EQUITY YIELDS ON RESIDENTIAL PROPERTIES

Abstract

Real estate is one form of investment into which investors can channel their capital. The durability and capacity for future capital growth in real estate means that such an asset is possibly an ideal medium for investment. Investment return or yield provides one of the main criteria for investment decisions. The study seeks to resolve the fact that the equity yield is the most important measure of investment performance. In order to prove the validity of the statement, a study on the impact of leverage and income taxation on investment in residential properties is undertaken. The effects of leverage are demonstrated through the use of the internal rate of return in the Rate of Return model. A statistical hypothesis, using a sample of 86 cases, is tested in the process of analysing the impact of leverage. The effect of income taxation on investment decision is shown based on 8 case studies. In the study, financial variables such as finance rate, loanto- value ratio, loan term and holding are found to have Original from and digitized by National University of Singapore Libraries effects on the equity yields, under the different property market conditions. Financing terms and arrangements interact with market conditions to affect the investor's return. The imposition of tax is found to have a profound effect on the equity return even though tax deduction in the form of interest charges is given to the purchasers who let out their apartments. The decision to invest in property either for owner-occupation or rental is also found to be affected by the rate of tax.