lecture 2 (property management economics & planning)

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PROPERTY MANAGEMENT

ECONOMICS & PLANNING Siti Hasniza Binti Rosman

Universiti Teknologi MARA (UiTM)

THE GENERAL BUSINESS

ECONOMY

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MEANING OF BUSINESS ECONOMICS

Managerial economics is a science that deals with the application of various economic theories, principles, concepts and techniques to business management in order to solve business and management problems. It deals with the practical application of economic theory and methodology to decision making problems faced by private, public and nonprofit making organizations

According to Lord Robins, “Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses”.

CHARACTERISTICS OF BUSINESS ECONOMICS

Micro Economic Nature: Business Economics

is micro economic in its nature because it deals

with matters of a particular business firm only.

Use of Economic Theories: Business

Economics uses all economic theories relating to

the profits, distribution of income etc.

Realistic One: Business Economics is a realistic

science. It studies all matters concerning

business organization by considering the real

conditions existing in the business field.

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Normative Science: Business Economics is a

normative science. It studies the matters concerning the aims and objectives of a business firm. It determines the methods to be adopted for achieving such objectives. It also makes enquiry into the good and bad in decision making. Hence it is a normative science.

Macro-Economic Uses: Even though Business Economics has the nature of Micro-Economics, it also uses Macro-Economic approaches frequently. Certain matters in Macro-Economics like Business Cycles, National Income, Public Finance, Foreign trade etc. are essential for Business Economics. So, Business Economics uses the macro-economic phenomenon for taking business decisions.


Economics is a science or an art: It is considered

as science if it is a systemized body of knowledge

which studies the relationship between cause and

effect. Art is nothing but practice of knowledge.

Where as science teaches us to know and art teaches

us to do. It is science in which methodology and art

in its application

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IMPORTANCE OF BUSINESS ECONOMICS

Business economics is a useful subject. In fact it

is the most significant of all social sciences, Its

study is highly useful for analysing and

understanding the various economic problems.

DEFINITION THE REAL ESTATE ECONOMY

Real estate economics is the application of economic techniques to real estate markets.

It tries to describe, explain, and predict patterns of prices, supply, and demand.

The closely related field of housing economics is narrower in scope, concentrating on residential real estate markets, while the research of real estate trends focuses on the business and structural changes affecting the industry.

Both draw on partial equilibrium analysis (supply and demand), urban economics, spatial economics, extensive research, surveys, and finance.

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HOUSING DEMAND & SUPPLY SCENARIO

IN MALAYSIA

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Housing Stock in Malaysia Existing Stock (as at Q3 2013) 4,677,812 unit

Completion (Q3 2013) (e)* 18,427 unit

Total 4,696,239 unit

(e)* : Estimated

Source : NAPIC, as at Q3, 2013

unit

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Source : NAPIC/PPC Research

Housing Demand Volume & Value of Residential Property Transactions,

Malaysia (2010 - 2012)

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Unit RM Mil.

12 (e)* : Estimated

Source : NAPIC, as at Q3, 2013

unit

Incoming Supply (Q3 2013) (e)* 674,884 unit

Planned Supply (Q3 2013) (e)* 599,629 unit

Total 1,274,513 unit

Housing Supply in Malaysia

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High-rise30%

Landed70%

Supply of Residential Units by Type in Malaysia

Source: Property Stock Report Q32013

Housing Development

THE MANAGEMENT PLAN

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WHAT IS A MANAGEMENT PLAN?

A management plan is a blueprint for the way

your organization is run, both day-to-day and

over the long term.

It includes the standard methods for doing

various things such as handling money, dealing

with the actual work of the organization,

addressing the way people in the organization do

their jobs and the overall philosophical and

intellectual framework in which these methods

operate.

WHY DOES YOUR ORGANIZATION NEED A

MANAGEMENT PLAN?

It clarifies the roles and responsibilities of

everyone in the organization so that everyone

knows what she and everyone else is supposed to

do.

It divides the work of the organization in

reasonable and equitable ways, so that

everyone's job is not only defined, but feasible.

