Real Estate Investor Magazine South Africa August 2013 | Page 47

COMMERCIAL Micro And Macro Economic Factors Affecting The Property Market Figure 1 Maritz's Steps In The Investment Process a) Figure 2 Analysis of the needs, requirements, objectives and resources of the investor UNCONTROLABLE FACTORS World Economic situation National Economic factors National socio-political factors b) c) Property type Property & quality location CONTROLABLE FACTORS Price, Rent & Costs Timing & Promotions Government legislation Legal factors Physical inspection of a selected property, or selected properties different angles: an idea in search of a site (as per “figure 3”) and a site in search of an idea (as per “figure 4”). In this stage you formulate your objectives and prepare a feasibility study. Use Known / Site To Be Determined Market Analysis d) e) 18,8 percent in the United States of America, whereas in 1981, the average vacancy rate was 4,8 percent. In isolated cases new office complexes had individual vacancy rates of between 50 and 100 percent. Investors and financiers would do well to heed the warning signs and do their homework properly with respect to market analysis. “Figure 2” is a diagrammatic representation by Maritz (1983, p. 288) of the steps in the investment process. A rational approach to investment analysis Of utmost importance to all investors in this process is that the investor is faced with an array of alternatives that differ according to amount, timing and certainty of receipt and therefore, the determination of relative values of investment alternatives also differs. Approaches of investors to investment a na ly sis va r y f rom being caut ious a nd analytical, to seat of the pants / gut feeling g) Decision-making t ype management decisions. The market study is perhaps the most important single element in the planning process, which is often neglected and is also the most difficult element to conduct, and the one element which should be dealt with most thoroughly, si nce prop er t y de v elopment s mu st b e market driven. Therefore, what is required is a rational approach to investment analysis incorporating a series of steps for the gathering of information, the analysis of the information and the taking of a decision on the basis of this analysis. The result is that the characteristics of an investment property are considered objectively and related directly to an investor’s needs. The first step in the development process is an initial plan. Think of the 5 P’s of planning: property planning prevents poor performance; a well thought out plan will give you a solid basis from which to work. The initial planning stage will be initiated by an idea that the developer has on how to make money and can take on two Site selection within sector Quantify demand / supply within a trade area f) Town Planning & local building legislation Identify (delineate) Demand sector Estimate capture penetration Establish a trade area Estimate absorption Marketability Financial feasability after tax Use Known / Site To Be Determined Market Analysis Quanitity demand / supply in trade area & alternative uses Marketability capture / penetration absorption Figure 3 Site study / (physical feasability) Trade area analysis (alternative uses) Financial feasability after tax Figure 4 Preliminary highest & best use study Examination of alternative uses Highest and best use analysis You have now completed the first phase of your development, in the next edition we will cover the next step in the development process, looking at the objectives. RESOURCES Tony Collins www.re imag.co.za August 2013 SA Real Estate Investor 45