Research and facts
Introduction
Real estate is turning out to be an important area of investment. With the prevailing economic and financial circumstances; many people are increasingly becoming decision-makers rather than implementers. The ever skyrocketing global prices coupled with undefined future uncertainties have made most individuals be more skeptical and suspicious about undertaking long-term investment decisions. Most investors have now shifted their preferences into real estate with the pretext that within a short duration, one is likely to recoup the initial capital outlay. (Lins & Pereira. et al, 2005)
The main distinguishing feature of real estate investment is that it appears to be permanent and can therefore provide an assurance of long-term gains despite harsh economic difficulties. The purpose of this paper is to provide knowledge in real estate management, by portraying the requisite procedures in undertaking a purchase decision. Many a time’s most people find themselves in impossible situations whenever such decisions become inevitable.
The paper presents critical steps that can be relied upon by anybody including ordinary persons either with relevant experience or without. Based on the research study that was carried out by Anteon Plc on behalf of the group, it was found out that there is a ready real estate market in Lower California. The study provided a detailed report on real estate investment by focusing mainly on Tribute ltd an independent international Real estate agent with multinational branches throughout West and Eastern Europe. (Adair & Norman, 2005)
The objective of the study was to find out important factors to be considered when making Real Estate purchase decisions. The study also focused on factors that determine the demand for estate property investment taking into consideration the prevailing global financial and economic crisis. (Lins & Pereira. et al, 2005)
Research methodology
The study used both quantitative as well as qualitative methods of data collection. In this regard, the study dwelt heavily on primary sources, where interviews and questionnaires were explored. (Adair & Norman, 2005)
Interviews
Anteon Plc is an independent research organization with accreditation and certification of ISO 1900 and 2000. The company enjoys a good public image in all aspects of professionalism including credibility, transparency, objectivity, independence, and integrity. The main aim of the research was to look into the important factors that should be considered when looking for real estate. The study used its team to obtain the required information mainly through interviewing eminent personalities with wide-ranging experience in the real estate industry. (5th edition.Rees & Hayward, 2000)
The research findings
The study went further to recommend a property by the name of high-rise found on the outskirts of the city of California based on the fact that it was insured by AIG group, American largest corporation that specializes in offering the best property insurance covers with the most competitive rates worldwide. This was seen to attract many buyers including corporations and individual retail purchasers.
The study went further to recommend that a property of this nature is worthwhile economically. Due to the prevailing economic quagmires, uncertainties have become part of investment decisions. Taking an insurance cover means that in the event that unexpected future phenomena with adverse economic consequences occur, insurance is likely to mitigate by offering either to rebuild the property or by giving a cash compensation. (5th edition.Rees & Hayward, 2000)
Taxation
The study showed that properties situated on the outskirts of California were a result of the United States government’s incentive to decongest the city. All buildings and other business properties including residential areas attract fewer taxes. The government decided to reduce taxation on all properties situated along Lower California to encourage private developers from venturing into the city centers. The study, therefore, recommended that willing buyers should focus their attention on the city’s outskirts. It is, therefore, a wise decision to buy high-rise buildings. Taken based on economic importance it would be a massive saving especially now that everybody is feeling the impact of the world’s largest economic crisis. (Brown & Matysiak, 1999)
Again high-rise buildings have their own local taxation officers who liaise with the central income-tax authority at the national level. The role of local taxation officers is to communicate with high-rise residents daily and inform them of any legislative amendments as may be required by the government. This has attracted many tenants and consequently, the demand for houses found within High-rise has since gone up, leaving investors with huge economic gains. (Brown & Matysiak, 1999)
Maintenance and Repairs expenses
The study cited out that one of the biggest reasons why many people shy away from buying properties is maintenance cost. In order that the value of the property remains updated with market situations, regular repairs are required. The study found out that it was far much cheaper to maintain a property in high-rise estate than any where in the whole country. Masada, the only estate Agents are appointed by the government under the wing of local authority through such process as vigorous and rigorous bidding and tendering procedures. All agents are evaluated on the basis of quality, reliability, financial capability and price.
