Construction & Property Economics Lesson 3 – Micro and Macro Economy – Built Environment

Economy MICRO Economics MACRO Economics Individual Behavior Total Population / Society/ Nation Company Performance Industry / Market Individual Income National Income Individual Demand Market Demand Individual Demand /Supply curve Market Demand/Supply Curve The study of how consumer, business , and industries collectively determines the quantity of good and services demanded and supplied at different prices The study of “Big Picture” issues in an economy, including competitive behavior among firms, the effect of Government policies and overall resource allocation issue

Recap from lesson 2 : Individual Demand Curve and the Market Demand Curve The market demand curve is the horizontal sum of the individual demand curves of all consumers in that market. (a) Lewis’s Individual Demand Curve (b) Carly’s Individual Demand Curve (c) Market Demand Curve Price of blue jeans (per pair) Price of blue jeans (per pair) Price of blue jeans (per pair) £100 £100 £100 D Market £50 £50 £50 Individual Demand Curves and the Market Demand Curve Lewis and Carly are the only two consumers of blue jeans in the market. Panel (a) shows Lewis’s individual demand curve: the number of pair of jeans he will buy per year at any given price. Panel (b) shows Carly’s individual demand curve. Given that Lewis and Carly are the only two consumers, the market demand curve, which shows the quantity of blue jeans demanded by all consumers at any given price, is shown in panel (c). The market demand curve is the horizontal sum of the individual demand curves of all consumers. In this case, at any given price, the quantity demanded by the market is the sum of the quantities demanded by Lewis and Carly. D D Lewis Carly 3 4 2 3 5 6 7 Quantity of blue jeans (Kgs) Quantity of blue jeans (Kgs) Quantity of blue jeans (Kgs)

Relationships between Construction and Property Market DEMAND (Investment/Individual) House Price Speculative Demand No of Household Economic Growth Availability of mortgage Availability of housing Interest Rate SUPPLY (Construction) Supply of Housing New Builds Number of Selling

FACTORS IMPACTING PROPERTY INVESTMENT

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

Macro Economy in Built Environment (Foreign Direct Investment)

Macro measure of Economic Performance Real Wage * Investment Labor Productivity * Trade Balance Real GDP Increase in GST * Decrease in real wage Increase in Consumer Price Index (CPI) Inflation Mismatch of skill with vacancy * Labor Structure change Invasion of foreigners * Recession Unemployment Exchange Rate * Environment Factors Saving Rate * Devaluation in money Current Account Life Expectancy * Environment Factors Happiness Level * Physical Security Well Being Index

Gross Domestic Product (GDP) Definition 1. It includes both private and public consumption, government outlay, investment and exports less imports (Trade Balance) 2. The GDP is the monetary value of all the finished goods and services within a country. Interpretation 1. The GDP is used as an indicator of the economic health of a country as well as a metric of standard of living 2. A better than expected reading should be taken as positive or bullish for the currency 3. A worse than expected reading should be taken as bearish for the currency

Consumer Price Index (CPI) Definition : The Consumer Price Index (CPI) is a measure of the changes in the average price of good and services that consumers normally purchase such as food, clothing, medical and others. CPI is also a measuret that indicates changes in the general price level from the base year to the current year. Note : There is an inverse relationship between the general price level and the value of money. The value of money is the purchasing power of the consumer, or the ability to buy good and services. When the general price level is higher, the value of money will be lower and vice versa.

Learning economics is not just understanding terms and definition. It is about putting the basic theory into everyday life and assist to make Rational Decision versus the Opportunity Costs Looking at practical example : Singapore Overview Property and Construction

Singapore Sectorial Growth last 12 months

Singapore GDP Growth – past 12 months

Singapore GDP Vs Key Economic Growth

Total ASPAC - Construction Market – past 10 years

Correlation between Construction and Property Market in Singapore

So what is your prediction on the Singapore Property construction and residential market from 2019 – 2020 based on the facts presented ?