Open AccessInternational Real Estate Review
Author(s) -
Winston T. H. Koh,
EDWARD H K NG
Publication year - 2004
Publication title -
journal of the asian real estate society
Language(s) - English
Resource type - Journals
ISSN - 1029-6131
DOI - 10.53383/100054
Subject(s) - real estate , leverage (statistics) , real estate investment trust , capitalization rate , economics , imperfect , return of capital , monetary economics , equity (law) , rate of return , financial economics , investment performance , finance , business , microeconomics , return on investment , law , linguistics , philosophy , machine learning , production (economics) , computer science , political science
Real estate investments are typically characterized by high degrees of leverage and long-loan tenures. In perfect capital markets, leverage has no impact on the investment decision apart from tax considerations. However, the mortgage financing market is imperfect in many countries. In the presence of market imperfections, an optimal holding period exists for real property investments. We provide a simple rule to calculate the optimal holding period to compare the required rate of return with the leveraged rate of return on equity.