Question

1)

Real estate investment trusts may invest in

I. commercial properties such as shopping malls.

II. residential rental properties.

III. mortgages.

IV. combinations of property and real estate related debt.

A.

I, II, and III only

B.

I, II, III and IV

C.

II and IV only

D.

I and III only

2) Prices of residential properties tend to weaken when

I. unemployment increases.

II. interest rates fall.

III. interest rates rise.

IV. economic levels are high.

A.

I, II, and III only

B.

I, II, III and IV

C.

II and IV only

D.

I and III only

3)Which of the following key factors may have a negative effect on real estate values?

I. availability of similar properties.

II. availability of substitutes for the type of property.

III. restrictions on the use of the property.

IV. low interest rates.

A.

​I, II, III and IV

B.

I and III only

C.

​I, II, and III only

D.

II and IV only

Answer 1

1.(D)Real Estate Investment Trust (REIT) were established by congress in 1960 as an amendment to cigar excise tax extension of 1960.They allow individual investors to buy shares in commercial real estate portfolio that receive income from a variety of properties, including apartment complexes, data centers, healthcare facilities, hotels, infrastructure, office buildings, retail centers, self storage , timber land and warehouses.

There are several types of Real Estate Investment Trust, including:

Equity Real Estate Investment Trust: Most Real Estate Investment Trust are equity Real Estate Investment Trusts, which buy , own and manage income-producing real estate. Revenues are generated primarily through rent (not buy selling properties).

Mortgage Real Estate Investment Trust: Mortgage Real Estate Investment Trust lend money to real estate owners and operators either directly through Mortgages and loans or indirectly through the acquisition of Mortgage backed securities. Their earnings are generated primarily by the net interest margin the spread between the interest they earn on mortgage loans and the cost of funding these loans. This model makes them potentially sensitive to interest rate increases

Hybrid Real Estate Investment Trust: These Hybrid Real Estate Investment Trust use the investment strategies both equity and mortgage Real Estate Investment Trusts.

2.(D) reasons for prices of residential properties tend to weaken one is Unemployment increases second is Interest rates raises.

Unemployment increases: unemployment rate increases could be related to the housing supply. Specifically, the unemployment rates in Arozona, New Mexico remained above their price pre-recession levels, these are also areas where housing prices dropped significantly. when they examined the percent change in country house prices with the change in country unemployment rate , the result showed a strong negative correlation, meaning the countries with larger house price declines during downturns are leading to larger declines in local consumption spending that future depress the local economy.

ii) when interest rates rise, mortgage lenders generally increase the cost of mortgage payments. These higher interest rates in turn make home buying less attractive, Since the majority of Australian homeowners have variable mortgages , even a small change in interest rates can have a big impact on the affordability of buying a house.

Location is generally accepted as the single biggest factor influencing market appraisal. Similar types of properties in different areas command significantly different prices. Buyers may pay more for a similar 3.(A) property in a more desirable area. It may be that accessibility to transport links or good schools affects desirability. Aspect may include a view or a south-facing garden

Building a property today requires both planning permission (which covers size, shape, design and siting aspects of the property) and building regulations (which covers the technical aspects relating to the construction process) approval. Without these, a property may have to be demolished. Occupancy restrictions are becoming increasingly common to ensure affordable housing is available in certain areas e.g. the debate over the provision of affordable housing

Location is generally accepted as the single biggest factor influencing market appraisal. Similar types of properties in different areas command significantly different prices. Buyers may pay more for a similar property in a more desirable area. It may be that accessibility to transport links or good schools affects desirability. Aspect may include a view or a south-facing garden

Type of house (detached, terraced, semi-detached etc), style (e.g. does the house have a ‘wow’ factor or kerb appeal) and age, such as an older property with historical connections or a newer property with up-to-date fittings, will also effect value