Method of Property Market Research

Situational Analysis

• The researchers try to get a feel for the situation surrounding the property to be invested. 
• The analyze the competitors, potential investkment opportunities, the property makret and the industry in general 
• The situation analysis is background investigation that helps refine the research problem. 
• This steps involves obtaining information about the investment and its business environment. 

Survey Method 

• A survey consists of gathering data by interviewing people. Survey can be conducted in person, by telephone by mail or bia the internet. 
• Advantage of survey is that information comes directly from the people you are interest in 

Limitation : 

- There are opportunities for error in the construction of survey questionnaire and in the interviewing proces. 

- survey can be expensive and time consuming

- Desired respondents sometimes refuse to particupate, and those who do responed often cannot or will not five true answer. 

Face to Face Interview 

- More flexible because interviewwers can probe more deeply if an snwer is incomplete. 

- More information can be obtained by personal interviews than by other survey method. 

- Have the advantage of being able to use various stimuli such as packages and ads. 

- Rising cost and time consuming associated with door to door interviewing have prompted many makret researchers to conduct surveys in locations that attract large number of people, such as shopping mall, airports etc. 

Limitation: 

- Personal interviews also face the possible limitation of interviewer bias. An interview's appearance, style in asking questions and body language can all influence a respondent's answer. 

Mail Survey 

- A mail survey involves sending a questionnaire to potential investors, asking them to complete it, and having them return it 

- Email is growing in popularity as a distribution method because this type of survey is not hampered by interviewer bias or problems cannoected with managing a team of interviewers. 

- Further, in the absent of interviewer, the respondent can remain anonymous. As a result, answers are more likley to be frank and honest. 

- An internet survey can be done more quickly than any other method, and because all transmissions are electronic, there are significant personnel and material saving. 

Limitation: 

- A major problem is the complication of an appropriate mailing list. However, there are business called list brokers that develop and maintain mailing lists. 

- Another problem is the reliability of the information in the completed questionnaires. Researches have no control over who actually completes the questionnaire or how carefully it is done. 

- Mail survey usually gets a low rspone rate. Techniques for improving mail respone rates include pre-notification by phone, offering a reward, duplicate mailings, postcard reminders and keeping the survey short and the question simple. 

Characteristic of Property Investment 

Heterogeneity & Fixed Location 

• All ordinary shares in a company are identical and all bonds of a particular issue are identical. In contrast properties are heterogeneous, that is each property is unique. They vary by location, use, size of plot, size of a building, age, construction, maintenance and tenant. 
• The greater importance of location in property investments stems from their immobility. Factors external to the property, such as access to infrastructure and quality of the area, fundamentally affects its value. 
• The importance of location varies by use, it is crucial for retail units and values can vary substantially from one end of a shopping street to another, depending on pedestrian flows, but is much less important for offices in the same office park or industrial units on the same industrial estate. 

Unit Value 

• The unit value of a property holding is very much larger than in other markets: a few hundred rignttiw ill buy a share, but even the sammless investment in propery will cost multiple ten thousand of ringgit.
• It is therefore impossible for small investors to enter to the markiet and difficult for even a significant investors to construct diversified property portfolios. 
• In effect, it means that smaller investors should not invest direct property but should hold units in a indirect vehicles. 

Borrowing 

• One important consequence of high unit value of the property is that borrowing is important. 
• This is particularly true of property development which is undertaken using short-term finance. 
• It is true of direct investment as the investors may options for commercial mortgages. 

High Transaction Cost 

• Private market real estate has high purchases cost and sale costs
• On purchases, there are real estate agent related commisision, lawyers feel, engineers fees and many other costs that can raise the effective purchase price well beyond the price the seller will actually receive. 
• On sales, a substantial brokerage fees is usually required for the property to be property exposed to the market. 
• Because of the high cost of"trading" real estate, longer holding periods are common and speculative trading is rarer than for stocks. 

