The paper “ Global Financial Crisis Impacts on Property Valuation Thinking” is a fascinating example of the literature review on finance & accounting. The objective of this piece of writing is to discuss the impact of the Global Financial Crisis on real estate valuation thinking. First, the paper will bring to light the background to the crisis. This will entail a detailed discussion on the global financial crisis in terms of causes and its relationship with real estate. Specifically, the paper will examine the Discounted Cash Flow and the influence of the global financial crisis on this valuation approach.
Apparently, the Discounted Cashflow model estimates cash flows and discount rates. Cash inflows comprise of rents and lease payments. To assess cash inflow, past trends in rent, and forces of demand and supply for space i. e. vacancy rate are considered. On the other hand, cash outflows are expenses on real estate ranging from property taxes to utility expenses. Additionally, the growth rate and terminal value are obtained to facilitate the calculation of DCF. The paper will finally scrutinize the impact of the financial crisis on real estate valuation. Background to the crisisAt the heart of the Global Financial Crisis were deterioration in asset prices, failures of banking, and other financial institutions because of insolvency and liquidity.
This was caused by a collapsed credit market due to defaults by US sub-prime mortgage market borrowers that spilled over to Australia and other countries in the world. On the contrary, Lyndall (2010) posits that the Australian Banking industry was less exposed to the crisis mainly because of the efficient regulatory system and minimum contact with U. S subprime products.
Even so, Australia experienced liquidity and refinancing problems in 2008 as foreign banks took back their funds with a view of addressing financial problems in their home countries. Besides, Brown (2008) mentioned an aspect of the increased cost of funds that accompanied Australia’ s reliance on offshore funding.
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