There is no uniform definition of the term “return".1
Generally, the return reflects the economic performance of an investment, measured either as the ratio of the final value of an investment against its initial value or relative to its net income. Depending on the form of analysis, the return can be calculated for one period (static method) or over several periods (dynamic method).The return generally results from the income and expenses in connection with a property investment. The income includes rental income, interest income from any liquidity surplus, tax refunds and sale proceeds. Expenses comprise the purchase price and additional acquisition costs, ongoing operating costs such as maintenance, modernisation, etc., borrowing costs (interest and principal repayment) and tax payments.2
Different return indicators are used in science and practice. Calculations often use the same terminology but different parameters, which makes comparability difficult in an international context especially. For this reason, different institutions are attempting to establish standards for the determination of return indicators on the property market.
In light of this, the Real Estate Investment Management working group of the German Society of Property Research (gif) has devised uniform return indicators with the support of RICS Germany.3
gif defines three levels of return and assigns them appropriate return indicators.
Table: gif return indicators
Source: Own research based on Gesellschaft für Immobilienwirtschaftliche Forschung e. V. (2007): Rendite-Definitionen. Real Estate Investment Management. Wiesbaden, S. 2-36.
Despite the attempt by gif and other institutions, there is still no uniform industry standard on the property market. Rather, individual measures of return that meet investors’ requirements are still calculated and defined in line with their needs.