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Investing in Real Estate: Mortgage Financing Practices and Optimal Holding Period

Author

Listed:
  • Winston T.H. Koh

    (School of Economics and Social Sciences, Singapore Management University, 469 Bukit Timah Road, Singapore 259756)

  • Edward H.K. Ng

    (Department of Finance and Banking, NUS Business School, National University of Singapore, 10 Kent Ridge Crescent, Singapore 117592)

Abstract

Real estate investments are typically characterized by high degrees of leverage and long-loan tenures. In perfect capital markets, leverage has no impact on the investment decision apart from tax considerations. However, the mortgage financing market is imperfect in many countries. In the presence of market imperfections, an optimal holding period exists for real property investments. We provide a simple rule to calculate the optimal holding period to compare the required rate of return with the leveraged rate of return on equity.

Suggested Citation

  • Winston T.H. Koh & Edward H.K. Ng, 2004. "Investing in Real Estate: Mortgage Financing Practices and Optimal Holding Period," International Real Estate Review, Global Social Science Institute, vol. 7(1), pages 71-97.
    • Handle: RePEc:ire:issued:v:07:n:01:2004:p:71-97
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    mortgage financing; real estate; financial leverage; optimal holding period;
    All these keywords.

    JEL classification:

    • L85 - Industrial Organization - - Industry Studies: Services - - - Real Estate Services

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