Hedging against Property Contingencies

Property investment creates risks as well as opportunities.

Future risks and fortuitous events (including force majeure) are particularly difficult to assess. Such events impact on:

• Market conditions and general conditions
• Property prices
• Property management
• Amortisation
• Liquidity (Illiquidity risks)

The following changes may create uncertain situations:

• Market value of property
  • Market prices on the construction, portfolio, housing and investment markets
  • Changes to the fabric
    • Ageing
    • Destruction
  • Unexpected expenditure
    • Soil remediation
    • Development zoning contributions
    • and so on
  • Capitalisation rates
  • Valuation methods
  • Different needs and habits of property users
    • Residential property
      • Larger windows
      • Larger apartments (several children)
      • Larger floor space
      • Floor plan configuration (spatial planning, open plan areas)
    • Office properties
      • Technical innovation, functional requirements, work processes, occupational health and safety, environmental aspects
      • Compliance with the requirements for conventional types of office buildings
        • Linear form
        • Rectangular form
        • One-room cluster type or two-room cluster type
        • Atrium structure
        • Point block
        • Oval type
        • Campus
      • Efficient use of space
      • Office designs
        • Facilitation of individual floor plan systems
        • Open plan office
    • Commercial property
      • Open plan halls that facilitate individual interior work (e.g. high-bay warehouses, workshop equipment, production lines), rather than (brick-walled) areas
• Property Expenses
  • Maintenance costs
  • Operating costs
  • Interest rates
  • Taxes
• Property income
  • Gross income

 Hedging against contingencies is only possible to a limited extent, in particular through:

• Buildings insurance
  • Fire, storm and tempest, water damage and breakage of glass
• Earthquake insurance
  • Consequential or actual damage from earthquakes
• Cost stabilisation
  • Financing with fixed interest rate (fixed-rate mortgages)
  • Market-oriented interest rate (LIBOR mortgages)
  • Interest rate derivate (cap / floor)
  • Repayment options