ABSTRACT
Risk is a major determinant of return. Risk can attach to a single property or a portfolio of property or investments. Modern portfolio theory sees the investment decision as a trade-off between risk and expected return. Lack of certainty regarding the expected return results in the devaluation of the return. Sources of risk in a property investment decision may arise from: tenant risk; sector risk; structural risk; legislation risk; taxation risk; planning risk and legal risk. Finance theory suggests three broad categories of risk: business, financial and liquidity. The types of risk that may be encountered by an investor are related to the income flow, future outgoings, capital value and market value. Risk is very relevant to direct property investment. In a world where the future is uncertain, decision making involves taking a risk. Investments offer the expectation of high returns from the investor as a reward or compensation for taking the risk involved.
