Notes Real Estate Investments
Week 1
Why real estate is important?
› “Stock markets are big and important, but not as big and important as we think. Far more
important to the world’s economies are wage and salary incomes and other non-financial
sources of livelihood such as the economic value of houses and apartments. This is where a
vast bulk of our wealth is found.”
- Robert Shiller in The New Economic Order
So, stock and bonds might seem important, but the most important is real assets/houses.
There is the most investment. The weight of real estate assets in household portfolio is
important.
› Real Estate Market Capitalization
Global real estate universe in comparison
Everything invested in the world, different assets gold/oil/real estate.
We focus on the financial equities = stocks and bonds.
They seem remarkable but are not as important as the market cap of real estate. The market
cap of real estate assets is higher and more important than equities and debt. Real estate
seems so be less important, but it’s important to our wellbeing and market cap.
Compare the market cap instead of costs.
,Composition of household net wealth of bottom, middle and top quantiles (OECD countries)
It’s for a household what you have: house/appartment, debt, mortgage, stocks. So the
composition of asset classes in households. The wealth is aggragated. In NL, real esate
wealth (gray) is an important asset in the balance, and the financial wealth also (blue, stocks,
bonds, deposits).
In terms of wealth, housing is very important in the Netherlands, in other countries as well.
The greatest debt is mortage.
In NL is also lots of debt as mortgage payments and other liabilities for example credit card,
car loans ect.
The black dot is the net worth of these households.
In NL it is on the bottom of the wealth ladder, they owe 50.000 euro’s.
There is a mistake in Norway.
This is the middle class. The portfolio composition, the real estate is again a big chunk.
,This is the richest. Financial wealth is a bigger part compared to the other figures.
So real estate is important. It plays a role in all household’s assets.
Household real estate ownership
Little bit outdated, in the US real estate is also an important asset class.
First line is real estate assets, the total asset value increases (bottom line).
, Corporate real estate ownership
The aggregation of the wealth.
This is manufacturing firms for example, this is commercial real estate: factories, warehouses
ect. We see that real estate is first very important, but it declines. So 30% of the real estate
wealth is embedded in total assets.
Outline of this lecture:
› Time-value of money, i.e. discounting and compounding
› Mortgage basics
› Fixed-rate mortgages
mortgages are flexible products; they shouldn’t have fixed formats. The structure of
mortgage should be in line with the need of borrowers and they income dynamics.
Memory refresher: Basics of interest rate and some mortgage basics
Future Value
- Compound interest = earning interest on interest
- Basic components
1. Initial deposit (PV)
2. Interest rate (I)
3. Number of years (N)
4. Value at a specified future period (FVn)
n
FV PV(1i)
Financial calculator or excel are strongly recommended
Week 1
Why real estate is important?
› “Stock markets are big and important, but not as big and important as we think. Far more
important to the world’s economies are wage and salary incomes and other non-financial
sources of livelihood such as the economic value of houses and apartments. This is where a
vast bulk of our wealth is found.”
- Robert Shiller in The New Economic Order
So, stock and bonds might seem important, but the most important is real assets/houses.
There is the most investment. The weight of real estate assets in household portfolio is
important.
› Real Estate Market Capitalization
Global real estate universe in comparison
Everything invested in the world, different assets gold/oil/real estate.
We focus on the financial equities = stocks and bonds.
They seem remarkable but are not as important as the market cap of real estate. The market
cap of real estate assets is higher and more important than equities and debt. Real estate
seems so be less important, but it’s important to our wellbeing and market cap.
Compare the market cap instead of costs.
,Composition of household net wealth of bottom, middle and top quantiles (OECD countries)
It’s for a household what you have: house/appartment, debt, mortgage, stocks. So the
composition of asset classes in households. The wealth is aggragated. In NL, real esate
wealth (gray) is an important asset in the balance, and the financial wealth also (blue, stocks,
bonds, deposits).
In terms of wealth, housing is very important in the Netherlands, in other countries as well.
The greatest debt is mortage.
In NL is also lots of debt as mortgage payments and other liabilities for example credit card,
car loans ect.
The black dot is the net worth of these households.
In NL it is on the bottom of the wealth ladder, they owe 50.000 euro’s.
There is a mistake in Norway.
This is the middle class. The portfolio composition, the real estate is again a big chunk.
,This is the richest. Financial wealth is a bigger part compared to the other figures.
So real estate is important. It plays a role in all household’s assets.
Household real estate ownership
Little bit outdated, in the US real estate is also an important asset class.
First line is real estate assets, the total asset value increases (bottom line).
, Corporate real estate ownership
The aggregation of the wealth.
This is manufacturing firms for example, this is commercial real estate: factories, warehouses
ect. We see that real estate is first very important, but it declines. So 30% of the real estate
wealth is embedded in total assets.
Outline of this lecture:
› Time-value of money, i.e. discounting and compounding
› Mortgage basics
› Fixed-rate mortgages
mortgages are flexible products; they shouldn’t have fixed formats. The structure of
mortgage should be in line with the need of borrowers and they income dynamics.
Memory refresher: Basics of interest rate and some mortgage basics
Future Value
- Compound interest = earning interest on interest
- Basic components
1. Initial deposit (PV)
2. Interest rate (I)
3. Number of years (N)
4. Value at a specified future period (FVn)
n
FV PV(1i)
Financial calculator or excel are strongly recommended