It increases accountability, both internally (when

something doesn't get done, it's obvious whose

responsibility it was) and externally (the better

the management of the organization, the better it

will serve the community).

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WHY DOES YOUR ORGANIZATION NEED A

MANAGEMENT PLAN?

It ensures that necessary tasks are assigned to

the appropriate staff members, and creates a

time schedule to get them accomplished.

It helps the organization define itself. By

developing a plan that's consistent with its

mission and philosophy, an organization can be

clear on what it believes in and communicate this

with clarity to its staff, its target population, and

the community as a whole.

PREPARATION OF MANAGEMENT

PLAN

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COMPONENTS OF A MANAGEMENT PLAN

1. Property information

This section simply provides a legal description (lot, concession, township, etc.) of the property, the acreage, and information (name, address, and telephone number) about the registered owner(s).

2. Property management history

The purpose of this section is to note what activities have taken place on the property (relevant to the management plan you are preparing). This may include past harvesting operations, change of objectives or ownership, planting projects, insect control, trail construction, etc.


3. Maps

Good maps and/or aerial photographs of your

property are essential. Depending on the size of

your property you may require two sets of maps –

one showing your property in relationship to the

surrounding landscape and a map showing the

detailed features of your property.

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4. Setting objectives

Prior to finalizing your objectives

Need to consider your financial resources, level of

knowledge, availability of time and the

characteristics of your property when making

this assessment.


5. Preparing an inventory

Preparing an inventory of your forest is a very

important component of your plan. The better the

inventory information that you have, the better

decisions you can make. The amount of

information collected will depend on your

objectives and the activities you plan to

undertake.

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6. Scheduling of activities

When preparing your schedule of activities you

should always be able to answer:

What – describe the activities to be undertaken;

Why – what objectives will these activities help

you to achieve;

Where – list the forest compartment where the

activities will take place and how many hectares

will be treated; and

When – what year and season will the work be

undertaken.


7. Record of activities

The information that you collect can be used later

to update the property management history

section of your management plan.

It provides a link back to your objectives and it

provides a measuring stick to see how successful

the work you undertake today is in the future.

Record details of costs associated with work

completed, volumes and revenues generated from

your forest, which is a requirement if you are

operating as a business.

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7. Record of activities

The information that you collect can be used later

to update the property management history

section of your management plan.

It provides a link back to your objectives and it

provides a measuring stick to see how successful

the work you undertake today is in the future.

Record details of costs associated with work

completed, volumes and revenues generated from

your forest, which is a requirement if you are

operating as a business.


8. Review of Past Activities and Plan Update

An update of your inventory (i.e. in areas where

you have undertaken commercial harvesting);

A review of your objectives to ensure they are

still relevant; and

Preparation of a new schedule of management

activities for the next ten years.

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MARKET ANALYSIS

DEFINITION OF MARKET ANALYSIS

A market analysis studies the attractiveness and the

dynamics of a special market within a special

industry. It is part of the industry analysis and thus

in turn of the global environmental analysis.

Through all of these analyses the strengths,

weaknesses, opportunities and threats (SWOT)

of a company can be identified.

The market analysis is also known as a documented

investigation of a market that is used to inform a

firm's planning activities, particularly around

decisions of inventory, purchase, work force

expansion/contraction, facility expansion, purchases

of capital equipment, promotional activities, and

many other aspects of a company.

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DEFINITION OF MARKET ANALYSIS

The market analysis is one of the most

important parts of any startup strategy. Do it

right, and you will have a clear idea of the path

down which you are headed. A good market

analysis will enable you to lure investors,

sidestep pitfalls, and most importantly, attract

customers.

PROPERTY ANALYSIS

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REAL ESTATE MARKET ANALYSIS

Studies that Focus on the Market

Analysis of Local Economic Conditions

Study of the fundamental determinates of

the demand for all real estate in the market

Market Analysis

Study of the demand for a particular

property type

REAL ESTATE MARKET ANALYSIS

Studies that Focus on the Market

Marketability Analysis

Study of a specific development or property to assess

its competitive position

Studies That Focus on Individual Decisions

Feasibility Analysis

Evaluates a specific project as to whether or not it is

likely to be carried out successfully

Investment Analysis

Evaluates a specific property as a potential

investment. Investor specific.

