Space Lecture 3 s1 20102012

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KULIAH 3

(8 October, 2011)

PEMBANGUNAN TANAH SEBAGAI PELABURAN

(LAND DEVELOPMENT AS AN INVESTMENT)

EKONOMI PEMBANGUNAN

SBC 3453

1

SCHOOL OF PROFESSIONAL & CONTINUING EDUCATIONJabatan Ukur Bahan

Fakulti Alam BinaUniversiti Teknologi MalaysiaSEMESTER 1, SESSI 2011/2012

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PEMBANGUNAN TANAH SEBAGAI PELABURAN

(LAND DEVELOPMENT AS AN INVESTMENT)

2

Tanah

Pembangunan

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PLANNING & DEVELOPMENT

MODULE

KEMAJUAN KULIAH

L4, L5,L6 & L7

Development Planning

Development ProcessDevelopment Control

3

PLANNING MODULE(Economics of Planning)

Investment in

Property Development

Economics of Land Use

Property as Economic Commodity

Investments in Property

Characteristics of Property

Investment Objectives

Property Investors Market Study

Economics of

Property Development Property in Economic Context

Construction as Factor of Production

Construction Value Chain

Construction Products

Business Enterprise

Property Market

Introduction to

Development Economics Economic Fundamentals

Economic Issues

Property & Construction Economy

Economic Transformation

Government Intervention

ECONOMIC MODULE

7 OKT. 11

L3

L2

L1

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4

Jack Harvey, Urban Land Economics : The Economics of Real Property.Lean & Goodal, Aspects of Land Economics.

David Cadman & Leslie Austin Crowe, Property Development.David C. & Rosalyn T (1998). Property Development.Alan W. Evans , Urban Economics.

Textbooks on Economics

Bahan Rujukan & Bacaan.

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INTRODUCTION

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6

The term Economics refers both to anintellectual discipline and to a

profession.

LAND ECONOMIC ISSUES

Bui ld ing Economis t

Const ruc t ion Econom is t

Development Econom ist

Construc t ion, locat ion,usage Bu i l t Ass ets

(Bui ld ings)Project

Delivery

system

The intellectual discipline of economics is an attempt to understand the

Processesthat govern the Production, Distribution and Consumption of Wealth.

1) Ability to advise clients on how to

develop the potential of their property.

2) Assist Property Owners to realise

development opportunities.

6

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LECTURE CONTENT

5 Property as an Economic Commodity

6 Characteristics of Property

7 Property Investment Market

8 Investments in Real Property

9 Property Market Study

MARKET ECONOMY

PELABURAN

Dalam

TANAH

Land Use

Land

Improvement

KANDUNGAN KULIAH

KULIAH 3

7REAL PROPERTY
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Land Economicsconcerns with the study of land use, natural

resources, public utilities, housing, and urbanlandissues.

The techniques of ECONOMICS have been applied to many different

ACTIVITIES, leading to the development of a wide range of SUB-DISCIPLINES.

LAND ECONOMIC ISSUES

Design,

construct ion,

Development

Land

Design

Bui ld ing

Const ruct ion

Ass et management

8

Development Economist
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What is a market economy?

How do you relate to the property industry?

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PROPERTY MARKET ECONOMY

MARKET ECONOMY

Foundations (rights)of free market economy:

Private Property

Earn and keep profits

Freedom of competition (Enterprise)

Freedom of choice

10

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MARKET SYSTEMMarket determines product prices and

output through forces of supply and

demand:

a. Supply: Qty of goods/services businessesare willing to sell at different prices at a

specific time (seller, producer, or business)

b. Demand: Qty of goods/services

consumers are willing to buy at different

prices at a specific time (buyer, or consumer)

MARKET ECONOMY

Foundations (rights)

of free market economy:

Private property


Freedom of competition (enterprise)

Freedom of choice

S

S

D

D

QUANTITY

RM(PRICE)1


11

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MARKET SYSTEM

Market determines product prices and


demand:

a. Supply: Qty of goods/services businesses

are willing to sell at different prices at a





MARKET/EQUILIBRIUM POINT:The price and qty combination where supply

equals demand

a. market forces eliminate surplus or shortage

b. supply, demand, and equilibrium only existin a market (capitalist) system

MARKET ECONOMY

Foundations (rights)

of free market economy:

Private property



Freedom of choice

S

S

D

D

QUANTITY

RM

(PRICE)

EQUILIBRIUM

1 2


12

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MARKET SYSTEMMarket determines product prices and


demand:

a. Supply: Qty of goods/services businesses

are willing to sell at different prices at a





MARKET/EQUILIBRIUM POINT:The price and qty combination where supply

equals demand

a. market forces eliminate surplus or shortage

b. supply, demand, and equilibrium only existin a market (capitalist) system

COMPETITIONThe rivalry among businesses to

convince consumers to buy their

goods/services

degrees of competition (marketmodels):

