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Bcom 336: Real Estate Finance Question Paper
Bcom 336: Real Estate Finance
Course:Bachelor Of Commerce
Institution: Egerton University question papers
Exam Year:2012
INSTRUCTIONS:
Answer Question ONE and any TWO questions.
QUESTION ONE
a) Differentiate between acceleration clause and transfer of property clause in mortgage contracts.
(4 marks)
b) A church in Nakuru was constructed 15 years ago on a three hectares piece of land and it was estimated to be disposed off after 60 years of its useful life. However, the management has decided to move the congregations elsewhere. They contract you to value the property and to provider the following information: Construction costs in Nakuru average Kshs. 4,000 per square meter with a professional fee of 10% of the cost. Depreciation is straight line at 2% and you confirm that the church building occupies 5,000 square meters. If the church management requires 5% returns from this property, use the appropriate method and determine the value of this property, use the appropriate method and determine the value of this property. (3 marks)
c) Explain the income capitalization technique in real estate valuation. (3 marks)
d) Describe the different types of estate in Kenya with the different types of ownership that they convey. (5 marks)
e) A 30 year old apartment with an estimated economics life of 95 years stands on a three hectare piece of land and generates an income of Kshs. 150,000 per year. A hectare of land in the area goes for Kshs. 200,000. Assuming a 15% interest rate, determine the value of this property.
f) Giving three examples, explain what are encumbrances are. (4 marks)
g) The estimated total value of a County’s real property is Ksh. 900 M. Government property and its agencies is valued at Ksh 350M. The County’s estimated expenditure for the year 2012 is Ksh. 258 M. The estimated annual income from other sources include license fee Ksh 30 M, Inspection fee Ksh 47 M, Packing fee, Kshs 60 M determine the property tax for this County.
QUESTION TWO
a) Egerton Sacco owns a property worth Kshs. 1.5 Million. The Sacco can sell this property at Ksh. 1 million to finance a new venture which will generate a new income of Kshs. 700,000 per year before tax. The same property will cost the Sacco Kshs. 200,000 per year to lease. The venture is a trading business whose life span is estimated at 15 years and corporate tax is 35%. Advice the Sacco which is the best alternative. (6 marks)
b) Explain the factors that you would consider when choosing between buying and leasing of property alternatives.
c) An investor purchased 50 hectares of land 10 years ago at Kshs 20,000 per hectare. He incurred and expense of Kshs, 15,000 per hectare on clearing and planting tea on the land. He has been spending Kshs. 1,000 per year to look after the tea farm. Assuming a rate of interest of 8%, at what price should he sell this farm for without making loss? (5 marks)
d) Explain three reasons why property buyers and sellers may prefer to use brokerage services rather than to go it alone.
QUESTION THREE
a) Explain constant Amortization mortgage loan. (2 marks)
b) Ali obtained a Kshs. 500,000 loan payable over 8 year period amortized at 12% interest with annual payments. Prepare a loan amortization schedule showing the loan balances at the end of the year under constant payment Amortization. (8 marks)
c) Explain the different categories of tenancy in real property. (4 marks)
d) A mortgage creates a right of security interest in the real property for the lender. What are the requirements from the lenders for valid mortgage contracts? (6 marks)
QUESTION FOUR
a) What is property tax? (2 marks)
b) What characteristics of property tax determine its efficiency? (5 marks)
c) In terms of possession, what is the difference between an easement and a lease?(4 marks)
d) “A real estate investments trust carries out the investment objectives of its investors”. Discuss this statement clearly indicating what REITS are, how they operate and why you would advocate for more REITs to be registered in Kenya. (9 marks)
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