PROPERTY MARKET ANALYSIS

(BPE 34103)

BY:

PM. Sr. Dr. Azlina Binti Md. Yassin

 INTRODUCTION TO
PROPERTY MARKET
ANALYIS STUDY
HOW MUCH IS IT WORTH?
HOW MUCH IS IT WORTH?
HOW MUCH IS IT WORTH?
HOW MUCH IS IT WORTH?
PURPOSE OF MARKET STUDY
 Help in making decisions.
 Help answer issues pertaining to property
development, management or investment
project.
 Provide accurate financial analysis of the
propose project

Sale price, profit projections, organize
marketing activities, achieve sale goals etc.
 Highest and best use:

The most probable use of a property which is

physically possible, appropriate justified,
legally permissible, financially feasible, and
which result in the highest value of the
property being valued.
 Economic of land and real estate markets is
particularly complex due to:
- Relatively fixed nature of land
- Availability of land for use will alter
depending on land use planning
regulation.
- A lack of transparency and
published data.
- The nature of legal interest.
- Heterogeneity.
- Motivation of ownership
 USERS OF PROPERTY MARKET
STUDY
Objectives Lenders Developer Architects Buyers/ Property
/ Designers Seller Managers
Builders

Promotional and initial X

marketing efforts
Communication to X X
stakeholders
Employment and relocation X X X

Investment strategies X X

Project and long-term X X X

planning
Cash flow projection X X X X

Multiple levels review X X X X

Managing completed projects X

WHY WOULD WE WANT TO UNDERSTAND
THE PROPERTY MARKET?

 Real estate market are not

efficient markets like the stock
market.
 Property data normally a raw
data –unanalysed
 To understand the different
view of ‘Demand and Supply’
(Kahr & Thomsett, 2005)
 DEMAND
 Population
 Number of household
 Demographics characteristic
 Income, affordability, and
purchasing power
 Employment, by industry or
occupation
 Migration and commuting pattern
 Other factors
 SUPPLY CONSIDERATION
 Inventory of existing space units.
 Vacancy rate
 Type of tenants
 Past or current projects
 Market rents/sale price and locational factors
 Feature, functions and advantages of
projects
 Term and concessions
 REAL ESTATE- VALUE AND
WORTH
 Mixed economy – resource allocation decision
are taken partly by government on the basis of
need
 Partly by private individuals and corporate body.
 Real estate - Base on need, broad bush rule, on
the basis of least cost and value for money.
 Supply and demand pricing model.
 Real estate lies within both the public and
private realm, unique commodity and
heterogeneous product.
 Hoseli and McGregor (2000) distinguish
FIVE different concepts:

i. Price - Actual observable money

exchanged (paid for a property). Can
be fixed by negotiations
ii. Value - Estimation of the likely selling
price.
iii. Individual worth - Value to an individual
investor by using all the market
information and available analytical tools.

iv. Market worth - Price a property

investment would trade at in a
competitive and efficient market
using all market information and
available analytical tools.
 Value
 Value is subjective.
 Value theory and valuation theory traditionally
defined by economics.
 Valuation theory focuses on the techniques or
method through which value is measured,
estimated or forecast.
 Value can often be added by the carrying out of
a scheme of building works - Change in the
effective use of the land or/and the buildings
upon it.
 IN PRACTICE….

 Value and worth can currently be distinguished

as follows:


Value is obtained through gathering and
application of comparable evidence.

Worth is frequently calculated using DCF
methods
 VALUE DETERMINANT
 Determining factors of value:

Location

Improvements

Zoning

Competition

Local employment

Availability of similar property
PROPERTY CHARACTERISTICS

WHAT ???
 MARKET ANALYSIS PROCESS
 Market analysis for real estate is determine by THREE
general scenarios:
(i) a site in search of a use or market
(ii) a use or market in search of a site, and
(iii) real property as an alternative investment
instrument.

 In the first scenario, problems that concerns a site in

search of a use or market, the analyst must determine
whether there is appropriate support for a use and, if
so, determine the market that supports that use .
 The second scenario concerns a use or
market in search of a site.