These agents are further given a government subsidy of up to twenty percent of their operational costs; this makes Masada unique among its competitors. Following this subsidy, it is therefore able to charge its clients low maintenance and miscellaneous cost. (5th edition.Rees & Hayward, 2000)
The resultant impact is that high-rise investors spend less maintenance cost annually on their buildings than other investors in other Estates. This has also made many people to admire unleashing their financial investment in high-rise. In fact the study showed that by August 2008, almost sixty percent of the area had been developed and the growth is anticipated to increase to eighty five percent by October 2009.
According to the study, high-rise buildings are situated on areas which are off the Bonillo Forest. This forest is protected by the national forestry reserves body incorporated in Georgia with the main headquarters being in Atlanta. Garbage collection is carried out by the reserve. This adds to low cost of maintenance. In general high-rise estate still remains the most marketable in the eyes of tenants. The government issued a report on its press indicating major plans to expand its capacity up to six thousand more units. These are just but additional benefits to investors. (Brown & Matysiak, 1999)
Rentals
The study identified eight main real estate firms with particular emphasis on three major adjacent firms. The study was conducted on the basis of the total cost of making a one off purchase of property and the rent charged thereafter. Under this category, it was found out that Green belt Ltd was the best with a mortgage arrangement. It was cheaper to buy a house from Meyer Ltd than from the rest of the Estate firms. However Meyer was found not to offer any mortgage facility and only specialized on developing and selling properties at the prevailing market prices. (Adair & Norman, 2005)
The study therefore gave a comprehensive recommendation on Green Belt Ltd that did not only develop and sold real estate to customers, but was also directly involved in letting and managing houses in High-rise. According to the rent charged, having been studied through the newspapers, internet and other sources, Green belt was found to be the cheapest. Another interesting feature about green belt was the automation of its business. (Brown & Matysiak, 1999) This ensured that tenants were able to make rental payment online and also make necessary enquiries as to late remittance and etc.
This had become a common talk in the Lower California with many tenants including foreigners and civil servants proposing to stay in high-rise estate where it was possible to submit rent online. Tenants were able to make payment from anywhere anytime. This provided customers with the greatest convenience. Green belt also formed a helpdesk through which technical complaints could be aired. (5th edition.Rees & Hayward, 2000)
Nature and description of the house
High-rise Estate consists of mansionates, bungalow with five spacious bedrooms, kitchen, dining room, two bath rooms, balcony, two servant quarters, playing ground, spacious car park, swimming pool, and resting lounge. As has been said, the houses are situated on a high level topography with good drainage off the forest that provides purified air. The study found out that most government officers and United Nations diplomatic officers often prefer this kind of environment for being peaceful, cool and high level.
The buildings represent the modern architectural design that incorporates the latest fashion designs and often situated on an acre plot. Behind every block there are two garages and just opposite of the Estate there is a branch of Tesco Supermarket. Tesco America has entered into an alliance with Green Belt Ltd, the appointed agent of High-rise Estate to provide its staff with a housing scheme which is also seen as another prospect for growth. (Lins & Pereira. et al, 2005)
Amozon.Com has also integrated its services with Green belt Ltd to supply High-rise High School with stationeries, having negotiated a smart deal to remit payment together with rentals. The ideal picture of High-Rise Estate is that it is an all inclusive Estate, comprising of supermarkets, garages, a school and Bookshops. The houses are fitted with an automatic generator that regulates the temperature throughout. (Simons, 2007)
Utilities
This area is known for having a steady supply of electricity. With many United Nation diplomats and emissaries staying around and other civil servants, the government of the United States ensured that there is steady electricity supply throughout the year. Mega dams like Opus and Bindery that were constructed to tap the water from the forest also ensure that there is adequate electricity in the city. Bindery is one of the largest dams found in Lower California with the capacity to produce 1200 megawatts of electricity. (Lins & Pereira. et al, 2005)
This has enabled the government to build up a large power station between High-rise Estate and the Bonillo Forest. This power station is at times used to supply power to the neighboring cities and is one of the largest power reserves in the Lower California. The payment of electricity has also been made online by the Green Belt Ltd which is the estate’s only appointed agent. The management also arranges for formal communication between its tenants and the billing office through the website.