1. Perfect Competition: numerous

sellers, standard product

2. Monopolistic Competition: many

sellers, product differentiation

3. Oligopoly: few sellers,

interdependence,

4. Monopoly: one seller, one product,

MARKET ECONOMY

Foundations (rights)of free market economy:

Private property



Freedom of choice

S

S

D

D

QUANTITY

RM(PRICE)

EQUILIBRIUM

1 2

3


13

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Factors of Production(basic resources):

LAND (natural resources)

labour (physical human resource

capital (man-made equipment, etc.)

entrepreneurshipknowledge (human capital)

PROPERTY

(REAL PROPERTY)

PROPERTY IN CONTEXTS OF ECONOMICS

LAND

MARKET ECONOMY

Private Property Market System

Market Equilibrium

Competition

EC ONOMICS DEVELOPMENT

Products Properties

Supply/Demand Construction

Pricing Property Prices

Market Property Market

Competition Among Developers

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Why do cities exist?

Why not a uniform

distribution of people acrossthe landscape?

1. Comparative Advantage

2. Internal Scale Economies

3. Agglomeration Economies

1. Its efficient utilization and the markets in which it

operates involving many and complex economic

and policy issues.

2. A proper understanding of the real estate market

is important for :

Individuals to make sound investment

decisions,

Businessesto make the right decision on

whether to buy or lease a property, and

Banks to evaluate the asset risks underlying

their mortgage loan portfolios and to innovate

real estate related financial products.

An Analytical Framework by which students canmake sound real estate investment decisions

URBAN LAND USE

16

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Understanding of :

the way the land market operates and of the economics of planning,

Understand onplanning policies and other policies which affect the

property market and to betterpredictboth the effects of those

policies and of other events affecting the market, particularly as they

affect the process of property development.

Locational

Choices

Office Zone

Residential Zone

Manufacturing Zone

URBAN LAND USE

17

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Multiple Land Use Rent Gradient

Office

zone

Manufacturing

zone

Residential

zone

Distance to City Center

Rent

Office Bid

Rent

Manuf. Bid

Rent

Residential

Bid rent

U U

URBAN LAND USE

RM 7.00psf

RM 1.50psf

RM 5.00psf

18

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THE ECONOMICS OF LAND USE

LAND ECONOMY

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Understanding of,

The economic functioning of the land market and,

The economics of the land use planning system

LAND ECONOMY draws on the disciplines of law, economics and finance

in the analysis of the use, management and development of land,

property and the environment within both the private and the public

sectors.

LAND treated as a Factor of Production

Factors Of Production = labour, land, and capital

LAND ECONOMY

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LAND ECONOMICS

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Land Economics is dedicated to the study of land use, natural

resources, public utilities, housing, and urban land issues.

The study of land lead to the study of how labour and capital areused with landto produce goods and services.

Land economics involve labour economics, public finance and every

possible field of economic study.

LAND ECONOMICS

Established in 1925 by the renowned economist Richard T. Ely

publishes innovative, conceptual and empirical research of direct

relevance to economists

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LAND ECONOMICS

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The Economics Consequences of Laws related to land use.

(What are the Consequences of Laws on Land Development?)

Each issues brings the studies on such topics as transportation,

energy, urban and rural land use, housing, environmental

quality, public utilities and natural resources.

If also focus on Peculiar Characteristics of Land such as NonTransferability of Land geographically, its durability , and use

over time (Refer Lecture 2).

LAND ECONOMICS

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PROPERTY AS AN ECONOMIC COMMODITY


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Property involves the concepts of right

Different persons can have different rights over the same property. In real property the right of ownerships is

often separated from the rights to use

Where there is a separation of rights, there is need for a written instrumentsto record and define the rights.

The markets in real property deals in these RIGHTS RELATING TO PROPERTYrather than the land and buildings themselves

It Is these rights and interest in real property which are the COMMODITIES

bought and sold in the real property market


REAL PROPERTY

24

CHARACTRISTICS OF PROPERTY

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CHARACTRISTICS OF PROPERTY

Each Property has Different Characteristics Location, Types, Design

Durable(60 years)

Various Interest ( freehold, leasehold, access, air space, lights, etc) Capital Value is much higher when compare with commodities

Supply Is Limited. Cannot increase in size, numbers, heights, etc

Acquired for Investment Purposes.

High Cost of development and management.

Regulated by numerous Legislations

ALTERNATIVES CONSUMPTION (USE)

Owning & Using

Owning & Not using

Using & Not Owning

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Rights

Real Property

Property/Building

(Product)
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PROPERTY AS AN INVESTMENT

PROPERTY INVESTMENT

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Principle of Investment

The investment Market (Pasaran Pelaburan)

The nature of an investment is the giving up of a capital sum in return

for an incometo be received over time.

