Chapter 12 Emerging Markets Property Development ( 6 th Edition)

1. Chapter 12 Emerging Markets Property Development(6th Edition) Publisher: Routledgewww.routledge.com Authors: Professor R.G. Reed and Dr S. Sims

2. 12.1 INTRODUCTION 12.1.1 International Property Trends • There are external factors which influence land use changes in cities and subsequent change in property development requirements, e.g. there has been an observed global trend towards higher levels of urbanisation which have often focused on the provision of living space within city centres. • In some cities during downturns in property cycles and associated periods of high vacancy rates in commercial building stock there have been conversions of high rise property from office use to residential use. • There are new trends which property developers need to keep up to date with, e.g. rapid growth in purchases of investment property ‘off the plan’ by overseas investors who live in another country. • Following the integration of technology and the internet (i.e. utilising the worldwide web) throughout the western world, many geographical boundaries that previously existed have now been removed. • Many large corporations have become trans-national firms where companies focus on staying competitive by outsourcing services or production to developing countries with very poor labour, environmental and economic standards.

3. 12.2 GLOBALISATION OF PROPERTY DEVELOPMENT • Many property developers now operate in countries other than just their own. • There has been a substantial growth in investing in and purchasing property in multiple countries and developers are taking advantage of the opportunities this presents. • To cater for trans-national businesses and cross-border developments there are three key ways in which property developers can obtain general economic and property market information: • Use international property consultants since many well-known property companies now operate in multiple countries and have an international profile. • There are also companies which provide independent, accurate, comprehensive, and up-to-date research on industries operating in their country. • Developers can find out about market conditions and opportunities in countries outside their home country by using affiliated professional bodies where available.

4. 12.3 DEVELOPMENT OPPORTUNITIES • Property developers following the global market are seeking opportunities to identify markets which have potential for future growth, or alternatively are currently under-developed. • Adeveloper with foresight to enter a growing market has the benefit of rapidly establishing goodwill and strong links with the local market, as opposed to entering a competitive mature market from a standing start. • The gradual ‘opening up’ of previously ‘closed’ economies has been encouraging news to international property developers. • International property development affects each country in a different way and to a different extent. • Strengths and weaknesses should be identified by the progressive property developer, since opportunities exist in many countries which are each in a different stage of development. • A driver for establishing global links is the desire to be recognised as a truly international property company.

5. Discussion points: What are some of the drivers encouraging the expansion of property development into other countries? Why are developing countries so appealing to property developers?

6. 12.4 BARRIERS AND LIMITATIONS • The transition to a truly international property market has been faced with many challenges, especially when considering differences in currency, culture and varying levels of development in each country. • Knowledge about the inside workings of a property market can be one of the largest barriers to a successful property development in an overseas country. • Cultural barriers may exist, for example if a property company used to conducting business in a western civilisation seeks to develop property in a country with a transitional or emerging economy. • Some overseas contractors can be accused of poor performance and low effectiveness in terms of quality and performance. • Language barriers can be partly broken down using media and technology including email and teleconferences. Hence communication with a distant geographical location can be maintained on a regular basis if accompanied by adequate forward planning and organisation.

7. 12.4 BARRIERS AND LIMITATIONS 12.4.1 International Property Development Risks • The increasing internationalisation of property markets has increased the level of demand for property, although arguably has at times exposed property investors to more risk. • Structural risk may come from within the property development industry itself, although growth risk may occur from the anticipated growth of the overall property market. • External risk can result from forces external to the development but once again is outside the control of the property developer. • Many regions promote a ‘buy local’ culture which may indirectly create barriers for companies that are perceived as ‘outsiders’. • Currency risk is an important consideration when undertaking a venture on an international level. • The relevant legislation and political climate are major considerations that may hinder a prospective international property development.

8. Discussion points: Identify some of the risks involved when undertaking property development in an emerging market. What is a strategic alliance and when is it helpful?

9. 12.5 DEVELOPING AN INTERNATIONAL STRATEGY According to Griffin et al. (2007) there are five independent steps (Figure 12.1): Step 1 – Develop a mission statement for the property developer that clarifies the organisation’s purpose, value and directions. This is a means of communicating with internal and external constituents and stakeholders about the company’s strategic direction. Step 2– Undertake environmental scanning and a SWOT (strengths, weaknesses, opportunities and threats) analysis. An environmental scan is a systematic collection of data about all elements of the property developer’s external and internal environments, including markets, regulatory issues, competitor’s actions, production costs and labour productivity. Step 3 – Set strategic goals, being the major objectives the developer wishes to accomplish through pursuing a particular course of action. Importantly they should be measurable, feasible and time restricted. Step 4 – Develop specific tactical goals or plans which normally focus on the details of implementing the property developer’s strategic goals. Step 5 – A control framework is required, being the set of organisational and managerial processes which keep the property developer moving towards its strategic goals.

10. Develop a Mission Statement Determine what are the organisation’s values, purpose and direction Figure 12.1 Steps in International Strategy Formation Undertake a SWOT Analysis Examine the organisation’s external and internal environments to identify strengths, weaknesses, opportunities and threats Set Strategic Goals Explore the organisation’s strengths and environmental opportunities. Neutralise external threats and overcome the organisation’s weaknesses Develop Tactical Goals and Plans Devise the means to achieve strategic goals and guide the organisation’s daily activities Develop a Control Framework Formulate managerial and organisational systems and processes (Source: adapted from Griffin et al. 2007)

11. Chapter 12 Emerging Markets Property Development(6th Edition) Publisher: Routledgewww.routledge.com Authors: Professor R.G. Reed and Dr S. Sims