This is Part 1 of the Quiz

You have 3 structured Excel-based questions that require answer within, followed by upload submission, of a bespoke Excel answer-script workbook. This is worth 35 marks, and they will count for 20% of your final grade.

Please answer the following questions using the Excel answer-script workbook (Click Here).

Or you can use the direct Link to the Excel Template via browser:

https://learning.monash.edu/mod/resource/view.php?id=4372452

(If either of the above links does not work, you may download the file directly via Moodle. The file is placed right below the Quiz 2 Moodle activity in the Assessments tab of Moodle).

Please ensure that each question is answered in the designated Spreadsheet for that question. You are requied to submit this Excel answer within the time limit and through this Moodle Quiz activity only. To ensure academic integrity, NO other form of submission, e.g. email of answer to a staff, is NOT allowed. Furthermore, students have had access to a practice quiz to become familiar with this submission format.

Do this part of the Quiz FIRST and ensure that you have uploaded your Excel answer-script well before the quiz finish time

Students are responsible for managing their technology and assessment time to ensure submission of the Excel answer within the time limit and in the acceptable form. This is part of your assessment. If you are not able to manage your technology or time to properly fulfil the assessment requirements of answer file upload submission, the forfeit of marks is your responsibility and unit staff are unable to assist.

Question 1

(1) Eric has poor financial literacy but has always been interested in investing in property. While he cares more about the growth potential of the investment than stable annual income, he also requires quick access to his invested fund if needed. Which type of property investment is most likely suitable for Eric? Please give at least 3 different reasons to support your answer. (4 marks)

(2)

BWP Trust is a real estate investment trust listed in ASX (Code:

BWP), and the majority of its properties are large format retailing properties,

in particular, Bunnings Warehouses. Suppose that the EPS (earnings per share)

of BWP in this financial year is $0.12 and is expected to grow by 8% next year.

90% of the earnings are required to paid out to trust unit holders as dividend.

The current market price of BWP’s share is $3.59. The risk-free rate is 4.35%

and the risk premium for BWP is one half of the risk-free rate. Based on the

Gordon Growth Model, what is the market’s expected long-term rental growth of the property portfolio managed by BWP?

(2 marks)

(3) Assume that in BWP’s annual financial statement, the net asset value per share is stated as $3.45. The market price of BWP’s share is $3.59 at the end of the day that the financial report is published. Is the REIT traded with a NAV premium or NAV discount? If the share price falls to $3.48 two days later, does “market efficiency” or “noise trading” better explains the NAV difference on the day that the financial report is published? Why? (3 marks)

Question 2

The residential property market in Australia has seen a significant upswing in prices since the economic gradually recovers from COVID19. The state governments have introduced several policy changes to regulate the residential property markets.

(1)

In Lecture 6, we discussed a potential stamp duty policy change to

residential properties in future, proposed by the state government (similar

policy changes have already been applied to commercial and industrial

properties in Victoria). What is the main objective of introducing this policy change? Why

does the government expect that the policy can achieve the objective?

(2 marks)

(2)

Suppose the proposed policy change in Question 2(1) takes effect

and applies to James, a first-home buyer in Victoria. He plans to live in it

for 5 years and then rent it out for another 5 years before selling it, and he

will not purchase a second home during the 10-year period. Compared to the

existing stamp duty policy, how will the new policy impact the NOI in years 6-9

and capital gain tax in year 10? Assume that the capital gain is positive and

all else equal.

(2
marks)

(3)

Sarah is a taxable local resident and secured an off-the-plan

apartment valued at $294,000 in Clayton with a 10% deposit in August 2024. The

apartment is scheduled for completion in 3 years. At the time of purchase, the

dutiable property value for stamp duty was $85,000, but the stamp duty is not

payable until completion. Then she plans to on-sell the apartment when it is

completed. The value of her purchase increases by 5% upon completion. Selling

costs are expected to be 2% of the anticipated selling price. Sarah has other

normal taxable income of $140,000 per year. The 50% capital gain tax discount

applies, and ignore the impact of any Medicare levy.

Use the tax rates provided in the lecture, calculate the total
holding period return for Sarah’s property investment if she sells the property
at completion.
(5
marks)
If Sarah chooses to hold the property instead and rent it out,
banks can offer a mortgage loan based on 75% LTV of the current market price.
How much additional equity will Sarah need to invest?
(2 marks)

Question 3

A private property investment trust has a retail space available

for lease in South Yarra. It is currently negotiating with a potential tenant

for a standard 10-year gross lease contact, fixed at $850/m

per

year in arrears. Operating expenses are estimated to be 17% of the rent. The

landlord’s discount rate is 12%.

(1) From the perspective of the Landlord

, what is the effective rent of this standard

lease contract?

(2 marks)

(2)

The tenant is satisfied

with retail space except for the old air conditioning system, and it will cost

the tenant $650/m

to upgrade it. If it is necessary for the tenant

to complete the upgrade before any business operation, what is the effective

rent

from the perspective of the tenant

The tenant's discount rate is 18%.

(2 marks)

(3)

The landlord offers a

solution: they will upgrade the old air conditioning system to a more

energy-efficient one right after the contract is signed and bear the cost. In

return, the tenant will need to pay all ongoing operating expenses, which are

lowered to be 15% of the rent due to the upgrade. Other terms remain unchanged.

Compared to the option in Part (2), should the tenant accept this alternative

solution?

(Hint: Since the upgrade is necessary for operation, the update cost
paid by landlords should not be considered as “additional” benefits when
calculating the effective rent of tenants.)
(3 marks)

(4)

Finally, the tenant declines the offer because the cost of

upgrading air condition is too high. Therefore, the landlord finds another

potential tenant, which is a small start-up food and beverage retailer. The new

tenant accepts the current air conditioning system and does not request for

upgrade. In the new contract, the landlord wishes to include an option to

cancel the lease after year 3. Other terms are same as the standard lease

contract.

Forecasts at year 3 show there is:

10% probability that market
rent will reduce to $800/m
²
50% probability that
market rent will remain at $850/m
²
30% probability that it
will increase to $890/m
²
10% probability that it
will increase to $920/m
²

The

landlord’s inter-lease risk premium is only 3%, as they are very confident that

they can find a new tenant at market rent within a short turnover. The

operating expense remains at 17% of the initial rent ($850/m

regardless of the changes in market rent.

From

the perspective of the Landlord

, what is the effective rent of this

agreement with option? What is the value of this option?

(5 marks)

(5) Define inter-lease risks and discuss whether they tend to extend or shorten tenant and landlord consideration of the lease term, if both are risk-averse. (3 marks)

Part 2 of this quiz contains 20 multiple choices questions, which account for 1.25% of your final mark each.

You can proceed to work on Part 2 - MCQs using the navigation panel in the top right corner of the page.

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BFX3355 - Property investment - S2 2025

This is Part 1 of the Quiz

You have 3 structured Excel-based questions that require answer within, followed by upload submission, of a bespoke Excel answer-script workbook. This is worth 35 marks, and they will count for 20% of your final grade.

Want instant access to all verified answers on learning.monash.edu?