Real Property Market - Assignment Example

Real Property Market The real property market fosters economic growth and long-term development and fosters environmental development in an urban and local setting. Landowners have been willing to work closely with local, state, and Federal officials to plan projects in a way that preserves large amounts of valuable contiguous habitat. This example of leadership from the real estate industry involved an economic benefit which is the ability of communities and landowners to engage in long-term planning for economic development. (Rising, 2001) The real estate companies advanced an environmental objective advocated by the Environmental Defense which meant a broader ecosystem-wide planning for use of private land. The Centerpoint Properties in the Chicago area and AIG Global Red Estate Investment in New York was involved in an Atlanta development wherein a century-old steel mill covering more than 130 acres of prime downtown property was converted to mixed-use consisting of retail, office, and residential development. The US Environmental Protection Agency (EPA) has designated the project for its excellence in leadership program since it encourages pedestrian traffic to and from the various uses, and its proximity to mass transit will limit traffic congestion. (Rising, 2001) The third contribution of the real estate industry is its promotion of energy conservation. Residential and commercial buildings account for more than one-third of total U.S. energy consumption. Working with the Environmental Protection Agency and the US Department of Energy, these leaders developed a program that recognizes commercial buildings which meet strict energy and environmental criteria that place them in the top 25% of all comparable buildings. The first 100 buildings to earn the Federal government's Energy Star rating were awarded in 2000. The Federal Energy Star Building Label program has been successful. The program served as an incentive for companies to build or renovate as many Energy Star buildings as possible. Arden and Equity Office Properties have in their respective portfolios more than half the buildings that have earned Federal Energy Stars nationwide. By making energy-efficiency investments in their buildings, these and other companies have experienced important energy savings that accrue to their tenants and make the overall buildings more valuable. The environmental advantages of building multi-unit residences lie in the opportunities to share spaces and functions. This form of sharing reduces one's footprint because it reduces one's overall consumption. For example, every family need not have its own exercise and laundry facilities. (Paehlke, 2004) Another benefit is the social advantages of living in a community with spaces and things in common. Great architectural design which respects that yearning for privacy is also capable of bringing community residents together in shared gardens and playgrounds. (Ratcliffe, 2001) Real estate developers focus on location as it has an impact on price, profit and value. Proximity to employment, schools, shopping and entertainment are important. Hence, the more people that live in proximity to essential services, the more compact and vital the city, and the greater the opportunity for sustainable behaviour such as public transit use. (Ball, et.al., 1998) When proximity is high, more people are can use the transit, walk and cycle. Jeffrey Kenworthy and Peter Newman (1998) showed that there is a direct and consistent correlation between the compactness of cities and the proportion of people deciding to use public transit. The European cities such as Paris, Munich and London which have overall employment and residential densities that are higher than Chicago and New York record double the transit use and half the automobile use. Their studies have shown that when proximity is high, automobile use is low. Compact urban design as in the High Park areas in Toronto or the West End in Vancouver makes sense, both economically and environmentally. A mix of multi-unit dwellings and single-family homes on small scale lots requires less infrastructure expenditure on roads, wires, sewers and sidewalks per person. Walking to school becomes realistic. Recycling, deliveries and waste pick-up require less time and distance per trip. Each of these things reduces the environmental cost of everyday life. Green homes are durable. Every home has some ecological footprint and durability always shrinks that footprint. (Kenworthy and Newman, 2004) An example of a successful real estate development is the King County Comprehensive Plan which was conceived and implemented to facilitate investment and growth, and to facilitate the expansion of other market sectors. The Plan promotes the expansion of leisure and cultural facilities, the provision of a wider office capacity, and the emphasis on residential development. King County is one of the busy counties in Seattle. King County, with a population of 1,788,300, is the most populous county in Washington. Seattle is a middle class city which is highly unionized, and is home to manufacturing giants--Boeing, Kenworth trucks, Todd shipyards, Weyerhauser and US Plywood. (Atkinson, 2003). A county not only promotes wealth generation but also acts as the focus of cultural differences and social diversity. Its continued success depends on the presence of social cohesion. The achievement of social cohesion helps attain competitiveness through the combination of skills, creativity and active citizenship. (Oatley 1998:3) The challenge of collective action is met, and the perspectives and tensions present in policy interactions related to networks and webs of relationships showed the increasing importance of achieving local institutional capacity. The process of governing does not assume a homogenous government, but an evolving partnership of public departments and agencies, private and voluntary sector organisations, moving at various but interdependent levels to attain a healthy governance. (Leach & Percy-Smith 2001:22) King County also boasts of an excellent Forest Program. Approximately one-third of King County's land area consists of forest lands. The county has done activities to preserve these forests through ensuring clean water, appropriate flood control, protecting wildlife and fish habitat, fostering recreation and appreciation of scenic beauty. The county also contributes to the reduction of global warming through carbon sequestration. A string of economic incentives, technical advice, and information are provided by the county and its officials to forest landowners to safeguard the local forests. King County promotes the growth of businesses combined with a concern for environmental sustainability and urban quality of life. The County's business development goals are to retain, expand, create and recruit businesses within industry clusters which are essential to