PROPERTY INVESTMENT

The Income is received as a periodic

Capital Sum

(Jumlah Modal)

(Returns on Investment)

PROPERTY INVESTMENT

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Purchasing or Renting a given Property

When purchasing it is an investment-Giving a Capital Sum which will save

him playing rent in future

His incomeis equal to the rent he would have to payand receiving it in a

non monetary from in the use of the property

If he rents, someone else receiving periodic payments for his capital value

of purchases price.

PROPERTY INVESTMENT

Rental Saved

(Income)Purchase (Buy)

Capital Sum

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INVESTMENT OBJECTIVES

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INVESTMENT OBJECTIVES

STAKEHOLDERS OBJECTIVES

Investors Profits/Returns on Investment

Contractors Production (Construction) Profits

Authorities Direct Involvement For Public Interest

(Social Profits: Social Benefits).

29

Bui ld ing Economis t

Construct ion Economist

Development Econom ist Ability to advise clients on how to

develop the potential of their property.

Assist Property Owners to realise

development opportunities.

SLIDE 3

INVESTMENTS IN REAL PROPERTY

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INVESTMENTS IN REAL PROPERTY

Objectivein Investment : To preserve or enhance the real value of the assetand

receive a flow of income over time

Classification of Investment Characteristics

Freehold: Owner Occupier/Investor

Purchased property as an investmentFull financial risks

Rent Increase (inflation/scarcity) Gains

Rent Decrease ( Deterioration/Competition) Looses

Shops, offices, residential, industries

Leasehold: Freeholder rent property he owns to somebody else (Grant a Lease)For Fixed number of years for a Capital Sum/Rent

This Lease has value and can be exchanged in a market

Mortgages : Long term financial loans secured to a real property with interest payments.

Capital is repaid (Housing Loan).

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(Asset Management, Building Management, Facilities Management)

(Return on Investment)

INVESTORS IN REAL PROPERTY

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PROPERTY INVESTORS

1 PrivateIndividuals

Purchase (house) or rent (Shop) a property

Owner Occupier

Full Equity interest

Derive income from use of property

limited fund, small investors

2Property

Companies

Development Companies

Undertake property projects

Highly geared (Loans)Specialise in Residential, Commercial & Industrial properties

3Property

Companies

Operate Unit Trusts (Amanah Saham)

Uses Fund to buy shares in property companies

Avoid management commitment

4Pension FundInsurance Co.

Owned Properties Directly (High Quality)Direct Investment in Property

Retain Value (Hedged against inflation)

5Charities

Trusts.

Retain The Real value of a Trust Funds

Pay No Income Tax

Cannot invest entirely in securites (stocks)

Property as an Investment Portfolio

INVESTORS IN REAL PROPERTY

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PROPERTY MARKET STUDY

MARKET STUDY

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Market Study

Purpose :

1. To determine the nature and types of property market during

a particular time.

2. Focus on one type of development on a particular location.

3. To determine whether there is a demand to the present supply or

to the proposed Project

MARKET STUDY

1. 2010, 2011, 2012

1. Ipoh , Kuan tan , Sibu1. Ter race Houses , Condomin ium

1. Resident ial , Commerc ia l, Mixed Developm ent

1. Cur ren t Pro jec ts

2. New Projec ts

3. Presen t Hous ing Stoc

1. Popu lat ion , Market Segment

1. You r Development

33

MARKET STUDY

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MARKET STUDY

Market Study in Important Under The Following Conditions

1 When the developer implementing a project has no experience

2 Uncertain market conditions

3 Entering a new market without much evidence

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MARKET STUDY

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MARKET STUDY

Market Study Consider 3Factors :

1) GENERAL FACTORS on The overall property

market

2) Factors on a SPECIFIC DEVELOPMENT

3) Factors on SPECIFIC LOCATION

Location of SiteNature of Site

Availability of Infrastructure

Local Demand

Local Authorities

Climatic Condition

Residential

Commercial

Mixed Development

Industrial

State of The EconomyFunding Availability

Population

Market Trend

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CASE : PROPERTY INVESTMENT

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PROPERTY

INVESTOR

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A

B

D

C

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TYPES OF

DEVELOPMENT

REAL PROPERTY

(BUILT ASSETS)LAND-USE

PROJECT

DELIVERYENTERPRISES

REAL PROPERTY

(RIGHTS)

Development Econom ist

(Return o n Investm ent)

Bui ld ing Economis t(Design & Procu rement

Eff iciency. Value for Mo ney)

Construct ion EconomistCons tr uc tab il it

Land Economist

Urban Economist

(Land-Use Eff iciency)

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END OF LECTURE 3

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Space Lecture 3 s1 20102012

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