2. Property

Question 0

What sort of property would you advise an investor to buy if they wanted an overall high capital return

Answer 0

Residential property (commercial property has high rental income)

Question 1

What type of property would you advise investment in for someone wanting to invest over a period in excess of ten years?

Answer 1

Commercial Property

Question 2

How would a smaller investor who couldn’t necessarily buy a property outright diversify their portfolio to include property?

Answer 2

Collective investment scheme
Property bonds issued by insurance companies
Shares in publicly quoted property companies

Question 3

Name some property risks associated with property investment

Answer 3

Location of property
Effect of the use of the property on its value
Credit quality of the tenants
Length of the lease
Lack of daily valuations/transparency

Question 4

Name some market risks associated with property investment

Answer 4

Effect of changes in interest rates on valuations
Performance of individual property sectors
Prospects for rental income growth

Question 5

Name some investment vehicle risks associated with property investment

Answer 5

Liquidity of indirect investment vehicles
Diversification of the underlying portfolios
Level of gearing

Question 6

Name some advantages when looking an investment in property as an asset class

Answer 6

Attractive absolute returns over long periods
Portfolio diversification
Relatively low correlation with bonds and equities

Question 7

What are the three main varieties of real-estate fund

Answer 7

Core funds
Core-plus and value-added funds
Opportunistic funds

Question 8

What are some characteristics of core funds?

Answer 8

Lower risk and lower return funds that are usually open ended and which aim to produce returns that are benchmarked against an established property index

Question 9

Name some characteristics of core-plus and value-added funds.

Answer 9

Usually use higher gearing and a more active management style to generate higher returns

Question 10

Name some characteristics of opportunistic funds

Answer 10

Typically closed-ended and aim to exploit opportunities to acquire property from distressed sellers, redevelopments and in emerging markets; they are more similar in nature to private equity funds.

Question 11

What is a REIT

Answer 11

Real estate investment trust

Question 12

Name 4 factors that an advisor should consider when investing in real estate funds

Answer 12

1. Asset price bubbles
2. Relative liquidity of listed vehicles verses investment funds
3. Permitted levels of gearing
4. Redemption charges and notice periods

Question 13

What are the levels of gearing that property might have?

Answer 13

Can have levels of gearing that vary from 0% to 90% - many funds are limited to between 50% & 70%.