The Long Term Nature of the Holding

• Land is generally indestructible and building have a long economic life, expectancy, so it is seen as a long term investment. 
• It is a real estate with long term returns linked to economy 
• However, more active property portfolio management has led to more frequent trading. Thus, individual properties may be brought and sold to generate short-term performance ( net of transaction costs) in a competitive fund management market. 

Management 

• Ownership of a bond can be regarded as a passive form of investment, that is no management input is required beyond the decisions to buy and sell.
• Ownership of share is also typically passive investment . ALthough it carries with it voiting rights, these are unlikely to be influential unless the percentage holding in the company is significant.
• Investment in property rerquired advice not only on buying and selling, as it is for all form of investment, but also on day to day management because the owner has significant management obligations. These include maintenance, rent collection, rent reviews and lease negotiations. 

The Development Cycle & Supply 

• One of the example of management opprotunities is the creation of new property investment. However, it is lengthy and often riskly process which requires land acquisition, financing, planning permission, a lenghy construction period and a search for tenants. 
• It is therefore difficult to increase supply quickly to meet new demand, which itself is difficult to forecast. This creates addtional risks. 
• Typically, increased demand triggers development activity but by the time the new development is ready, demand may have begun to fall back. 

Depreciation 

• Depreciation comprises two parts: 

- Deterioration over time as a result of wear and tear and the ffects of elements which results in a decline in the income earning capactiy of an investment. 

- Obsolescene which is related changes in building technology and the functional requirements of property occupiers. 

Government Interventions 

• The fixed nature of property, its relationship with neighborhood and environment quality, its importance in economic enterprises and the quality of life of households have all lead to substantial government intervention in the property market. 
• Example include planning and environment controls, building regulations, development incentives etc, which add to the management obligations. 

Price Determination 

• Price in the property market is not determined by the interaction of many sellers and many buyers, such as a share in a company. 
• There is limited information available on transactrion prices as there is no single trading, no central price listing for property, and the volume of transaction is relatively low. 
• Heterogeneity also means that information on transaction does not provide an exact proxy for the likely selling price of another property. 

Lliquididy 

• Property is an illquid investment, and buying and selling. 
• It is costly  and time consuming 
• There are number of illuqidity , including 

- The larger unit size

The uniqueness of each individual property 

- The complexities of the legal interest 

- The need for physical surveys 

- The absence of a single trading market to match buyers and sellers 

- The difficulty of agreeing the price 

Underlying Tenant Quality 

• WHen assessing an income producing property, an important consideration is the quality of underlying tenancy. 
• This is important because when you purchases the property, you are buying two thing:

- Physical real estate

- Income stream from the tenants 

• If the tenants are likely to default on their montly obligation, the risk of the investment is greater. 

Comparison Between Reits Against Property Stock 

• Most REIT are equity, infinity life and open-ended. The management of the REITs usually have sustantial equity positions in the company. Property management is either done internally or by management. Property investments are focused by property type and geographic market. 
• Unlike unit trust products that are sold via bank or agents, REITs , like the shares of the listed companies, are traded in stock market, allowing investors to lock in capital gains via changes in the prices of the securities. A REIT is a liquid proxuy to physical assest 
• In view of  less competitive tax structures, Malaysian property trusts are not allowed to park their money in real estate development project 
• As a results, MREIT are not able to equity-account profits from property projects or gain cheaper entry into these properties to maximize returns. 
• MREITs can only borrow up 50% of their asset value which has limit of the local REITs compare to those in Japan, Hong Kong where there are not subject to gearing limitation. Foreign REITs have been able to expend their asset base via acquisition at a faster pace than Malaysian entitles 
• MREITs is primarily a Malaysian tool. Malaysia make 98% of the investors in MREITs as existing policies are tailored to the long term intention of the lawkers to gradually establish these property trust funds. 
• The combined effects of a strengthening ringgit and rising inflation are pushing Malaysian real estate investment trusts (MREITs) to trade higher and closer to their net asset values (NAV) 
• A company's NAC or book value indicates the total worth of the company's assets that shareholders would receive should the business be liquidated. Comparing a company share price to its NAC will tell whether a stock is under or overpriced. 
• A firmer ringgit would encourage foreign investors to acquire local asset such as REITs, deemed a hedge against rissing inflation. 
• Anticipation that the ringgit will strengthen will spur overseas investors to acquire local assets, such as stocks and real estates. This, essetially, translates into double gains for foreign investors when they sell their asset as they will be able to reap both the currency exchange gains, and capital appreciation of their asses. 
• REITs are typically view as unexciting; given that capital gains are very gradual, usually tracking the appreciation in the underlying value of its property assets. Still, most REITs have steady income streams and high distribtuion  rates- usually in excess of 90% of annual net income- that translate to dependable, higher than maker average yiedls. 
• The high yiedls and defensive characteristic make them an attractive investment alternative to the more risk-averse investors. THis is particulary true in items when the equity market is volatile and the outlook unclear. 