 The third scenario, which has received little

attention in appraisal literature, involves the
consideration of real estate as an investment
instrument. Again, this scenario has a
different emphasis .

 The three scenario described general

problem situations in the market research
process; each addresses the particular needs
of different decision makers.
 LEVEL OF MARKET ANALYSIS

 Naturally, the level of study will vary with the

client’s needs, market conditions, and the
property type.
 3000

2000

1000 Apartment
Single family

0 Duplex
1987 1988 1989 1990 1991 1992 1993 1994
Apartment 2277 1398 1173 120 23 10 0 17
Single family 431 541 474 353 272 180 160 104
Duplex 11 22 4 7 1 14 0 0
2719 1961 1651 480 296 204 160 121
 LEVEL A
 Level A market analysis is general and
descriptive, not subject-specific. This level of
analysis relies on historical data rather than
future projections

 Typically, level A analyses only indirectly

address the supply side of the market by
reference to vacancy rates for selected rent
or sale comparables
 LEVEL B
 Level B analyses employ area wide market data
on a general property class.
 The projected use conclusions are more subject-
specific, and the timing projections depend on
interpretation of market wide data on the property
type.
 These surveys are usually conducted for each
class of properties-i.e., retail, apartment, office
building.
 In level B studies, secondary data are used
extensively and must be scrutinized to determine
how well they fit the problem.

 Level B analyses may cover many
projects that are not competitive with the
subject.

 Moreover, the historical pattern of the

broader market may not reflect the future
prospects of the property.
90
80.3 79 78.3 77.5
80 75.3
70.8
70 65

60
50
40
30
20
10
0
1
 LEVEL C
 Level C analysis goes further .
 Level C analyses which incorporate future-
oriented forecasting techniques.
 A level C study for an appraisal of vacant
land will include a proposed land use plan
which specifies the probable property use, or
most appropriate mix of uses, and the timing
of development.
 A level C inventory includes all properties
that currently exist in the defined markets as
well as all planned properties.
40
35
30
25
Supply
20
Demand
15
10
5
0
 LEVEL D
 A level D analysis provides the most detailed
level of market study available.
 A level D study might include an analysis of
urban planning and land use policy, public and
private fiscal capabilities, probability weighting of
use projections, and risk rating.
 These techniques are applied in a structured
manner that conforms to accepted standards of
statistical analysis.
 CRITERIA FOR DETERMINING THE
LEVEL OF MARKET ANALYSIS
 The regulatory requirements important
upon appraisers
 The needs of the client of user of the
appraisal
 The market conditions prevailing at the
time of the appraisal
 The complexity of the property being
appraised
REGULATORY REQUIREMENTS
 The need for market analysis is
emphasized under code of practice of
Board of Valuers, Estate Agents and
Appraisers and Act of Valuers, Estate
Agents and Appraiser
 CLIENT NEEDS
 An appraisal serves the needs of the client, who is
typically engaged in decision making for lending or
underwriting purposes. The basis for property
profitability and value is marketability .
 The appraisal may be viewed as a service to help
reduce but not to eliminate risk for the client and
the public.
 The appraisal can impart confidence to the client’s
decision by providing the highest and best use
conclusions, projections of NOI, the estimated
timing of the project, and documentation for the
demand forecast
PREVAILING MARKET CONDITIONS

 In a market characterised by stability or

equilibrium, a less intensive analysis may meet
the needs of the client.
 An unbalanced market is characterised by few
recent sales, much construction activity or an
expected surge in such activity, and public
studies reporting or forecasting market
disequilibrium.
 COMPLEXITY OF PROPERTY
 Property type refers to the use to which an
existing improved property is put, the use
proposed for a property that is to be developed
or the absence of any use designation, as in the
case of raw land.
 Property size is typically related to risk.
 Property value must be considered in light of a
reasonable marketing time.
 The appraiser must recognize the direct
correspondence between the project risk and
the required level of market analysis.
 SUMMARY
 Property market analysis is important input
in making decisions
 Nature of property is different than other
products
 THANK YOU
&
SEE YOU NEXT WEEK