Financial Institutions and Real Estate Investment Trust

Questions: 1-Describe and assess three types of financial institutions other than a commercial bank. Give an example for each of them and briefly describe the business model for each type of financial institution identified? 2-What is a Real Estate Investment Trust (REIT) and how is it structured? Describe some of the features of it. Describe how a REIT is issued in the primary market. Using current market data, examine the Singapore REIT market (market size, the depth of the market, and the number of REITs, amongst others)? Answers: (1) Three financial institutions besides commercial banks are: 1- Investment Banks Investment banks related with the operations in the financial markets. These banks underwrite the issues of bonds or sale of them or stock. They do trading of their own accounts and give the service of their investment management those help the consumers in their investment operations and guide them on the capital market like mergers and acquisition. Some of the banks also give their shares to the other companies instead of loans. They act as the broker for their institutional clients. Its follows the business model by operating its operations in three divisions like front, middle and back office (De Larosire, 2012). It gives the services to both corporations issue securities and investors those purchase securities. Examples of these banks are- JP Morgan, Barclays, Deutsche Bank etc. Front office performs those activities that help in generating more income. Before performing activities risk management, analyse the situations credit risk focus on the markets of the capital. Middle o ffice involves the management of treasury that helps in making strategy to control internal activities. Back office performs administration operations, handling technology by the technical support team etc. Companies are all accountable for the compliance with the regulations of the local and the foreign government with internal regulations. 2- Insurance companies These companies collects the premium from the huge number of people those want to save their own lives against the loss or an incident like, fire, accident, disability, death etc. It helps other individuals or companies to save their wealth and manage the risk. Insurance companies do analysis the loss to examine the exact situation and the losses face by insured individuals at the same time. Example: In the life insurance companies, the consumer seeking for the guarantee of long-term investment so, companies start offering alternatives of all products on which the investment purpose is compulsory. They reduce the guaranteed minimum interest rates. It results in increasing the full pressure of the operation on the cost of transaction that increases fast and applies on all divisions. This model is moreover to collect premiums and price of investment instead of making payment for losses/ claims if any. They offer the products at competitive price that accept by the clients easily. 3- Brokerages It is an intermediary in between the buyer and the seller to give the facilities of the transactions of securities. These companies are compensating by paying the commissions by the clients for the all transactions done completely by the brokerages. It is either gives their service on discount or full price (Group of Thirty,2012). Full service involves execution of trade and the portfolio management but discount brokers permits the investors to do their own research and make decisions. Brokers help their clients in trading and charge the commission. Business model involves various levels of value or supply chains. It helps in initiating the values from the supply side where the raw materials use to make products. Later these finished goods supplies and sent to the end user. Companies analyse all the operations to make them better always. Models like advertising, subscription, mail order direct marketing are possible through Internet that helps in the success of operations. (2)Define: REIT (Real Estate Investment trusts) permits people to do investment in the large scale real estate those gives them more revenue or it is known as the scheme of an investment that invest in the portfolio of income that generates assets of real estate like buildings, malls, hotels and apartments. They established to create more revenues. Structure It is structured like trusts because all the assets under REIT acquired by the trustee on behalf of the holders of the unit. Trustee performs duties those mentioned in the deed of the REIT that includes all the laws rights to protect holders of the unit. In this structure, money raised from the holder of the unit though offers given to the public (Rowe, 2013). It is use by the company for purchasing the property in real estate. Then, these properties will give on rent that creates the inflow of income back to the holders of the unit (investors) as dividends. Structures are different in the terms of geographical or sector that may contains risk of politics and laws. Features REIT treated as the benefits for the investors It is the portfolio of assets helps in creating more income It reduces the risk of the single property that occurs when it is purchase by the single owner It has the power to take an advantage of earning more interest at large scale that would available on the personal capital It helps easily in converting the property into cash Benefit gives for the exemption of tax that comes in the form of dividend It is very transparent flexible like stocks listed in stock exchange Primary Market If it issued in the primary market then units of shares listed on the exchange to meet the goals of the investors by trading and creating liquidity. Individuals can invest into REIT personally either by buying their shares directly or an exchange or by investing in the mutual funds in real estate. Investment in the form of dividend payment, liquid those participates in the market for the retail investors and for institutions with the full interest in such market. It is an effective mechanism for the pension funds contributors (David ,2011). Singapore REIT Market The listed REIT on the exchange of the Singapore is 26 and the latest listed in 2013 in August. The purpose behind is representing the property in retail, industries, hospitality, residential and office. It holds the number of properties like Japan, China, and Hong Kong, Indonesia with additional local properties. S-REIT is called as collective scheme for Investment under the monetary authority of Singapore. The maximum Gearing ratio of S-REIT is 34.5% with the yearly increment of its properties. Distribution made around 89% of its taxable income. References David , D. (2011).REIT Investing. Canadian Style. InvestingDaily.com. Retrieved 2011-01-14. De Larosire, J. (2012). Do investment banks need to be separated from retail banks? : Contribution prepared for the Eurofi High Level Seminar 2012. Copenhagen, 29 March; available at www.eurofi.net/Events/ Article_De_Larosiere_structural%20reforms .pdf. Group of Thirty. (2012). Toward Effective Governance of Financial Institutions. Report by the G30 Working Group on Corporate Governance. Group of Thirty, New York: available at https://group30.org/ rpt_64.shtml. Rowe, R. (2013).Global REIT Survey 2012: UK.Global REIT Survey 2012. European Public Real Estate Association. Retrieved19 April2013.