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RES exam question on Real Estate Market: moves would reduce concentration risk

HardReal Estate Market & Government Intervention · Paper 1

A fund manager holds six office buildings, all within Raffles Place, and most of their leases expire in the same year. The investment committee asks which of four proposed moves would reduce the portfolio's concentration risk. (i) Buying two more office towers in Raffles Place, since they share the location the manager knows best. (ii) Adding logistics and industrial assets to the portfolio alongside the existing Raffles Place offices. (iii) Buying offices in overseas markets whose property cycles do not move in step with Singapore's. (iv) Staggering the terms of new and renewed leases so that expiries spread across several years. Which moves would reduce concentration risk?

  1. A(i), (ii) and (iii) only
  2. B(ii) and (iii) only
  3. C(ii), (iii) and (iv) only
  4. DAll of the above
Show answer & explanation

Answer

C. (ii), (iii) and (iv) only

Explanation

Answer: (ii), (iii) and (iv) only. Spreading exposure across sectors, locations and lease expiries reduces concentration; more of the same raises it.(ii) True. It diversifies by sector.(iii) True. It diversifies by geography and cycle.(iv) True. It diversifies income risk by spreading lease expiries.Rule: Direct property is concentrated: one asset in one location. Diversification spreads exposure across sectors, locations and income timing so that a single shock does not hit every asset at once.Source: RESPrep /learn/real-estate-market-and-government-intervention, current at 1 October 2026, direct against indirect investment

Why the other options are wrong

  • (i) False. It increases concentration: more of the same asset type in the same micro-location, however familiar.

Study the concept behind this question: The Property Market & Government Intervention (Singapore)

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