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OVERVIEW OF MARKET ANALYSIS

COMPONENTS

The Study Process

What attributes does the subject property offer to

the market?

Who are the potential, typical users/most likely

purchasers of the subject?

Most Probable Buyer Analysis


COMPONENTS

The Study Process

Is the property use needed?

Demand Analysis

Population Households Housing Units

Income Effective Buying Power Retail Sq. Ft.

Jobs % Use Office Office Sq. Ft.

Jobs % Use Industrial Industrial Sq. Ft.

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COMPONENTS

What is the Competition?

Supply Analysis

Analysis comparing demand and supply

Equilibrium Analysis

How much rent can be charges?

Is the location competitive?

Are the property attributes competitive?

How much of the demand can be captured?


COMPONENTS

Subjects marketability

Capture Analysis

Does the subject make financial sense?

Is it a good investment?

What is its market value?

Is the property’s value more than its cost?

I.e.: is there any entrepreneurial reward for the risk?

Feasibility Analysis and/or Highest and Best Use

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STEP 1: DEFINE THE PRODUCT

PROPERTY PRODUCTIVITY ANALYSIS

A. Physical Attributes

B. Legal and Regulatory Attributes

Private

Public

C. Location Attributes

Identification of economic attributes – the

association between land uses and their

linkages

Identification of the movement of demand in

relation to the direction of urban growth

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Analysis of Urban Growth Structure

Pattern, Direction and Rate

Analysis of factors influencing urban growth

structure

Natural, Manufactured and Political

Identification of competition and

comparison of location advantages and

disadvantages between competition and

subject

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D. Market appeal Attributes:

Identification of specific features such as

design or amenities that appeal to market

participants

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STEP 2: DEFINE THE USERS MARKET

DELINEATION

A. Market area concepts

Time-distance concepts

Area over which equally desirable, substitute

properties tend to compete with the subject

B. Geographic Market Delineation

C. Identification of Characteristics of Most

Probable User (consumer profile)

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STEP 3: FORECAST DEMAND FACTORS

A. Major demand types

Population creates households

Income creates retail buying power

Employment creates office and industrial users

B. Tastes and preferences: behavioral, motivational, and psychological factors

C. Demand segmentation

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STEP 4: INVENTORY AND FORECAST

COMPETITIVE SUPPLY

A. Existing stock of competitive properties

B. Potential competition Proposed construction

Probable additional construction

C. Factors influencing completion of potential competition

Land availability and costs

Interest Rates

Material and labor costs

Entrepreneurship

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STEP 5: ANALYZE THE INTERACTION OF

SUPPLY AND DEMAND

Residual Demand Study

A. Competitive environment

B. Residual Demand Concepts

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STEP 6: FORECAST SUBJECT CAPTURE

A. Capture rate and absorption period for subject

property

B. Risk Analysis

C. Reconciliation of market analysis and conclusions

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REFERENCES

DiPasquale, D. and W. Wheaton. 1996. Econometric Analysis of Office and Industrial Markets. Chap. 12 in Urban Economics and Real Estate Markets. Englewood Cliffs, NJ: Prentice Hall

Dixit, A. K. and R. S. Pindyck. 1994. Investment under Uncertainty. University Press: Princeton, NJ.

Featherstone, J. B. 1986. Approaching Market Analysis in a New Economic Environment. The Journal of Real Estate Development, 1, 5-10.

Hendershott, H. and R. Haurin. 1988. Adjustments in the Real Estate Market. AREUEA Journal, 16:2, 343-353.

Rosen, K. and L. Smith. 1983. The Price Adjustment Process for Rental Housing and the Natural Vacancy Rate. American Economic Review, 73, 779-786.

Sivitanides, P. 1997. The Rent Adjustment Process and the Structural Vacancy Rate in the Commercial Real Estate Market. The Journal of Real Estate Research 13: 195-209.

http://ctb.ku.edu/en/table-of-contents/leadership/effective-manager/management-plan/main

http://www.communitiescommittee.org/pdfs/mgmt_plans/web_man_plan.pdf

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