Industry Report

Introduction

The attention real estate has generated over the years, as one of the dependable and favourable investments for both public and corporate bodies is no doubt, tremendous. The primary reason for this is that real estate operates as an inflation hedge, supplies diversification benefits, and belongs to the class of businesses with the prospect for superior returns.

Protecting against inflation is one major goal of investors. However, investors are faced with the problem of future alterations of the level of price because the returns, even for investments with fixed cash flow, are uncertain. To this effect, real estate is generally seen as an investment with a low inflation risk. This argument can be substantiated by the fact that real estate returns such as selling prices and rents can be bargained afresh. For this reason, the adjustment capability of investors to push up the price level during drastic inflation is very possible.

The quest for high returns and security in a competitive environment throughout the world also impinges on real estate investment. Generally speaking, investment decisions rests on two attributes: risk and return. Investors look out for businesses with the best risk-return ratio. Ibbotson and Brinson (1987) stated that the driving force behind the choice of investing in real estate is the massive returns in association with its increase and capital appreciation potentials.

Risk has many definitions. It could be thought of as the vulnerability to economic and financial loss or gain stemming from an involvement in a process or action (Harris and McCaffer, 2005). Hassin, Jaafar and Sazalli (2009) have defined risk as the occurrence probability of some uncertain, unpredictable and even undesirable event(s) that would change the prospects for the profitability on a given investment. Risk management is that approach that foresees that a logical, consistent and regulated approach