1. Property Management Economics and Planning
Topic 3
Abdul Jalil Omar

2. Key words Business cycle Comparables
Comparative incomes and expense analysis
Economic oversupply
Five year forecast
Gross rental Income
Management plan
Market analysis
Neighbourhood analysis
Operating budget
Operating Costs
Optimum rental
Property analysis
Regional analysis
Reserve fund

3. Key topics General Business Economy The Real Estate Economy
The Management Plan
Market Analysis
Property Analysis
Analysis of Owner’s Objectives
Preparation of the Management Plan

4. Business cycle

5. Expansion Production increase Full employment level
Wages and consumer purchasing climb
Demand for goods increases
Price increase of greater demand
Credit ease, more money available for purchasing
Profit increase
Capital expansion

6. Business cycle (cont.) Recession
Supply begins to surpass the demands for product and services
Peak of the cycle
How to know the demand surpass the demands?

7. Contraction Less demand for products and services
Fewer product are made
Decrease of productions
Unemployment and retrenchment
Consumer spend less
Price are lowered to attract buyers
Essential economy (food, wear, lives) still continue.
Video – Detroit USA – Dangerous City

8. Revival When consumer venture back to market
Excess of goods have been exhausted
Major purchases (government and private)

9. Real Estate Economy Question Economy drive the real estate market; or
The real estate drive the economy?

10. Factors affecting value of RE
General business cycle
Up business means people are having more money to buy property and spending power.
Affordability
Interest rate
Population trends
Movement, age, culture etc
Government policies - Taxation

11. Class Activity
Page 46
Pair activity – 30 minutes

12. Market Analysis Regional and neighbourhood analysis;
Property analysis; and
Owner’s objectives.

13. Regional and Neighbourhood Analysis
Look for demographic and economic condition in the region and surrounded area.
Population statistics and trends
Major employers in the area
Average incomes and employment data
Transportation facilities
Supply and demand trends
Economic activities in the area
Future economic prospect.

14. Neighbourhood Market Analysis
Normally, property management is carried locally.
Neighbourhood factors should be considered:
Boundaries and land usage
Transportation and utilities
Economy
Supply and demand
Neighbourhood amenities and facilities.

15. Property Analysis
Involves with the nature and condition of the property through building inspection
Elements need to look for:
Leases
Quantity and quality of space
Physical condition of the property
Exterior
Interior
Equipment
Health and safety hazards
Evaluating comparables
Operating costs (cont.)

16. Property Analysis (cont.)
Operating costs
Salaries of the building staff
Cost of utilities not charged to tenants
Contract services – elevator, landscape maintenance, rubbish removal and security guards
Supplies and equipment
Advertising and management expenses

17. Analysis of owner’s objectives
The management plan cannot be completed until the manager has identified and analysed the owner’s goals.
Corporate and institutional objectives
Profits (REITs)
Own use (corporate companies)
Minimise expenditures (residential condominium)
Care and maintain the value (trustee)
Government objectives
Preserving the value without seek for high rental income

18. Individual owner’s objectives (cont.)
Profit or cash flow from investment
Normally, short range planning
Highlight the importance of establishing reserve and appropriate maintenance schedule
PM need to have enough info from owner in order to draft management plan, especially about:
Annual real estate taxes
Cost of debt services
Insurance premiums/policies etc

19. The management plan Financial Planning reports Information required:
Operating budget
Five year forecast
Comparative income and expenses analysis
Information required:
Optimum rents
Gross annual rental income
Adjusted income for market anticipation (vacancy rate included)
Yearly operating costs
Reserve fund
Anticipated revenue
Cash flow as based on owner’s objective

23. Presenting the plan
Submit proposal with suggestion for improvement. Then, the owner will decide what to do such as:
Authorize all the repairs to increase long term income and reduce taxes
Only important maintenance should be performed
Make no change at all (no capital expenditure involves)

24. Summary Economy moves in cycle that will drag real estate as well
Understanding of real estate market help the property manager to prepare action to be taken
Proposal for property management should consider several important elements such as market analysis, neighbourhood analysis and property analysis.
Owner’s objective that will decide the next step in achieving property management goals.