Answer to Q1

a) i) Developers

Trader developers are usually small, contend to build houses and sell them for profit. Capacity
for land holding costs is small. Merchant developers are more aggressive. As an example, some
build office buildings and rent out the office space for income streams. In bad time, however,
these companies may fold up. Some companies will specialize in a particular type of
development such as offices or retail, and also in particular geographical location. Some property
developers prefer to spread their risk across types and locations and countries.
(2 marks)
ii) Engineers

Structural engineers are employed to work with the architect and quantity surveyor to advise on
the design of the structural elements of the building. Civil engineers will be employed where major
infrastructure works or ground work is required. On large and complex schemes, often mechanical
and electrical engineers are used to design all the services within the building.
(2 marks)
iii) Town Planner

His role includes to negotiate with local planning authorities to obtain the most valuable
permission for a development at plan preparation stage. Advise developers to ensure that the sites
within their ownership that are allocated under the development plan are aligned to their most
appropriate or valuable use. In performing this role the planning consultants can be important
initiators of the development process
(2 marks)
iv) Building contractors

Building contractors are employed by developers to construct the development scheme.

When a builder is merely employed as contractor the financial profit is related to the building cost
and length of contract. Larger contractors with relevant expertise may take on the role of a
management contractor and manage all the various subcontracts for developer in return for a fee.
(2 marks)
v) Architects
Architects are employed by developers to design the appearance and construction of new buildings
or the refurbishment of existing buildings. It is important to employ architects with appropriate
experience, reputation, resources and track record. A developer should ensure the architect has the
right balance of skills to produce not only good architecture, but also a cost effective and workable
design attractive to occupiers.
(2 marks)

b) Initiation
An initiation stage usually starts with the search for a piece of suitable land in a strategic location, good
accessibility and at the right price. A creative developer will have in mind which type of development is
suitable for the land identified given the prevailing economic condition at the time.

Evaluation
The process here begins with an outline design study, development appraisal, feasibility studies to work
out profitability. This is then followed by looking at availability of scheme finance, risk factors, market
research and marketing strategy.

Acquisition
Before acquiring the land, carry out a detail search on the land title to ascertain freehold or leasehold
status of the land, land use, any encumbrances and restrictive covenants. Also carry out a survey of the
land, existing conditions, land size, shape, topography and infrastructural services. Conduct a ground
investigation, surroundings of the land, soil investigation into types of foundation needed and soil
protection. Financial consideration involving availability of fund for46the land payment, bridging loan,
project loan and end finance for house purchasers.

2
 Design and costing
Continuous process in parallel with the various other stages. In a township development, there will be
many phases involved, each phase may have different housing products. Base on the design brief/ initial
planning layout for a township, initial project viability study is produced. The costing gets more detail
when the design become firmer. Design work will be kept to the minimum to keep costs down prior to
developer commitment to the scheme. The plan covered main elevations of the proposed building(s),
together with the outline specification of the building materials and finishes. The quantity surveyor should
be able to make a detailed estimate of the building cost.

Permissions
Typically, if we assume the land is agriculture in status at the point of purchase by a developer from its
landowner, application for conversion of land into housing is required. A detailed application typically
involves the submission to the planning authority of detailed drawings and information on sitting, means
of access, design, external appearance and landscaping. Next, a planner commissioned by the developer
submits a planning layout to the local authority for layout approval (types of design, density allowed, etc).
Next comes the application for building plan approval. The submitting person is an architect appointed
by the developer. Engineers submit to the local authorities for infrastructural drawings approval.
(10 marks)

[Total: 20 marks]
Answer to Q2

a) The 7 principles of good investments are as follows :

1) Stability of - Example : Investor will avoid a country of trouble but will invest in
capital country which provide good investment climate.
2) Regular and - Example : A regular and consistent income will help to improve the
secure income property value.
3) Future income - Example : The current income level may not be a good indicator of
and capital future level. Capital growth is what an investor expected.
growth
4) Liquidity and - Example : Liquidity is the ability to switch to cash in a short time,
marketability property is bad in doing so. Marketability means when an owner
wants to sell his property, can he find a buyer quickly.
5) Managerial - Example : A lot of managerial efforts are needed to manage an office,
problem a commercial building and any strata titled property.
6) Protection - Example : A sudden surge in property price increases the profit of an
against investment, far exceeding the rate of inflation.
inflation
7) About tax - Example : Individuals and companies pay tax when there is a gain in
disposing it. To an individual who pays high income tax does not
mind receiving a low yield but strives for capital gain in the long
haul

(1 mark per point = 7 marks)

b) A rise in the property value may not necessarily see a rise in its yield, particularly in a strategically
located prime shop are explained as follows:

Yield is the net annual income return expressed as a percentage of the market value of the asset.
Whereas, rental is the amount a landlord receives from a tenant in return for a peaceful enjoyment
of the premise.
Hence, yield = 100%
3
 In prime shop, a sudden rise in value of property may not see a rise in the rental due to the existing
tenancy agreement. Hence, a lower yield.
(2 marks per point = 6 marks)

c) Indicative value of the subject apartment

First year
Comparative Sale Price Yield
NOI
Transacted Apartment
(RM) (RM) (%)
A 45,000 400,000 11.250%
B 55,000 350,000 15.714%
C 40,000 350,000 11.429%
D 60,000 450,000 13.333%
(3 marks)

. % . % . % . % . %
Average yield = 12.932%

(2 marks)

$% , ,
Value = &' ( ) *+
= .
= RM 386,651.00

The offered price for apartment E is higher than the indicated value. Therefore it is not advisable for
Datuk John Tan to purchase the property.
(2 marks)

[Total: 20 marks]

Answer to Q 3

a) The economic analysis cycle is illustrated as follows :

Barras’ (1994) model on economic analysis

Demand
level

Property cycle

Q1 Q2 Q3 Q4 Q5 Quarters/ years
Business /
economic
(46,017,655)
cycle

(3 marks)

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b) The economic phases consisting of the 6 stage model are as follows

1)Stage 1- Strengthening demand

Example: Rising rents and capital values trigger the start of the new development cycle upswing.

