tailieunhanh - RESIDENTIAL RENTAL REAL ESTATE: AN INVESTMENT IN NEED OF A THEORY

The economy has made considerable progress in shaking off the legacy of the 2001 economic crisis and is on a path of growth and increased trade integration, underpinned by improved macro- economic stability and structural reforms. During the last five years real GDP growth has been impressive, with an annual average growth rate of ; inflation fell from an average of in the 1990s to single digits between 2005 and 2007; interest rates have declined with a cautious monetary policy stance; and reductions in the ratios of fiscal deficit and public debt to GDP have created a positive environment. These. | RESIDENTIAL RENTAL REAL ESTATE AN INVESTMENT IN NEED OF A THEORY Bryan Baker Department of Accounting Finance Faculty of Business Economics Monash University Caulfield East Australia Phone 61-2-9903-2018 Facsimile 61-3-9903-2422 E- mail PACIFIC RIM REAL ESTATE SOCIETY CONFERENCE CHRISTCHURCH NEW ZEALAND 20-23 JANUARY 2001 Keywords Capital asset pricing model Capm Capital asset pricing theory Finance theory Hedonic pricing Portfolio theory Residential rental real estate investment RRREI Security market line Systematic unsystematic risk 1 One The importance of residential rental real estate investment RRREI in the Australian social framework The demand for privately-provided residential rental real estate accommodation looks set to increase. Home ownership is slipping below its long-term level of seventy percent of the adult population and the federal government is reducing its investment in the direct provision of rental housing Yates 1999 29 . From the supply aspect Australians will increasingly have to provide for the self-funding of their retirement income requirements. Residential rental real estate investment RRREI can provide an ideal investment vehicle given its comparatively low risk and its inflation-hedging ability. Risk in residential property is low compared with the other major risk investment the equity sharemarket. Housing is a necessity people must have a dwelling to live in either as owner-occupier or as rent-paying tenant. This reduces the posssibility of a major downturn in the residential market. Conversely investment in equity shares is discretionary. Investors can withdraw from the sharemarket triggering substantial price falls. The risk of market downturn is evidenced by major historical price slumps. Risk- conscious investors seek to protect the real purchasing power of their investments. RRREI because of its close relationship to owner-occupied housing is an effective hedge against inflation. The .

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