Management in the Built Environment Lesson 9 – Revision and focus

1. Management in the Built EnvironmentLesson 9 – Revision and focus

2. Aim of this Revision Explain marking standard Go through each lesson’s key points Any Questions Exam is on Sat 6th Apr 2019 1300-1600 Please be punctual

3. LESSON ONE

4. What is economics? Basically, economics is about using/managing scarce resources (and making decisions about their use)

5. Defining Economics KEY CONCEPTS • Economics is the study of rational choice under conditions of scarcity • Opportunity Cost is the best alternative that you gave up when making a choice

6. Unlimited Wants Vs Limited Resouces

7. Defining Scarcity and Choice • Rational Choice means people making • Calculated, self-interested choice after • Risk • Cost • Benefit

8. Characteristics of Construction The fall into 4 main groups The physical nature of products The structure of the industry together with the organization of the construction process The determinants of the demand The method of price determination

9. LESSON TWO

10. 5 Main factors that shift the Demand Curve • A change in the prices of related goods or services, such as substitutes or complements • A change in income: when income rises, the demand for normal goods increases and the demand for inferior goods decreases. • A change in tastes • A change in expectations • A change in the number of consumers

11. What Causes a Supply Curve to Shift? 5 Main Factors that shift the Supply Curve • Changes in input prices • An input is a good that is used to produce another good. • Changes in the prices of related goods and services • Changes in technology • Changes in expectations • Changes in the number of producers

12. Market Equilibrium Price of cotton (per Kg) Market equilibrium occurs at point E, where the supply curve and the demand curve intersect. Supply £2.00 1.75 1.50 1.25 Equilibrium price Equilibrium E 1.00 0.75 0.50 Demand 0 7 10 13 15 17 Quantity of cotton (billions of Kgs) Equilibrium quantity

13. Supply, Demand and Equilibrium • Equilibrium in a competitive market: when the quantity demanded of a good equals the quantity supplied of that good • The price at which this takes place is the equilibrium price (or market-clearing price) • Every buyer finds a seller and vice versa. • The quantity of the good bought and sold at that price is the equilibrium quantity.

14. LESSON THREE

15. Economics

16. Micro Economy in Built Environment What are the consideration factors when buying a property • Needs – Age and size of family • Purposes – Investment or self-stay • Type – Commercial/ Residential • Tenure – 99 years vs freehold • Affordability – Household Income and Price • Initial and monthly cash flow – Opportunity cost on the cash flow • Interest Rate • Tax – Property Tax / Stamp Duty + ADSD • Resale potential

18. LESSON FOUR

19. Which Market model best fits the construction and property market ?

21. LESSON FIVE

22. Role of Property Sector in the Economy

23. How we measure Property prices in SINGAPORE • Property price transactions index • 2. Property affordability Index • Urban Redevelopment Authority • Both sales and lease • Further broken down into industrial/Retail/Residential/HDB

24. LESSON SIX

25. What is a Property Cycle - Definition A property cycle is a sequence of recurrent events reflected in demographic, economic and emotional factors that affect supply and demand for property subsequently influencing the property market. The property cycle has four recognised recurring phases : • Recovery • Expansion • Hyper Supply • Recession

26. Linear Markets linear relationships between two objects can be called a 'constant of proportionality. Increase in Linear markets are real estate markets with a more “flat” growth curve over time. That is they have a more visually smooth and steady growth with no major spikes or declines. Linear markets are where booms and busts virtually never occur. Some people may call them “boring” markets because of their relatively “lower” annual appreciation rates, but they are happen to be the markets that provide some of the best capitalization rates and cash-on-cash returns!

27. Cyclical Markets A cyclical industry (such as the housing/property market) is the type that's sensitive to the business cycle. That means higher revenues in more prosperous times (economic expansion) and lower in downturns (economic contraction). ... Tend to have larger price moves up and down over the years. ... When conditions are ripe annual housing price gains in these areas can exceed 20 to 30 percent at the cyclical – Roller Coaster ride However, the local booms burn themselves out by pushing prices to unaffordable levels. Commonly known as as “bubble” markets because they can appreciate in value so dramatically in a relatively short period of time them come “crashing” down as the economy changes bringing property values back down as quickly as they went up – often at double-digit rates.

28. LESSON SEVEN

29. 8 risks of the Real Estate Investors

30. 8 risks of the Real Estate Investors

31. What is REIT ? A real estate investment trust (REIT) is a company that owns, and in most cases operates, income-producing real estate held in trust ,with investors (individual/ firm investors) each holding a unit of interest of the group of assets. REITs own many types of commercial real estate, ranging from office and apartment buildings to warehouses, hospitals, shopping centers, hotels and timberlands. Some REITs engage in financing real estate. REITs can be publicly traded on major exchanges, public but non-listed, or private.The two main types of REITs are equity REITs and mortgage REITs (mREITs).

32. Risk with REITs Potential Tax Consequences • Not properly explained to prospective investors. • Income distributions that occur from current or accumulated earnings are usually taxed as ordinary income. • These taxation rates change when the dividends are taxed, which can carry a tax rate of 15-20% depending on income bracket. • Higher risk if the assets are located overseas Non-Traded REITs Can Have Inconsistent Value • Many REITs are not publically traded, • Inconsistency in valuation of property and market value Restrictions & Excessive Costs Regarding Early Redemption • Potential hidden terms within REIT investments where there is a limit on the number of shares that can be redeemed prior to liquidation. • Excessive fees might be charged.

33. Risk with REITs Excessive Fees • Expensive and excessive Management fees. • Fees can occur related to selling compensation and expenses along with “issuer costs,” which are also paid from the proceeds of the initial offering. Unspecified Properties • Full portfolio of an REIT might not have specified properties. • When this happens, investors have an enormous risk because they are not guaranteed reliable investment properties. • Look at the percentage of the REIT that has specified properties to determine whether the investment is worthwhile. Lack of Diversification • REITs can lead to lack of diversification in portfolios.eg too much investment in hotel subjected to seasonal demand

34. LESSON EIGHT

35. AFFORDABILITY

38. Any other Questions ?