2) Stage 2- Business cycle upswing

Example: Credit expansion accompanies the business cycle upswing

3) Stage 3- The peak achieved in economy

Example: Business cycle upswing leads to a full blown economic boom.

4) Stage 4- The supply lags in real estate

Example: At this stage, the banks fund a second wave of speculative development activity.

5) Stage 5- When the supply is peak, the business turns weak

Example: The development cycle reaches its peak with the business cycle moving downswing,
accompanied by a tightening of monetary policy to combat the inflationary effects of the economic
boom.

6) Stage 6- Business in recession

Example: As the economy subsides, the demand for property declines; rents and values fall as a result
and the vacancy stock increases in supply. As the economy moves into recession, the fall in rentals
and values continues, property companies are hit by the credit squeeze, bankruptcies increase and the
development cycle is choked off.

(2 marks per point = 12 marks)

c) Microeconomic as a form of economic analysis are as follows :

1) The micro analysis focuses on the local economic activities, such as economically active
population, employment potential, trade, commercial and industrial activities that can give direct
impacts on the proposed project.
2) This analysis focuses on employment, which becomes a proxy for income. As people move into
the area to find employment, they generate demand for housing, retail, office etc.
3) Types of employment available in an area indicate how much income prospective employees will
earn.
4) Job opportunities in the manufacturing and distribution industries create a different type of local
real estate demand than jobs in service industries such as banking, finance, and real estate
consulting.
5) Mega project in Malaysia such as MRT, Bandar Malaysia, TRX, ECRL etc.

(1 mark per point = 5 marks)

[Total: 20 marks]

5
 1 hectare = 10,000 sq m
1 sq m = 10.76387 sq ft

Therefore,
Land area Net Lettable Area (NLA) Gross Floor Area (GFA)
= 1.21405693 x 10,000 x 10.76387 = 27,870.913 sq m x 10.76387 = 37,161.217 sq m x 10.76387
Answer to Q 4 = 130,680 sf = 300,000 sf = 400,000 sf

a) Calculation of Net Development Value (NDV) for the project.

300,000 x RM 4 x 12 NLA x RM 4 psf per month x 12

___________________________
Net Development Value RM 360,000,000
0.04 Yield
(3 marks)

b) Calculation the interest on land cost using compound interest formula.

RM 600 per sq. ft x 130,680 sq. ft x [(1 + 0.08) . .

− 1] RM 46,017,655
41,318,705.25
(3 marks)

c) Cost is borrowed equally over 2 years of construction period. Calculation of the interest
for the following costs from simple interest formula are as follows :

(i) Building construction cost

Building Construction Cost
= 400,000 sf x RM280 psf
[ 2 years / 2 ] x [400,000 sq. ft x RM 280 per sq. ft] x [0.08] RM 8,960,000 = RM112,000,000
(2 marks)
External Infra Works
= RM 3,000,000 (given)
(ii) Professional fees
Total Construction Cost
920,000 = Building Cost + External Infra Works
[ 2 years / 2 ] x [RM 115
102,000,000 x 10%] x [0.08] RM 816,000 = RM112,000,000 + RM3,000,000
= RM115,000,000
(2 marks)
(iii) External infra works

[ 2 years / 2 ] x RM 3,000,000 x [ 0.08] RM 240,000

(2 marks)

d) Calculation of the developer’s profit IS as follows

RM RM
Net Development Value 360,000,000

Development cost
Building construction cost (112,000,000) (400,000sf x RM 280 psf)
Land cost (78,408,000) (130,680sf x RM600 psf)
External works (3,000,000) (given)
Professional fees 11,5
(10,200,000) 10% x [Building Construction Cost + External Works]

Finance cost
Building (8,960,000)
Land (46,017,655)
(41,318,705.25)
Professional fees (920,
816,000)
External works (240,000)

6
 Total development cost (259,641,655)
RM261,045,655
( 254,942,705.25)
Developer’s profit 100,358,345
RM98,954,345
105,057,294.75

Developer’s profit (%) (Developer's Profit / Total Development Cost)41.21%

x 100% 38.65%
37.91%

(8marks)
[Total: 20 marks]

SECTION B: Answer only one question

Answer to Q5

a)

(3 marks)

DD and SS are the respective demand and supply curves. At the point of their intersection, P is the
equilibrium price and Q is the quantity demanded. When there is an increase in demand, represented by
D1D1 curve, price increases to P1. An increase in price will attract an increase in supply to S1S1 curve.
Thus, bringing down the equilibrium price back to P.
(3 marks)

b) The SEVEN (7) steps of market analysis process which are procedure related to demand and supply
of property development.

1) Property productivity analysis

The question here is to identify which features of the proposed property development that affects the
productive capabilities and the potential use of land. The attributes can be physical, legal, or
locational. Whichever one is your choice, from here you take it as your basis of comparison with other
properties. Example : Building design and construction materials, signage, parking, lot and building
lines, floor size, building management and tenant mix.

2) Market Delineation