Finance and Market , short essay question Example | Topics and Well Written Essays - 8500 words

Finance and Market , short question - Essay Example For the purpose of this study, we dwell on the advantages and disadvantages of the diversification of REITs holdings’ activities as opposed to the focused approach. Advantages Wider Market Cover When a REIT agency registers to venture into specific areas, there is an aspect of additional market cover. REIT can thus conduct a number of projects which essentially maximize its potential. This in the broader picture implies additional return on investment and maximizes the proportions of dividends that the shareholders gain in the REIT investment. This is not usually the practical case of REITs business that is restricted to specific line of real estate development. If REITs companies have specifications to operate in restricted lines of business, they cannot later on expand to more openings and business opportunities. In a diversified perspective however, REITs have to enjoy a dynamic market characterized by a wide range of business opportunities than maintenance of an ordinary r eal estate portfolio. Dynamism and Innovations Secondly, diversification have in the past enabled RETs to introduce and practice innovative ideas in the real estate properties without the risks of exceeding the limits of operation as stated in the description of the real estate portfolio. ... This approach provides opportunities for to enable the REITs to practice real estate swap which the enables upcoming potential real estate investors to get sufficient exposure to real estate property business without necessarily fulfilling the huge amounts of capital commitment. In the swap, REITs enjoy unlimited exposure to real estate and have the ability to change their capital equity and bonds without restrictions or regulations. This means that REITs sources of revenue will then not be limited to interests, but also bonds, equity and commodities. With the inclusion of the international diversification in Real Estate, there is a low correlation with interest rates than with bonds and equities. The scale of International diversification in real estate investment securities exposes REITs to minimal risk compared to the focus on equities and bonds. Disadvantages High Taxation REITs occupy larger portfolios in real estate trading and this attracts more taxes due to the statutory cons ideration of the return on investment. The wider the portfolio a real estate maintains, the larger the taxation that is applied. This is a great and inevitable challenge which incidentally is not negotiable. Risks of Over-Commitment Secondly, REITS face high risks of over-committing capital equity into long term investments whose returns are not guaranteed. This is a high risk that either leads to the extreme results, either too high losses or extremely high returns. To realize high returns in this case requires REITs to conduct systematic studies of the contemporary market risks. Divergence of focus The third disadvantage that REITs get exposure to in the diversified