Typical motive for an investor opting to invest in direct real estate is mainly due to its ‘real’ or ‘tangible’ nature with consequent action being owner-occupancy, issuance of occupational rights, or for development purposes. This tangibility allows the investor to save on rent or yield recurring income through lease as opposed to other modes of investment. Nevertheless, tangible property is still subject to market risk despite low correlation to other asset class and economic factors linked to supply and demand where prominence of location and its evolution plays a vital role in the appreciation of rental and capital value.

Property Rights

Although an investor has essential rights to own, lease or dispose the property, complications arise when preferences or requirements develop over time. Internal or external alteration of the owned property including change of use is dependent on the permission provided by the planning authority or master developer in case of master-planned communities (MPCs). Despite of investor having ownership rights, tenants hold similar extent of rights during the tenancy period, and in some jurisdictions, inclusion to automatically renew their lease under permissible conditions.

Property Development

Since the extent of land is fixed, allowance for ownership is limited and principally controlled by zoning, an investor buying land has the privilege to perform permitted real estate development activities for commercial, residential or mixed end-use. Due to various complex risks associated with such investment, the investor assesses the development potential in terms of absolute development costs, residual land value and expected profitability prior to undertaking any development schemes.

Property Lease

An investor owning a residential property can lease for short-term for greater flexibility and higher gross income potential, or lease for long-term for achieving lower vacancy rates and consistent income flows. In case of commercial property and upon considering the limitations of its design and specification, the investor has the option to adapt its commercial space for the suitability of prospective tenant’s business segment or application. In either case, the investor performs due diligence on the tenant, evaluates their offers, outlines the conditions and terms of lease prior to any negotiation or transaction.