Property Market Analysis - Report Example

PROPERTY MARKET ANALYSIS Introduction Property market involves real e s, which are properties that consist of land, as wellas building (Abdul 2002). In addition, it also involves natural resources including minerals, crops and water. Property market also entails the profession of buying, renting or selling buildings and lands (Abdul 2002). With the increase in the development of private ownership of property in many parts all over the world, property market has become one of the major areas of business (Abdul 2002). Purchasing a land as well as a building is a significant investment. It is a fact that each of land or a building has unique characteristics (Adams 2007). Taking this into consideration, property market is evolving into various distinct fields. Various specialists usually have the responsibility of valuating property market as well as facilitating transactions involved in buying and selling in the property market. Some of the most common types of property market businesses include appraisal, development, net leasing, property management, real estate marketing, real estate investing, relocation services and corporate real estate among other businesses (Abdul 2002). In every field of property market, businesses usually specialize in certain types of property market. These include residential, commercial and industrial property (Abdul 2002). Moreover, most of the construction businesses usually have a significant connection to property market (Adams 2007). Current research on the property market indicates that lack of effective property market laws usually have a substantial barrier to investment to most of the developing countries all over the world (Adams 2007). In most societies worldwide, a significant portion of the total wealth is usually in terms of land and building. Taking this into consideration, land as well as a building is highly valued in many societies all over the world (Abdul 2002). In more advanced economies, the primary source of capital used by individuals as well as small companies to buy and improve building and land is mortgage loans. Most of the banks are willing give these loans as the real property usually act as security if the borrower fails to pay the money borrowed. Application of Efficient Market Theory to Property Markets Efficient market theory is one of the most discredited theories (Siegel 2009). The theory assumes that all participants in the market receive and act effectively on relevant information in the market as soon as it becomes available to them (Siegel 2009). If this is actually the case, then the best investment would be just a coin toss. Supporters of the efficient market theory have a strong believe that there is always perfect and available information in the stock market. This implies that any information available to one investor regarding the stock market is available to all investors (Siegel 2009). Due to the fact that every investor as the same information regarding the stock market, then the price of the stock in the market should reflect the knowledge and the expectations of the investors (Siegel 2009). The efficient market theory assumes that investors should not have the ability to beat the market because there is no way that they can know something concerning the stock that is not reflected in the price of the stock (Adams 2007). Supporters of this theory do not usually take stocks which are winning. Instead, they always try to match the performance of the market. With regard to the property market, the efficient theory applies, just like other stocks in the market. Some investors in the property market have a strong believe that they can get all the information they want regarding the property market (Siegel 2009). However, this is usually not the case. The information about the property market may only be available to few investors or even none. Nevertheless, there is enough evidence which disputes the basic claims of efficient market theory, and most of the investors do not believe in it. A property market cycle is a coherent sequence of recurring events reflected in various factors including fluctuating prices, rentals, demand and vacancies in the property market (Adams 2007). Business, as well as economic cycles usually last for more than 10 years and they significantly influence property cycles in various sectors (Jones 2009). There are basically two different types of property market cycles. These are the physical cycle of demand and supply and financial cycle. Physical cycle determines vacancy which in turn drives rent. On the other hand, financial cycles influence the flow of capital hence affecting prices. Taking this into consideration, it is true that the property market cycles highly support the efficient market theory (Jones 2009). This is because investors usually use the property market cycles to get the information regarding the property market. Economic Indicators There are three primary categories of economic indicators in the property market (Abdul 2002). These include coincident indicators, leading indicators and lagging indicators. Coincident indicators include indicators that change simultaneously with respect to the conditions in the general economy. Thus, coincident indicators usually provide information about the current condition of the economic affairs. Some of the coincident indicators include GDP, personal income, non-agricultural employment, industrial production and inventory (Abdul 2002). Lagging indicators usually provide insight of investors in economic movements after occurring of changes. They include new home sales, employment, corporate profits, labour cost and home prices index. Lastly, leading indicators plays a significant role in detecting economic changes before becoming apparent in the economy. Leading