This has since attracted many private developers as well as property buyers in the region. In fact high-rise remains a big threat to other places including the formerly known Guttering Estate. The houses are also fitted with powerful modern generators which are environmentally friendly and therefore neither make loud noise nor emit dangerous smoke. Generators go on automatically in the event that there is power surge. Also fitted are lightening arrestors that protects blocks from thunderstorm and lightening. (5th edition.Rees & Hayward, 2000)
The water supply is also adequate, in fact according to the study, California water and Sewerage Company is the dominant water supplier in the region. The main source of water is Bindery Dam. The dam was constructed along the great Mississippi river, where the water is taken to tripod Tower for purification and then supplied back by the California Water and Sewerage Company. High-rise Estate also relies on the water from the bore holes and springs within the estate. These bore holes were dug by Pewit in collaboration with World Relief for the people of Lower California. (Adair & Norman, 2005)
The estate also enjoys adequate security mainly from the government and private security firms. Wells Fargo a security firm was subcontracted by the Green belt ltd to provide security services to the estate for the next three years. The purpose of private security firms is to provide door to door security services i.e. guarding the extensive car park, and restricting unauthorized access to every door. Wells Fargo is also involved in the provision of courier and other internal logistics services to the estate. There are also major plans to protect major cities by the government of the United States. This includes a proposal that is currently underway to enhance the security systems in the US major cities where it is considering developing an automobile defense system. (Lins & Pereira. et al, 2005)
This system is meant to be put in each and every city. Unilateralism has made the United States to brag shoulders with countries in the world which are to some extent viewed as enemies. This has placed the United States in an awkward position and has since been the center of terrorist activities. The study found out that based on the factors discussed above it is highly recommended that any person who is able and willing to buy a home or a property should do so in Lower California. Because of the rising demand triggered by the government’s incentives it is obvious that investors stand a better chance to gain now and in the future. (Ed. The Appraisal Foundation, 2006)
High-rise Estate consists of houses which incorporate the current modern design, fitted with security gadgets, spacious enough to accommodate both couples and single families. Many tenants have now nurtured their fashions and tastes to match the current economic world. These are the services offered by Green belt Ltd. The truth of the matter is that any investor who dares put his investment in these houses is assured of reasonable returns. (Kane, Linne & Johnson, 2004)
Analysis of Value
Anteon Plc conducted a research on the value analysis, the study focused on the market price, historical or book values and the prevailing economic circumstances and the likely effect. Experts made specific enquiries through the newspapers, electronic media, and websites of other real estate companies and the independent valuers and assessors’ report. The research took issue with Elyot Plc which consists of professional property valuers and assessors. Elyot Plc has a universal industry record of being one of the few best professional property valuers in the United States. According to Forbes report, it was ranked nineteenth world wide and fifth in the United States. The company uses two valuation models, the historical and market price valuation models. (5th edition.Rees & Hayward, 2000)
The historical cost model: this model borrows heavily from the historical cost accounting model where the value of property is arrived at by deducting the total depreciable value up to date from the current market price. The market price less total historical cost incurred to completion. This model is important taken on the accountant’s point of view simply because it is objective and prudent. The international financial reporting standard requires professional accountant to exercise their judgments with a lot of prudence to avoid assets overstated or understated. (Simons, 2007) This is why the historical cost model is relied on heavily. However, under volatile economic conditions i.e. like the current financial depression prices are set to increase thereby increasing asset values.
The investor’s point of view is that whenever there is an increase in the value of assets, the immediate effects are associated with huge economic benefits. While historical cost accounting concept states that assets lose their values as they stay for long in the business and therefore should be depreciated accordingly. Historical cost model therefore becomes unpopular in the eyes of investors as it tends to undervalue the investment. During periods of high inflations property values increase and therefore using historical cost model seems to deprive investor’s benefits. The study suggested that it was important to buy a house based on historical cost as the investor is likely to spend less.
