Detail the structure of the Australian superannuation industry 11

Superannuation – Analysis the difference superannuation options. Consider superannuation allocation across investment classes Superannuation – Discuss superannuation funds allocation to property. Understand the property investment framework.

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Course review and exam revision. Vac (week 13): Final Exam: TBC

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What is Property? Property has 3 components:

– Property is an important part of society as property provides shelter and a place for an economy to operate from. – Property development is a key part of economy activity and governments understand the importance of the property and construction industry to employment and economic growth. – Property forms a key investment asset class and competes with alternative asset classes on performance and for funding.

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Types of Property Residential Property Sector Types – Houses: Planned community living with defined building styles – Management logistics, relatively low income returns

– Apartments: Multi-storey and High rise developments offering facilities (retail and entertainment) and public infrastructure – Major property companies are involved in high rise apartments 908/60 Lorimer Steet, Docklands

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Residential

Affordability becoming strained. Risks if interest rates rise. Price outlook more subdued in the next twelve months. RMIT University 2021

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Types of Property Core Property Sector Property definitions are broadly related to employment categories Types – Office: traditionally located in the Central Business Districts and near public infrastructure (Source: Savills 2015)

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Offices

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Offices

Source: Gartner

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Types of Property Core Property Sector continued – Retail: Shopping centres with strong catchments areas and good public infrastructure – Different shopping centre categories: – regional to neighbourhood – New categories – factory outlets – homemaker centres

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How the new Chadstone will look after $580m expansion. (Herald Sun 2015)

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Types of Property Case Study: Melbourne Central, 360 Elizabeth Street The complex includes: Retail precinct (160 specialty retail outlets) –46 floors of premium office space –Carpark (1,600 vehicles) –Access to underground railway station

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Retail

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Retail

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Types of Property

Core Property Sector continued – Industrial: Manufacturing, Warehousing HI-Tech supported by good transport infrastructure – Commonly developed for a specific occupier

Source: Goodman Group RMIT University 2021

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Industrial

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Industrial

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Types of Property Non Core Property – Sector specific - Community facilities: hospitals, prisons, retirement villages, childcare centres - Entertainment facilities: amusement parks, marinas, ten pin bowling centres - Hotels: Services the tourism industry. Location and hotel management critical - Sport facilities: golf courses, sport stadiums – Asset pricing challenges – Limited comparisons

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Types of Property • Retail –Shopping Centres –High Street • Office - usually CBD • Industrial • Secondary –St Kilda in Melbourne –Adelaide • Tertiary –Sunshine in Melbourne –Hobart • Non-core/Alternatives –Retirement homes, student accommodation, prisons etc. RMIT University 2021

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Summary – Property stakeholders can diversify across locations, and property types – Core property investment types have recently been complemented by new non core property opportunities – Property features unique characteristics which sets it apart

from alternative investment classes

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First Tutorial Break

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Property Market Structure

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Property Market Structure Historical Perspective – Property market was viewed as a single entity – not related to other markets – Buildings formed part of an organisations operation requirements – Characterised by ongoing influences from different aspects of the economy – Up to the late 1990s the favorite approach was a two market model – space market (demand) and the asset market (supply) RMIT University 2021

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An Economic Interruption

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The Law of Demand

• First Law of Demand –What Does Law Of Demand Mean? –all other factors being equal, as the price of a good or service increases, consumer demand for the good will decrease and vice versa.

–http://www.investopedia.com/terms/l/la wofdemand.asp

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Changes in Demand

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The Law of Supply

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Changes in Supply

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Equilibrium

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Markets NOT in Equilibrium

© 2011 Cengage Learning Australia Pty Ltd.

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The Cobweb Theorem Price (£)

S 11

7 5

D 8 9

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D1 Quantity Bought and Sold (millions)

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The Cobweb Theorem • http://www.bized.co.uk/current/mind/2004_5/251004.ppt • Hungarian-born economist Nicholas Kaldor (1908-1986) • Simple dynamic model of cyclical demand with time lags between the response of production and a change in price (most often seen in agricultural sectors). • Cobweb theory is the process of adjustment in markets • Traces the path of prices and outputs in different equilibrium situations. Path resembles a cobweb with the equilibrium point at the center of the cobweb. • Sometimes referred to as the hog-cycle (after the phenomenon observed in American pig prices during the 1930s).

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Useful Websites – Understanding differences between factors that cause shifts in demand or supply – http://hspm.sph.sc.edu/COURSES/ECON/SD/SD.html – Basics of demand and supply – http://www.investopedia.com/university/economics/economics3.asp – Cobweb theorem – http://www.bized.co.uk/current/mind/2004_5/251004.ppt

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Back to Property Market Structure

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Property Market Structure Space market

Property market Demand

Economic influences

Property markets performance

Capital market Market conditions

Financial factors

Supply

Government Central, Regional and Local Archer and Ling 2010 Adapted:Adapted: Archer & Ling 1997

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Property Market Structure Space Market – Demand for space by occupiers Property Market – Supply and performance Capital Market – Investment platform (competes with alternative asset classes) RMIT University 2021

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Property Market Structure Space Market

– Space demand can be unpredictable and complex

– Relates to particular activities, locality and timeframe

– Space demand in varying degrees and forms mirrors economic activity

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Property Market Structure Government Controls and Policies Space market (Demand) – Population policies (quotas on overseas migration) – Incentives - First time home buyers - Manufacturing tax incentives – Opportunities for overseas owners to purchase properties - Foreign Investment Review Board (FIRB) RMIT University 2021

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Property Market Structure Property Market – External parameter linked to space and capital markets – Internal momentum - as the supply of property can not adjust instantaneously to changes in demand – Income returns linked to lease structure (i.e. lease terms and rent review process)

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Property Market Structure Government Controls and Policies Property market (property market conditions and supply) – Release/rezoning of land

– Changes in planning policies (for example: housing density)

– Building regulations (sustainability agenda) Source: Higgins and Reddy 2010 RMIT University 2021

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Property Market Structure Capital Market (serve a variety of related functions) – Allocating scarce capital amongst competing uses

– Establish required returns on investments

– Assess the risk of investments

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