lesson 3: the market environment Flashcards
the market environment
one of four environments that need to be analyzed in order to assess the investment climate and market conditions
true or false
Information about the market environment can be costly to obtain
true
do a lot of people analyze the market?
nah boy
can market inflation be reduced if companies invest in real estate?
ye boy
what do studies show when they compare real estate vs stocks and bonds?
real estate outperforms stocks and bonds
real estate offers higher returns with no increase in risk compared with other investments
provides higher overall returns with lower variance if one does not require a high level of liquidity
There are a limited number of stocks and bonds
The Morguard Index of the Toronto Stock Exchange
indicates high returns and low risk
uses proxy data (appraisal values)
uses quarterly appraisal values to determine returns
what is the issue with the Morguard Index of the Toronto Stock Exchange using proxy data (appraisal values)?
can cause inaccuracies because it fluctuates with market conditions
why is it difficult to analyze data on the Morguard Index?
Studies on the Morguard Index show annual data
what happens when appraisal values are understated or overstated?
will cause errors in returns
do studies determine the relationship between appraisal values and actual values?
nah boy
what happens when an appraiser deliberately understates the value of a house?
indirectly increases the rate of return for the client
what happens when an appraiser deliberately overstates the value of a house?
it decreases the rate of return
how do you calculate the rate of return?
simply divide the cash flow by the market value
what are the different segments of the real estate market?
residential
commercial (retail and office)
industrial
special purpose
others
how does the segmentation of the real estate market affect information costs?
it increases the information costs
what is the real estate segmentation based on?
on local market conditions
what do information costs do to real estate portfolios?
• Information costs increase the cost of operating real estate portfolios
in which real estate markets is the information hardest to find?
why?
commercial
industrial
special purpose
because of low turnover or low number of transactions given in a special period (compared to residential)