Advantages of Real Estate Investment 地產投資的好處
Real estate includes land and properties such as homes, shops and offices. An investor may buy property to let, using rent towards mortgage payments and other expenses while retaining the opportunity for appreciation, or buy property or undeveloped land intending to sell later at a profit.
Capital appreciation means an increase in the property's market value and is distinct from rental income received while holding it. Real estate can also hedge inflation: rising property prices or rents may help preserve purchasing power, but inflation guarantees neither an increase nor full protection against lost purchasing power.
In Hong Kong, investors can obtain leverage through bank mortgages, combining their own capital with borrowing to purchase property. Leverage can magnify the effect of property price movements on returns on their own capital, increasing potential gains from appreciation and losses from falling prices.
Ownership can also bring pride of ownership. This personal benefit does not replace an assessment of rent, costs and price risk, and does not establish that the investment will be profitable.
Disadvantages of Real Estate Investment 地產投資的弊處
Property prices can be highly volatile and investors may suffer capital losses; a tangible asset is not necessarily a low-risk asset. If the purchase is mortgaged, a fall in market value does not correspondingly reduce the outstanding loan, so leverage may increase losses on the investor's own capital.
Property transactions have high costs, potentially including stamp duty, agency commission and legal fees. Returns must allow for applicable costs rather than merely compare purchase and sale prices; repairs and management expenses may also arise during ownership.
The property market is relatively illiquid: finding a buyer and completing a sale can take time, and an urgent sale may require a price reduction. Direct purchases also normally involve a large amount of capital, described as high denomination, making diversification or selling only part of an investment difficult for investors with limited funds.
Letting property involves tenants, rent collection, vacancies, repairs and management. Rental yield relates rental income to the property price; an expensive property need not have a high rental yield, and expenses further reduce net rental income, so rent cannot be assumed to cover the mortgage and all expenses.
Practice
8 practice questions · Progress is shared with full-paper practiceLoading questions…
Keys: 1–4 to choose, Enter to check / next, ← → to move