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Fnce 424:Real Estate Finance And Investment August 2010 Question Paper
Fnce 424:Real Estate Finance And Investment August 2010
Course:Bachelor Of Commerce
Institution: Kabarak University question papers
Exam Year:2010
KABARAK UNIVERSITY
UNIVERSITY EXAMINATIONS
2009/2010 ACADEMIC YEAR
FOR THE DEGREE OF BACHELOR OF COMMERCE
COURSE CODE: FNCE 424
INSTRUCTIONS:
1. Answer question ONE and any other TWO questions
2. Write your registration number clearly, be neat, brief and show all the workings
Question 1 (Total marks 30)
i. Give a critical view on the progress of Real Estate from the days of feudalism to the current heavy
investment industry. 6 marks
ii. Discuss 5 job openings that have been created by investments in Real Estate Industry. 10 marks
iii. A real estate developer has tried to sell a property but all in vain. Due to this market condition the
investor has decided to seek pieces of advice from industry experts. The situation is as follows: the
property is an income generating that is offered in the market for 400, 000 Kenya shillings.
Projected net operating income (NOI) is 40, 000 KES and the general market rate is 10.8 percent.
Use the above given data to estimate its market value, then advice the investor accordingly.
4marks
iv. In a study on affordable housing that was conducted by the Ministry concerned, it was established
that there are some constraints facing both urban and rural areas dwellers.
Discuss any 5 of the limitations talked of above. ` 10 marks
Question 2 (Total marks 20)
i. Give a critical view on a fixed rate mortgage 4 marks
ii. In recent years housing finance providers in Kenya have been moving away from the industry, on
the other hand several commercial banks have developed mortgage products and are competing
directly with the only remaining housing finance institution. With this background in mind, discuss
the Kenyan mortgage market in respect to these new developments and advice the Government on
what it can do to salvage the industry. 6 marks
iii. Assume that an investor has Ksh.500, 000 and wants to invest this amount in a variable – rate –
payment mortgage at 8.5 percent original interest rate, with a 20 year term and monthly payments.
In the contract, the interest rate is meant to be adjusted at the end of each year and rate increases at
0.25 percent per year. Estimate the monthly payments for the first, second and the third years of
the loan. 10 marks
Question 3 (Total marks 20)
i) Currently, there are many developments in the Real Estate Industry that are dictated by the
dynamism in the global financial markets. Discuss any 5 recent developments in this industry.
10 marks
ii. Discuss the phrase “real estate syndication” and describe 5 reasons for its existence.
10 marks
Question 4
i. Discuss any 3 informal ways of mitigating the housing challenges that have been widely
employed by the Kenyan low- and medium income earners. 10 marks
ii. Discuss the following types of mortgages. 10 marks
a) Zero interest Mortgage (Z.I.Ms)
b) Reverse Annuity Mortgages (R.A.Ms)
Question 5
i. Describe a leases and sale-leaseback financing environment. 10 marks
ii. Describe a Buy down Mortgage 4 marks
ii. Given is a situation where a borrower wants to buy a new 1-bed-roomed flat, putting down an
amount of 60,000 KES cash and financing the remaining 140,000 KES with a 30 year
mortgage. Assume that the current market rate of interest is 15 percent. Suppose however,
that the investor offers to buy down the interest rate to 13 percent for the first 3 years of the
loan. Under this mortgage plan estimate the borrower’s payment and the “mark – up”.
6 marks
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