SBEQ 4312/SBEC 4312

LECTURE 3 (Hand Outs :- DownLoad @ e Learning)

Pembangunan Tanah Sebagai Pelaburan

(Land Development As An Investment)
REFERENCES
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
The intellectual discipline of economics is an attempt to understand
the Processes that govern the Production, Distribution and
Consumption of Wealth. The Techniques Of Economics Have Been
Applied To Many Different Activities, Leading To The Development
Of A Wide Range Of Sub-disciplines.
Land Economics : Concerns with the study of land use, natural
resources, public utilities, housing, and urban land issues.
MARKET ECONOMY
Foundations (rights)
of free market economy:
Private property
Earn and keep profits
Freedom of competition.
Freedom of choice

Market System
Market determines product prices and
output through forces of supply and
demand:
a. Supply: Qty of goods/services
businesses are 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/Equilibrium Point:
The price and qty combination where supply equals demand
a. market forces eliminate surplus or shortage
b. supply, demand, and equilibrium only exist in a market
(capitalist) system.
Competition
The rivalry among businesses to convince consumers to buy their
goods/services
degrees of competition (market models):
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
LAND
Factors of Production
(basic resources):
EC ONOMICS

LAND (natural resources)

labour (physical human resource
capital (man-made equipment, etc.)
entrepreneurship
knowledge (human capital)
DEVELOPMENT

Products

Properties

Supply/Demand

Construction

Pricing

Property Prices

Market

Property Market

Competition

Among Developers

WHY CITIES EXIST

Why not a uniform distribution of people across the landscape?
Comparative Advantage
Internal Scale Economies
Agglomeration Economies

Central Place Theory is a geographical theory that seeks to explain

the number, size and location of human settlements in an urban
system.
The theory then relied on two concepts: Threshold
and Range.
Threshold is the minimum market (population or
income) needed to bring about the selling of a
particular good or service.
Range is the maximum distance consumers are
prepared to travel to acquire goods - at some point
the cost or inconvenience will outweigh the need
for the good
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,
Businesses to 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 can make sound real
estate investment decisions
URBAN LANDUSE
Understanding of the way the land market operates and of the
economics of planning, planning policies and other policies which
affect the property market and to better predict both the effects of
those policies and of other events affecting the market, particularly
as they affect the process of property development.
Multiple Land Use Rent Gradient
RM 7.00psf
RM 5.00psf

Office zone

Manufacturing

Residential

zone

zone

RENT

RM 1.50psf

Distance to City Center

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
Understanding of The economic functioning of the land market and,
The economics of the land use planning system.
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 are used
with land to produce goods and services.
Land economics involve labour economics, public finance and every
possible field of economic study.
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 Non
Transferability of Land geographically, its durability , and use over
time (Refer Lecture 2).

LAND treated as a Factor of Production

Factors Of Production = labour, land, and capital
Understanding of The economic functioning of the land market and,
The economics of the land use planning system.
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 are used
with land to produce goods and services.
Land economics involve labour economics, public finance and every
possible field of economic study.
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 Non
Transferability of Land geographically, its durability , and use over
time (Refer Lecture 2).
PROPERTY AS AN ECONOMIC COMMODITY
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
instruments to record and define the rights.
The markets in real property deals in these RIGHTS RELATING TO
PROPERTY rather 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
Characteristics 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
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 income to be received over time.
When purchasing it is an investment-Giving a Capital Sum which
will save him playing rent in future
His income is equal to the rent he would have to pay and 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.
STAKEHOLDERS

OBJECTIVES

Investors

Profits/Returns on Investment

Contractors

Production (Construction) Profits

Authorities

Direct Involvement For Public Interest

(Social Profits: Social Benefits).

Objective in Investment :
To preserve or enhance the real value of the asset and receive
a flow of income over time.

Classification of Investment Characteristics

Freehold : Owner Occupier/Investor
Purchased property as an investment
Full financial risks
Rent Increase (inflation/scarcity) Gains
Rent Decrease ( Deterioration/Competition)
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 (eg. Housing Loan)
PROPERTY INVESTORS

Private
Individuals

Purchase (house) or rent (Shop) a property

Owner Occupier
Full Equity interest
Derive income from use of property
limited fund, small investors

Property
Companies

Development Companies
Undertake property projects
Highly geared (Loans)
Specialise in Residential, Commercial & Industrial
properties

Property
Companies

Operate Unit Trusts (Amanah Saham)

Uses Fund to buy shares in property
companies
Avoid management commitment

Pension Fund
Insurance Co.

Owned Properties Directly (High Quality)

Direct Investment in Property
Retain Value (Hedged against inflation)

Charities
Trusts.

Retain The Real value of a Trust Funds

Pay No Income Tax
Cannot invest entirely in securites (stocks)
Property as an Investment Portfolio

MARKET STUDY
Purpose :
1. To determine the nature and types of property market during
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 in Important Under The Following Conditions
1

When the developer implementing a project has no experience

Uncertain market conditions

Entering a new market without much evidence

Market Study Consider 3 Factors :

State of The Economy
Funding Availability
Population
Market Trend
1. GENERAL FACTORS On The Overall Property Market
2. Factors On A SPECIFIC DEVELOPMENT.
3. Factors On SPECIFIC LOCATION.
Residential
Commercial
Mixed Development
Industrial

Location of Site
Nature of Site
Availability of Infrastructure
Local Demand
Local Authorities
Climatic Condition