Securitisation in Property

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  • Topic: Investment, Real estate investment trust, Tax
  • Pages : 2 (742 words )
  • Download(s) : 224
  • Published : December 7, 2008
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Securitization of property assets will enable property to compete with other asset classes Securitization in the context of property “is the creating of tradable securities from a property asset” Isaac (2003 p.198). Securitization “can be equity based or debt based” Wyatt (2007 p.395). Equity based property securitization “would see investors own share in a property that yields income through dividend payments and produces capital gains (or losses) through share price movement” Wyatt (2007 p.395). Isaac (1996) states equity based securitization is also known as unitisation, hence securitization being used as a general term that incorporates unitisation. Debt based securitization “is achieved by issuing bond-type securities, which can also be traded” Wyatt (2007 p.395). Securitization can be simplified to be “like imposing a corporate finance structure on property” Isaac (2003 p.198).This corporate finance structure “is the conversion of an asset into tradable securities (these are certificates of ownership or right to income)”, Isaac (1998 p.257). The objective of property securitization is to help increase property investments, through an indirect investment approach. This is because direct property investment is seen as “long-term commitment of funds” Isaac (1998 p.55). Isaac (1998) suggests that the problems with direct property investments are as follows: illiquidity: it takes time to sell a property; the lack of liquidity within the property markets is said to be because the “lack of a central market place, so there are only localised markets”, Enever & Isaac (2002), this could be a problem in conditions such as current conditions, where “nearly £1,000 is being wiped off the value of the average house each week” (Telegraph, 2008). The cost of trading: buying and selling property could cost up to “4% of the purchase price” Wyatt (2007 p.396), which is poor in comparison to equity or gilts. Less secure leases: tenants are no longer willing to enter into...
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