Property Stock 

Advantage 

• Property stocks do not exhibits the disadvantages of direct property investments 
• The size of the investments at the equity market is smaller, compared to the physical prperty, as they are now traded in quantum of 100 units, he said, adding that this trading pattern allows investors to pay less than RM 500 even for the most expensive property stock on BUrsa Malaysia. 
• THere are more liquid investment, which means that the time taken to make trades is far shorter than in the direct market. 
• Good levels of within property portfolio diversification can be achieved by buying shares of a few property companies or even just a company provided that its assets are well diversified. 
• Since the shares are publicly traded, the share price is know at any time, which is not the case with case with direct property investments. 

Disadvantage 

• Property stock do not exhibits the disadvantage of direct property investments
• The size of the investment at the equity market is smaller, compaed to the phsyical property, as they are now trade 

- There is no full transparency as property companies are taxed on their profits. This is major disadvantages for tax exempt investors such as pension funds who cannot claim back corporation tax. 

- There is often a lack management control and the shareholders may find it difficult to obtain full information on the property assets and the development schemes of the company 

Factor affecting property Investment 

Location 

• Ample accessibility is the factor for value creation of a property development. 
• A development project is located in a good location will be the centre of gravity because of its infrastructure development and accessiility to the other areas. It will remain focus and it's difficult to image a downside for the properties 
• Excellent, road networks, with easy accessibility, good public transport facility will get a major boost and benefit to the whole development. 

Timing 

• The real estate market worldwide have started to correct themselves since the recession, with bargain thrown in. In Malaysia, with commodity prices inching upwards, there are visible sign that people are buying properties again. 
• In addition, particularly in Malaysia, with the innovative and reasonable low financing interest rates and the magnitude of good deals offered by the developers, it may present a good timing for property investment. 
• Further, in anticipation with the economy to improve, a reasonable priced property may do well when the economy improves. 

Branding 

• Property investors are advised to go for quality products in which case to look at the profile of the developer. In time of crisis, the weaker developer may close down and this may lead to long term problems. 
• A good branding such as Sunway, setia etc will invetitably boost investors confidence and make it easy to identify as to the quality of the end products. Its delivery during the financial crises etc. 
• Brands also help assure the investor that they will get consistent quality when they aim to repurchase others properties from the same developer. FUrther, branding reduces prices comparisons and the likehood of purchase decision that are based solely on price. 

Population & Demand 

• In Klang Valley, or the Kuala Lumpur conurbation, not only have a good location, but couple with the fact that it is a young city of 5.5million people and a growth rate of 4.8% per annum, create a lot of potential in terms of property investment. 

Types of property 

• Due to limited supply of landed properties and the scarcity of land in strategic location, such properties will continue to be resillent during the recession. 
• To However, for investors looking to buy landed properties , it is still advisable to focus on properties located on the strategic location. 

Rental Income 

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