Risk reduction in property

Posted On Monday, 23 February 2004 02:00 Published by
Rate this item
(0 votes)

Reducing risk begins with the formulation of a risk-reduction strategy which can be translated into a risk analysis and an action-plan to identify, measure and reduce risk.

Jonathan SmithThe formation of a risk-reduction strategy requires the property practitioner to identify methods of quantifying and containing the risks identified last week. Examples of risk containment strategies include:

BUSINESS RISK:

Business risk - the risk associated with the tenant(s) within a property development or portfolio. More specifically, business risk may be defined as the variability of the expected net income from a property development. Prudent tenant selection and exemplary credit control are decisive methods of containing the risk associated with tenants. The following processes assist in containing business risk:

Credit profiling of tenants prior to the conclusion of lease agreements: this includes the assessment of a tenant's credit history, bank records and financial statements, capacity for security, net asset worth, management potential, business acumen, and trading history. nA detailed assessment of the economic and market environment in which the tenant operates and the identification of a tenant's potential to grow within the tenant's selected market environment.

FINANCIAL RISK:

Financial risk is the risk associated with the funding of a property development or portfolio. More specifically, this risk may be defined as the risk of the borrower defaulting on borrowed funds. Containment of financial risk requires the investor to project interest-rate volatility and to procure protection against such volatility and to manage and control collections and expenditure carefully. For example: nProcuring a fixed interest rate in a volatile market can be of extreme benefit in smoothing the actual return obtained from a property development or portfolio;

Agreeing escalation-capped increases in contractor and supplier services; Establishing and enhancing reserves to eliminate liquidity shortfalls; Obtaining appropriate insurance policies

MANAGEMENT RISK:

Management risk is the risk associated with the property management, asset management and investment management of a property or portfolio.

 

Last modified on Monday, 26 May 2014 11:03

Most Popular

Equites Property Fund’ prime logistics portfolio delivers exceptional returns

May 04, 2022
Andrea Taverna-Turisan
Equites Property Fund Limited today announced growth in its distribution per share of…

When is eviction legal? All you need to know about dealing with problem tenants

May 04, 2022
Evictions
Buying an investment property is great, especially when you’ve chosen a good location.…

Steilloop Shopping Centre makeover exceeds customer needs

Apr 22, 2022
Rural Limpopo's Steilloop Shopping Centre was bought by developer, GMI Property Group…

Deadline looms for energy performance compliance for commercial buildings

Apr 25, 2022
Energy certiticate
By 7 December 2022, commercial properties in specified sectors must have obtained their…

First quarter Rode’s Report raises doubts over the Sectional Titles Schemes Management Act

Apr 25, 2022
Default Image
The latest issue of the Rode’s Report has brought into question the practicality of the…

Please publish modules in offcanvas position.