REAL ESTATE FINANCE AND ECONOMICS
Discussant:
MELBA B. SULLIVAN, Ph. D. Provincial Treasurer of Iloilo and Concurrent OIC Regional Director Bureau of Local Government Finance, RO VI
Factors that has impact on real estate value: • Availability of credit • Availability of debt money Plentiful credit – easily obtained loans Money availability – results to active market Scarce credit – liquidity occurs/price decline Decrease interest rates – expand borrowing capacity
Real proper ty appraisers must know: • The basic impact of monetary and fiscal policy that impact the price and supply of money; • Difference between money and capital markets; • The basics of real estate finance; *Types of loans * Focus of mortgages • Real estate transfers – involve use of money • Real estate acquisitions – buyers’ investment/ use of borrowed fund for balance
MORTGAGE FINANCING TERMS
• Original loan amount - the face amount of the original loan. • Equity – the down payment or the cash paid by the buyer. • Amor tization – the process of retiring a mortgage or debt over a specified time period or systematic payment of principal plus interest at some specified rate. • Interest – represents the money earned for the right to use capital.
• Payment - also known as debt service. - A payment on an amortizing mortgage is comprised of both interest and principal. • Loan-to value (LT V) ratio – a percentage of the original or proposed loan to the value of a property loan (loan amount + property value). - BSP regulation allows an LTV ratio up to a maximum of 80%. • Money – should not be viewed as a fixed, static commodity, but rather one that is constantly changing in its availability and cost.
The Philippines operates on a fractional reserve banking system in which deposits are made to banks and banks lend from the deposits. Loans and reserves are directly influenced by monetary policy. The supply and cost of money is significantly affected by the policies issued by the Bangko Sentral ng Pilipinas (BSP).
MONEY MARKETS – Financial vehicles with traditional maturities or investment periods of less than one year. Examples of money market instruments • Short-term certificates of deposit (a bank’s CDs) • Treasury bills (short term government securities) • Commercial paper (corporate promissory notes) Money market instruments tend to influence short-term financing rates, such as loans for construction and/or development of real estate.
CAPITAL MARKETS – include financial vehicles with usual maturities of more than one year. Examples of capital market instruments • • • •
Bonds Stocks Mortgages Deeds of trust
Capital market instruments tend to influence long-term financing rates, as well as required rates of return on real estate investments.
HAVE A NICE DAY EVERYONE!!!