MANAGEMENT: Course On Real Estate Finance
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The UCT Graduate School of Business (GSB) will this August launch a landmark course to help South Africa’s investment and finance managers to make more informed decisions about real estate.
The course, offered by the UCT GSB Executive Education unit, is the first of its kind to be offered in South Africa and will enable managers to better determine the respective costs of capital for residential, commercial, industrial and retail real estate.
Drawing on groundbreaking research conducted across three continents – North America, Europe and Africa – the course will assist managers to reframe and test the assumptions that they hold when making investment decisions about property valuations.
According to Jali Bakoro, director of the new UCT GSB course Real Estate Finance and Securities and founder and CEO of Bakoro Capital Management, the challenge in South Africa is that some participants in the real estate market are not sufficiently qualified to help determine the true cost of capital in real estate.
“Currently the investment managers of big life and pension funds and bank finance managers depend on very stale valuations that are provided for on an aggregated basis – certain commercial or residential decisions are better served if one gets disaggregated (unique) property data.
“Many valuations depict as the future old inherent data which in most cases is also misrepresented. Issues of moral hazard and asymmetric information by the local valuers can also crop up, as some valuers give valuations that are not real but are made to suit certain client needs,” said Bakoro.
He said the UCT GSB course is directed at managers and decision-makers at banks, insurance companies, asset management companies, property funds (listed and unlisted) who are involved in investment property analysis and valuations.
It aims to provide these professionals with an adequate background of capital markets focussing on property as an asset class, offers a thorough understanding of real estate investment analysis and valuations.
“The course will also help them to develop technical competence in valuing real estate in an asset allocation basket and to construct optimal portfolios within property (retail, residential, commercial, and industrial) as a sector or relative to other asset classes (bonds, equities, private equity). Furthermore, it will assist managers to understand and identify different suppliers of capital for property,” said Bakoro.
The broader objective of the course, which runs from 13th – 14th August, is to help develop a pro-forma efficient property market, in which accurate new information is available faster for improved decision-making.
Bakoro said that real estate investment and finance professionals in the South African market are not unique in that they, like the rest of the world, have to make long-term decisions about asset allocations and the relevant costs of fulfilling mandates.
“To fully appreciate these they have to understand the built space (supply) and tenant base (demand) in the short, medium and long term. They have to monitor and allow the markets sufficient time for the supply of the built space to accommodate the tenant base demand, and vice versa,” he said.
The new UCT GSB course, he added, will introduce the participants to the concept of equilibrium asset pricing. Equilibrium asset pricing models are tools that are used to give the price that equates demand and supply in the market place.
“The SA market depends a lot on estate agents, brokers, valuers and banks. Their information generally does not reflect the true relationship between demand and supply. In the build-up to the current crises we saw the space market exceeding the tenant take-up, but still saw a significant appetite for investment property (resulting in yield contractions) and most listed funds traded above their net asset value (NAV) for long periods.”
In the SA context, equilibrium asset pricing models could help managers to identify risks in valuation assumptions that are used; help identify the variables that could be responsible for the noise that leads to stale data that feed valuations; help managers in determining the extent to which the illiquidity of property as an asset class can lead into disequilibrium (demand does not equate supply, vice versa); and assist them in understanding how moral hazard and asymmetric information also leads to price disequilibrium – that means the need for Corporate Governance of the valuations of both the listed and unlisted sectors.
Bakoro said that at present capital is scarce and expensive in the real estate market. All these factors need to be better reflected in a market model of real estate pricing.
Bakoro is well placed to spearhead the innovative new course – he has a Masters in International Finance from Amsterdam Business School, over ten years of industry experience, and is an independent researcher in the area of Equilibrium Asset Pricing.
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