The historical cost convention may fail to take into account the prevailing economic circumstances that include high maintenance cost and interests. However this is only possible when an investor wants to buy an already built property. (5th edition.Rees & Hayward, 2000)
Income Capital Approach
The study showed that though this approach is usually used to value commercial and investment properties, it may reflect the behavior and expectations of a given market condition and is probably the most recognized valuation mode for income generating models. This technique capitalizes the anticipated income into the valuation (Kane, Linne & Johnson, 2004)
Market Price valuation model
The market price valuation model operates on the basis of existing marketing conditions. IAS 16 of the international accounting framework on property plant and equipment recognizes gains on assets as re-evaluation gains. The standard sets out the basis and scope for carrying out revaluation. During periods when the economy begins to pick up, the value of properties including freehold land and building is set to rise. The framework identifies two types of revaluation i.e. downward and upward revaluation. (Isaac, 2002)
It is understood that market price valuation will take into account the prevailing market conditions and hence the value of a property is likely to be higher than the historical cost model. Taken on the investor’s point of view, the market valuation model is therefore a worthwhile model as the investor is set to gain. However, it may be very difficult and expensive when a property is sold to a first time buyer at the prevailing market prices. Based on this promise, Anteon Plc therefore gave recommendations for buyers to use professional valuers in order to get the best price ever. The study cited Elyot Plc as the best professional and independent valuers offering world class valuation models. (Brown & Matysiak, 1999)
Legal Documents
Legal documents are necessary when purchasing a property because they are required by the state. The main reason is to ascertain the true ownership of the property. In many cases conflicts have always occurred whenever true and legal ownership fails to be established. In certain countries like the United Kingdom, a legal ownership is required so that in the event that the owner of the property dies the government can be able to apportion inheritance tax accordingly.
On the other hand legal documents are required in order to complete and validate the transaction. Documents are also important for future references whenever a disastrous calamity befalls a state e.g. major earthquakes, political bombings, tornados and etc. some of the documents required when purchasing a property are: Personal Identification Number (PIN), national identity card, property title deed, approval letter from the city’s local authority, single family residence, extended family relationships, and etc. These documents should be presented and produced by the purchaser before a property is bought. (3rd Edition. Baum & Mackmin, 1995)
Mortgage financing
Based on the research study, Green belt was found to offer a mortgage finance of twenty percent of the total cost of property identified. This could provide investors with an economic leeway as most banks in the region including Citibank offer higher interest rates on mortgage financing. Greenbelt finances twenty percent of the total cost and offers to bear the contingent subsequent incremental costs. This was seen as hedging of risks. Owing to the prevailing economic climate, buyers are increasingly finding it easy to use mortgage financing to buy property more so in the United States and in Europe.
The economic world has become difficult and making financial decision requires careful considerations. Coupled with adequate personal financial planning, Green belt Ltd would carry the day. (Adair & Norman, 2005)
Conclusion
In my own opinion it would be a wise savings to invest in the High-Rise estate. Following the facts of the study any rational investor would not hesitate to buy a high-rise estate property. There is already increasing demand for houses in the area, the government together with the United Nations, Tesco supermarket, and other prominent personalities have shown their interest to stay in this estate. This means that whoever buys a property stands a better chance to gain now and in the future. Additional benefits like adequate water and electricity supply, being adjacent to the cool forest and Tesco supermarket California Branch are some of the interesting features that make any investment in this estate desirable. It is therefore important to invest in this estate.
List of references
Adair, A; Norman, H. (2005). “The reporting of risk in real estate appraisal property risk scoring”. Journal of Property Investment & Finance (Emerald Group Publishing) 23 (3): 254–268. Web.
Baum, A. and Mackmin, D. (3rd Edition). (1995) The Income Approach to Property Valuation. Rutledge, London.
Brown, G.R. and Matysiak, G.A. (1999). Real estate Investment: A Capital Market Approach. Financial Times, London.
Isaac, D. (2002) Property Valuation Principles, Palgrave, London.
Kane, S., Linne, M. and Johnson, J. (2004) Practical Applications in Appraisal Valuation Modeling. Appraisal Institute, Chicago.
Lins, M, Pereira, E. et al. (2005). “Real Estate Appraisal: A Double Perspective Data Envelopment Analysis Approach”. Annals of Operations Research (Springer) 138 (1): 79–96. Web.
Rees, W.H. and Hayward, R.E.H. (5th edition) (2000).Valuation: Principles into Practice. Estates Gazette, London.
Simons, R. (2007). When Bad Things Happen to Good Property Environmental Law Institute, Washington, DC.
The Appraisal Foundation. (Ed). (2006). Uniform Standards of Professional Appraisal Practice. Updated and published annually through the 2006 edition; henceforth, updated editions are to appear biannually.
The Appraisal Institute, the Appraisal of Real Estate (12th Edition). (2006). An industry-recognized textbook.