indicators include weekly jobless, claims and new residential construction report (Abdul 2002). The graph below shows three related indicators in the property market using primary data choices. Te three indicators are home sales, corporate profits and labour costs in Australian property market. The units are in millions. Units YEARS Through understanding the relationship between the above three indicators in the product market, investors are able to determine property cycles. This is useful as they can use the information to determine when and where to invest. A Potential Development Site The selection of the site includes the practice of a new facility within a new location, both for business as well as government. Site selection includes measuring the requirements of a new project development against the benefits of potential location (Abdul 2002). The process of selecting site constitutes a detailed evaluation of the needs of the project. This process basically involves selecting as well as evaluating communities, acquisition, real estate site analysis and negotiating tax incentives. There are various steps followed during site selection. They are; defining project criteria, evaluating communities, creating a shortlist of communities, real estate analysis, negotiating acquisition (Abdul 2002). With regard to the above, the site the familiar site that am selecting is that one of building rental premises in a certain area. After selecting this site, analysis is required in determining whether the site fits my requirement with regard to my intentions. Demand and Supply for the Project Determining demand and supply plays a very significant role in evaluating the feasibility of a new project within the property market. Taking this into consideration, determining the forces of demand and supply to with regard to the site I selected will evaluate whether I will go ahead with my project or not. There are four steps involved during demand and supply of a potential development site. These include understanding the specific conditions of the site, determining demand, determining supply and lastly measuring the gap between demand and supply (Jones 2009). On understanding the specific conditions of the site, the conditions that I am taking into consideration are demographics, economics, physical and legal (Jones 2009). Considering the demographic conditions, it is true that the sight is in a densely populated area with different types of people of all ages. This implies that there are many clients that are available once the project is complete. On economic conditions, it is true that the there are various economic activities carried out by the people of the surrounding community. This implies that most of the people in the community are economically stable. Physical conditions around the site are conducive for constructing the building as it is never affected by natural disasters such as floods and earthquake. On legal conditions, constructing on the site is not against the law of the country. During the determination of demand of a potential development project, there are several factors that the people involved consider. These are household growth, household income, number of purchasers and number of renters (Jones 2009). With regard to household growth, it is true that the community around the site are growing at a significant relate in terms of the financial aspect. The income of the household is average, indicating that most of the household can afford to rent the houses. Since the site is in an urban area, the number of renters is large as most of them work in the industrial areas in the urban areas. On the side of supply, it is true that the number of rental houses in the area is less than the number of renters. This implies that the supply of rental houses in the area is lower. Adding another rental building in the area will increase supply and more people will get access to the housing facilities. Since the supply is lower, the demand for rental houses in the area is high and developing rental premises in the area is a good idea. The site is sustainable for the potential development of rental premises. Conclusion With respect to the above, it is evident that the property market involves land as well as buildings. While some investors have a strong believe in the efficient market theory. By this, it means that they believe that information regarding stock market is readily available to every investor. However, most of the investors discredit this theory. Property cycles usually support efficient market theory. Through analyzing a selected site, it is true that setting a rental premises on the site is a good idea. This is because the site has all that it requires to start and succeed in rental premises. This is through determination of the forces of demand and supply. References Abdul Hamid Mar Iman. (2002). An introduction to property marketing. Johor, Penerbit Universiti Teknologi Malaysia (UTM). Adams, D. (2007). Planning, Public Policy & Property Markets. Oxford, John Wiley & Sons. Http://public.eblib.com/EBLPublic/PublicView.do?ptiID=284192. By, S. L. (2008, May 06). Efficient market theory lives! Wall Street Journal. Retrieved from http://search.proquest.com/docview/398076870?accountid=35812 Hogge, B. (2006, Jul 24). Property market. New Statesman, 135, 50-50. Retrieved from http://search.proquest.com/docview/224338635?accountid=35812 Ho, Chi W, and Loo L. Sim (1992). Studies on the Property Market. Singapore: Singapore University Press, National University of Singapore. Jones, C., & Watkins, C. (2009). Housing markets & planning policy. Chichester, U.K., Wiley-Blackwell Pub. Http://public.eblib.com/EBLPublic/PublicView.do?ptiID=547103. Siegel, J.J. 2009, Efficient Market Theory and the Crisis, New York, N.Y., United States, New York, N.Y. Read More