Economic questions

1. what (Output)

-good

-services

2. How (Input)- the factor of production

-land-rent

=natural resources

-labour-wages

=human resources

-capital-interest

=equipment resources

=tool, plant, machinery

-entrepreneurship-profit

=organization human resources, developer

3. for whom

-self interest

=make choices for ourselves

-social interest

=make choices for society

- efficiency= fully utilize the resources, limited the waste

-equity= benefit to the person who really need, low-cost house for B40
Property Market, land rent two component (economic rent and transfer earning)

Land supply is perfectly inelastic. The land supply is fixed. Because the land only use in one use such
as farming. Thus, there is no have opportunity cost, there is only have economic rent (area) as
shown as Figure 1

However, the land supply for particular use will not be fixed. There is because the land can be
surrender and change to another more profitable use. Land now has alternative use, the supply
curve will no longer perfectly inelastic. It is no upward sloping to inelastic as shown as Figure 2

In such situation, the land component

Economic rent (area): the surplus profit earned by land (factor of production)

Transfer earning/ opportunity cost (area): the minimum payment to retain land in its current usage
to prevent change of land use

Economic rent and transfer earning in CC and sub-urban

Elasticity of supply – how sensitive of QTY supply to PRICE change when the demand increases.

In City center, the price change is large as compared to quantity of land

Land supply in CC is Inelastic - QTY supply not sensitive to price change, due to the scarcity of land in
CC. There is a sequential increase in economic rent. The more inelastic, the higher economic rent

In sub-urban, the quantity supply responsive, qty supply increases a lot as compared to the
rent/price.

Land supply in sub-urban is elastic – QTY supply sensitive to price change – due to there is plenty of
land supply in sub-urban. There is a substantial increase in transfer earning. The more elastic, the
higher of transfer earning
Based on the figure 1, the s present the short run supply curve in inelastic, while the s2 present long
run supply curve in elastic, because the increase of rent improves the profitability of property
development. The r2 present the equilibrium point of rent.

In theory, the rental will be decreased when the supply increase. However, in reality we don’t expect
the price will decrease. Because of the price of stickiness. Durable-accumulate over time, the
secondary market is bigger than primary market. The fraction of primary and secondary can be 1:99.

Primary market is purchase directly from the developer, while the secondary market is purchase
from the primary buyer. New supply has negligible effect on the total property supply. The new
supply unable to affect the property price

Besides the property is take long lead-in period and unpredictable. Because the time-lag which
property supply cannot catch up immediately to the demand

Conclusion

The more the land supply in inelastic, the more effect on the price and economic rent

The more the land supply in elastic, the more effect on the quantity supply and transfer earning
more profitable use would have a higher MRP

Profitable – use the land more intensive, build higher, build more floor. If the land expensive, large
amount of building need to generate higher revenue(MRP) to pay for the land cost

Economic of scale, cost saving when increase the production

Principle of Diminishing of return, a point when you adding input such as labour and material, the
output start decrease

MC – marginal cost – additional cost spent when add one additional unit of capital (floor space)

MRP – marginal revenue product – additional revenue received when add one additional unit of
capital (floor space)

Y is the profit maximum, when MRP equal with MC

surplus profit-PQY, Total revenue-OQYX Total cost PYXO

assumption made for link rent and cost which is assume whether surplus profit received by the
developer will paid all to the land owner for the land cost

the graph bigger is because the land in CC is scarcity, therefore the developer need to
increase the land use intensity to increase the revenue and cover the land cost, and get the
optimum point

the graph smaller is because plenty land in sub- urban area, therefore the cost will not high
than CC, and more easy to get the optimum point
B- building value, which will depreciate over time, if no maintain properly, the depreciation process
will more fast

S- capital value. Assume there is no change in supply and demand, the construction cost is remained

L-the time should or can be redevelopment

S increase because, improvement of infrastructure

B increase because, maintenance well and refurbishment

Factor affecting the timing of redevelopment

Landowner’s inertia

-memory, emotional

Tenure

-freehold=depend by ownership

-leasehold=need to wait

Statutory rights

-the land belong by government = solution invite government as one of the stakeholder

Fragmentation of ownership

=one land owned by a few person

Depreciation of property

-the owner no protect or maintain properly

Property

Capital growth= yes

Income growth= yes, rent

Capital risk = moderate property price will not fall too much in reality

Income risk = moderate, depend on the tenant, no pay destroys, void period

Initial investment =high

Tax =highest when dispose or sell need pay real property gain tax (RPGT)

Convenience amount of management =moderate, depend on tenant, if bad need monitor

Illiquidity, difficult transfer to cash, need strong holding power

Suitable investment

Share

Capital growth = yes

Income growth= yes, dividend if company good

Capital risk = high, may depreciate, because share market is volatile

Income risk = high, no fixed dividend, if company no good

Initial investment = low

Tax = low

Convenience amount of management = high, market volatile, constantly change and need monitor

Paper investment and have liquid transaction period

Fix Deposit

Capital growth= no

Income growth = yes, interest

Capital risk = low, low chance bankrupt

Income risk = low

Initial investment= middle maybank rm1000 2.6-2.90%

Tax = low, tax exemption

Convenience amount of management = lowest

Middle liquidity
Gold

Capital growth = yes

Income growth = no

Capital risk = low, may lost or stolen

Income risk = low

Initial investment = middle

Tax = low GST

Convenience amount of management= low

Bond

Capital growth= no

Income growth = yes, coupon rates

Capital risk = low, bondholder take precedent as compared to shareholder, initial investment will
return

Income risk= low, the return coupon rate is fix regardless the market performance

Initial investment = high, long-term investment 10 years, MYR 250,000

Tax = low

Convenience amount of management = low

1. Direct -owner, investor, developers
Ad:
- Full ownership- decision making, rights, power
- Return – high capital and income growth
- Able to borrow money

DisAd:
-Risk -high capital and income risk
-illiquid
-High initial and management cost
-long term investment
-indivisible – cannot buy or sell part by part
-high amount of management

2. Indirect- Purchase
i) property share
ii) REIT, property unit trust

Ad:
-REIT- low risk
-Share- high return
-liquid
-low initial and management cost
-short term investment
- Divisible investment -buy and sell part by part
-REIT-low amount of management

DisAd;
-partial ownership-limited decision, making and right
-share high risk
-REIT low return
-share high amount management
-unable to borrow money
 Fiscal policy
Expansionary policy Regulated by ministry of
finance through change of tax
When and government spending
Recession
Inflation low Reduce tax. Tax exemption,
GDP low covid, automobiles personal
Unemployment rate high tax relief
Increase government
spending, economic recovery
plan, wage subsidiary
programme, tng
Purpose stimulate economic,
push up the GDP
Contractionary policy Increase tax, reduce the
government spending
Monetary policy
Regulated by central bank
bank negara Malaysia through
change in interest rate and
money supply
Reduce the interest rate,
reduce the OPR to 1.75
Increase the money supply,
reduce the requirement, try to
lend more money to people
Purpose encourage spending
Increase interest rate OPR to
3% and reduce the money
supply
News

Land distance strategic

UEM sunrise unit buys dutch lady’s PJ factory land because the government decide redevelop PJ into
commercial hub

Redeveloping

The plaza OUG have been demolished to two high rise building with a shopping mall and a basement
of car park. Because no longer attractive. Most tenant are moving out

RPGT exemption for property disposals is expected to increase the activity in secondary market in
jan 2022

People move away from kl city centre because, traffic jam and easier accessibility between home
and workplace. Also cheaper rent. Developer more prefer sub-urban, land scarcity cost high.