MMP321 – Week 4 (Topic 3) Seminar Questions
1
Week 4 (Topic 3): Property Debt Finance
Question 1:
Part a:
Using “MMP321 - Zetland data for 2022 A1.xlsx” posted under “Assignment 1” on
CloudDeakin, run a regression model using the sale price as the dependent
variable
and the building area and numbers of bedrooms, bathrooms, and parking
spaces as independent variables
. Is the model a good fit? Explain.
* Hint: First, ‘clean’ the data by removing properties with unrealistic sales
prices (e.g. ‘not disclosed’ or $1) or unrealistic characteristics (no bedrooms,
no bathrooms, or zero ‘building area’)
Part b:
Using the regression formula developed in Question 1, calculate the projected
price of a unit that has:
Three bedrooms
One bathroom
An internal living area of 86m
2
One car parking space
Part c:
Assuming the market rent of the house, based on advertised rents of similar
houses on the market, is $1,450/week and the running costs (agent leasing fees,
maintenance, council fees, strata levies, etc.) are 7% of the weekly rent. Estimate
the house’s value using the capitalised resale value formula from Week 2’s lecture
(capitalised resale value = net rental income/capitalisation rate). Compare the
price to that in Part b and discuss the reasons for any similarities or differences
with emphasis on the choice of cap rate that you use?
Question 2
Part a:
Part i)
Calculate the loan repayments on a 10-year, $7,500,000 loan with a
nominal interest rate of 6% p.a. that compounds annually.
Part ii)
Calculate the repayments for a loan that compounds monthly but has all
other terms the same as in Part i.
Part b:
You have organised a mortgage on your new property. The bank has agreed to
lend you $450,000 for 20 years at an interest rate of 4.5% p.a. compounding
monthly.
i)
Calculate the monthly repayments
