2: Land-buyer, Location, Use, Economic characteristics

Question 1

Define land with regards to its relationship with real estate!

Answer 1

Land is a natural resource upon which real estate decisions come to bear

Question 2

What creates a parcel of land? Mention the 4 constraints. (Together with the first attribute, the 5 are to be collected for developer’s research of feasibility!)

Answer 2

A parcel of land is created by PHYSICAL land ATTRIBUTES constrained by:

• LEGAL-POLITICAL: Incl. statutory planning
• LINKAGE-LOCATION: tie the site to systems (sewerage) and demand-generating peripheral activities, establishments
• DYNAMIC ATTRIBUTES in the eye of beholder (current and future site perceptions - favorable, unfavorable exposures)
• ENVIRONMENTAL system

Question 3

Mention 3 things an individual space user are concerned about when choosing a parcel of land, how to achieve them, and the implication for a property developer!

Answer 3

• Satisfaction and security (matched with) financial resources.
• To achieve: requiring particular attributes and compromises (location-space-op/purchase cost) in choosing a location.
• Implication: Locational value depends on the space user, not on the land. It fluctuates with user’s perception of convenience

Question 4

Mention the 3 basic elements of location and locational value. Provide brief explanation or examples!

Answer 4

• Convenience of moving persons/goods (movement is desirable/essential)
• Dynamic attributes: Favorable (prestige) and unfavorable (disturbance) exposures

Question 5

Explain the importance of convenience (2), and how it is related to establishment (3), linkage (3-3), & cost of friction (1). Explain the best-fit condition.

Answer 5

• Convenience is IMPORTANT to save time, cost, effort in movements along linkages – as communities tend to drift towards locations (e.g. CBD)
• Since describing a parcel of land geographically is of little economic significance, ESTABLISHMENT is a way to describe a unit of land as: recognizable places of specific uses involving users and a (unique) packet of functions – thus, an establishment’s optimum location requires: balancing locational influences of various (unique) preferences
• LINKAGE is the significance in the relationships among establishments – which have specialized functions – and results in the movements of persons & goods. Most are systematic behavioral patterns – requiring understanding of establishment – basis of marketing
• COST OF FRICTION is the cost of movements caused by linkages. When minimized = BEST FIT (the affordable best-suited establishment)

Question 6

Explain the meaning of the statement, “No single location is best for all functions”

Answer 6

Establishment is a packet of functions, with each function probably best served in a different location

Question 7

Define and explain the 2 types of dynamic attributes!

Answer 7

• Favorable exposure: Benefits affecting the location with no person/goods movement involved (prestige, aesthetic) – protected (distance/ physical barrier) from unfavorable exposure
• Unfavourable exposure: Undesirable physical conditions (noise, smoke, odours

Question 8

Mention 3 limitations on the locational choice!

Answer 8

• No space available
• Rent/price too high
• Zoning (planning) / covenant (legal) restrictions preclude intended uses

Question 9

Explain the dynamics of location and mention 3 possible future changes!

Answer 9

• The factors that affect location changes, thus their probable future changes must be taken into account
• Changes in linked and non-linked (odors) establishment, movement channels (traffic, PT)

Question 10

Define and explain the concept of most probable use as developer’s marketplace-focused feasibility!

Answer 10

DEFINITION: Alternative course of action closest to being most fitting use, while recognising strong constraints (political-legal, RE technology, short-term solvency pressures on 3 parties of RE development)

• Feasibility, research on 5 attributes (PLLDE)
• Land and the larger system: public infrastructure, community at large, marketplace constraints
• Risk/uncertainty recognition – “likelihood” definition – sensitivity analysis/what-if (instead of highest and best use-inappropriate-only developer’s profit motive)

Question 11

Mention 5 economic characteristics of land!

Answer 11

Immobility, large economic units, durability, scarcity, land by itself is not productive

Question 12

Mention and explain 4 implications of immobility as an economic characteristic of land!

