ABSTRACT
Property investment, like all investment, involves an initial capital outlay in return for the expectation of future income receipts. Depending on the type of investment, these receipts may range from being totally certain (fixed income investments) to being totally uncertain, although this extreme is unlikely as normally there will be a lease with a contractual obligation to pay rent. In this case the uncertainty will be concerned with the tenant’s covenant (i.e. the likelihood that this contractual obligation will be complied with) and the degree of rental uplift, if any, at subsequent rent reviews. Furthermore there may be uncertainty over obsolescence, declining rental values and the need for further capital injection as well as uncertainty as to how long the investment will be retained and what it might be worth when eventually sold. Traditionally, these uncertainties and other factors such as liquidity, cost and inconvenience of management etc., have all been reflected in the overall yield used to value the income receivable-hence the expression the all risks yield (ARY). The yield is all embracing taking into account the risks of investment.