Answer 12

Key points: Geographically limited market (thin trading), income from fixed location, inhomogeneity, residual value

Question 13

Explain what it means by “large economic units as an economic characteristic of land” and what has been developed with its regard!

Answer 13

Involving large amount of money, financial techniques to participate in the property market

Question 14

Regarding durability as an economic characteristic of land, define indestructible and explain its 6 implications!

Answer 14

Key points: Insurance value, investment, space time concept, obsolescence, economic/market environment, and institutional factors

Question 15

Explain scarcity as an economic characteristic of land, its implication to land supply-demand equilibrium (explain its 6 reasons) and extensive margin!

Answer 15

• Key points: finite extent and locational requirement
• Key points: Rare, demand more important for short-term price, because (1) supply cannot respond quickly, (2) net annual addition in building stock is proportionately small relative to existing stock, (3) long construction and town planning time, (4) durable and expensive improvement for new uses, (5) fixed location, (6) restricted market
• Key point: Cost = benefit despite abundant less supply, competition, price

Question 16

Explain what it means by “land by itself is unproductive” as an economic characteristic of land. Include its relationship with productive factors and linkages!

Answer 16

• To be productive, combined with:
• Productive factors. Key point: Labor, capital, management, entrepreneurship) for most profitable/probable use, move for rewards, reward-residual
• Linkages = surrounds of land comprise a balanced array of land uses, enjoyment = provision of land-based facilities = (locational value)

Question 17

In the context of real estate development, explain the 3 steps that can be taken in controlling assumptions (risk analysis & management) and explain marketing concept (mention the ideal marketing role, research, uniqueness, competitive edge)

Answer 17

Controlling assumptions:

• Once locked into a location, investigate the assumptions that developer has some control (of risks) AND ensure provision for conditions where there is no control (of uncertainties)
• Realistically define what one does not know (Warren Buffet)
• Risk management: control of identifiable risks, problem solving, primary objective of market research-contract-strategic positioning

Marketing:

• Serves both consumer (inform) and developer (de-risking, uniqueness/positioning/differentiation – from uncertainty of competitive pricing – avoid price cutting)
• Ideally: create unique product for consumer needs, reduce customers’ other costs of friction to the point they will pay full price
• RESEARCH (demographic, market analysis, marketability, sales/pricing) -> UNIQUENESS -> COMPETITIVE EDGE (true unmet demand), by finding methods to (1) enhance user self-esteem, (2) reduce cost of friction/increase convenience, (3) reduce anxiety/increase personal security, (4) reduce cost of inefficient space – thru thoughtful design, specification – at a price consumer thinks affordable

Question 18

the Reading, “Miles, Eppli, Kummerow – The Graaskamp Legacy”, the authors state that Graaskamp recognised that in a world of change and uncertainty, what is more important than merely pricing assets is:

Answer 18

Determining a course of action

Question 19

In the Reading, “Miles, Eppli, Kummerow – The Graaskamp Legacy”, the authors state that those who (are) investing in a property development opportunity based on the findings of a feasibility study are:

Answer 19

Buying into a set of assumptions about the future productivity of the development.

By explicitly tests assumption against context of specific constraints and limited resources, feasibility is more likely to be an accurate reflection of what should the project proceed.

Question 20

In the Reading “Miles, Eppli, Kummerow – The Graaskamp Legacy”, the authors state that explicit risk is most frequently managed through? Mention 4 steps of risk management!

Answer 20

Contractual agreements.

• Identify significant exposure to loss (severity, frequency)
• Identify of alternative control procedures
• Select appropriate risk management technique
• Implement appropriate procedures

Question 21

In the Reading, “Miles, Eppli, Kummerow – The Graaskamp Legacy”, the authors state that Graaskamp was of the view that the primary means of managing implicit risk was through:

Answer 21

Market research; “real estate value is little more than a set of assumptions about the future”