the region's economic base and provide the impetus for growth. King County's economic development policies have these goals: Long-term commitment to sustainable economic development; Retention and increase of local firms in various industries which generate income and increase the quality of life its residents; Substantial public funding in large projects to spread benefits for firms and employees; and Environmental preservation and protection as an important economic value. (King County Comprehensive Plan) King County has a special clearing and grading ordinance which is known as Ordinance 15053. The ordinance aims to limit damage to groundwater and surface water quality that results from loss of forest cover. The ordinance requires counties to protect wetlands, groundwater, and wildlife habitat. Several scientific studies used by the county had already revealed that the retention of forest cover is essential to preserve those natural features. The actual economic impact of this land use policy on most landowners is very minimal. The regulation does not infringe upon any of the basic tenets of property ownership. The landowner's basic rights to possess, exclude, and convey are not covered by this regulation. Specifically, this ordinance does not prevent or affect the landowner from continuing his present use of the land, establishing a residence on the land, or dividing the land into multiple lots for resale. Commercial competitiveness and environmental preservation are the main objectives of the King County Comprehensive Plan. Commercial competitiveness refers to the diversification of the county's economic base through the provision of value-added and timely business services. Environmental preservation has the facilitating mechanisms in the implementation of an appropriate land use policy and forest preservation policies. These two approaches in the King County Comprehensive Plan call for collaborative action, partnership, and the cohesive unity among the county residents. Finally, the need for making the county safe, attractive and accessible to shoppers and visitors will be promoted as a community and a commercial goal. Strong entrepreneurial attitudes, access to venture capital and to technological expertise, and public policy promotion of new enterprise formation help promote innovative environments. Real Estate professionals make the real property market less efficient due to their shared assumptions about the market and their incentive to limit the flow of market information. The demand for property leads to distinct patterns of land-use as different occupiers compete for a limited supply of land. The real estate professionals determine the patterns that emerge from the differential ability of users to generate profit from particular sites. Real estate developers assemble sites and build new structures or refurbish existing structures. The price at which consumers are prepared to pay for land depends upon their assessment of future levels of demand for the space they are creating. The original landowners react to demand signals in releasing land for development. The responsiveness of these two sets of actors is critical in determining adjustment processes in the urban land market. The planning system also plays an important role in the spatial distribution of land uses. The real estate developers also note the changes in the nature of business activity in a given real estate area which are likely to result in shifts in the demand curve and, hence, have impacts initially on rents and then on the investment, development and land markets. However, the demand for space is not simply a function of output or employment. The changes in the way that firms organise their business activities affect both the quantity and the quality of real estate space required. For example, the trend for firms to downsize and outsource functions previously contained within the firm reduces the individual firms' space needs but may create a greater demand for smaller sized buildings. Companies have reduced the amount of floor space needed per worker by making more intensive use of space. Real estate agents examine sources of demand carefully. In some cases greater activity levels in an industrial sector result in induced additional demand for property from suppliers of goods and services to that sector as the impact of the expansion creates multiplier effects in the local economy. The supply response to a change in demand will results either on overbuilding, or few buildings, creating upward pressure on rents. Real estate professionals can also assess the present and future land supply.If the demand is high, the users compete for scarce land which, in general, is allocated to those uses able to bid the highest rent. The reaction of real estate professionals to a high demand is to raise the prices of the land. Conversely, if the demand from end-users is low, the real estate professional reduce the present land and housing price in consultation with the developers and landowners as part of the adjustment processes in the land market. Real estate developers can lessen bankruptcy and marketing risks by selling or leasing their projects prior to completion dates. Developers start construction based on a projected future demand and take the risk that the demand might not be realized when the projects are completed. Developers will be in a difficult financial position such as holding vacant buildings and construction loans that are waiting to be paid off if demand has decreased at the time of completion. Limiting the costs of this outcome is important for the developers. Developers adopt three methods to deal with the risk associated with demand uncertainty. First, developers may delay the property development until they are more certain about the future demand. Second, if the state of the market is uncertain when the development begins, a risk-averse developer might reduce the price on the earlier units to ensure that there will be sufficient demand for the product. Developers can increase the price level of the remaining phases if future demand conditions confirm it. Third, developers may presell a project. (Lai et.al.,, 2004) The presale method is to sell a unit before the completion of the project. The presale approach is popular in Asia. Compared with the other two methods, the presale method not only helps developers deal with the uncertainty of future demand levels but it can eliminate developers' inventory costs. Since a developer can have all units sold before the project is completed, this method is helpful for large projects such as a 500-unit condominium project. Once a presale contract is signed, it is implicitly assumed that a buyer will purchase the property when it is completed. References Atkinson, R.(2003). The Metropolitan New Economy Index, Washington DC: Progressive Policy Institute. Ball, Michael, Colin Lizieri and Bryan McGregor. (1998). The Economics of Commercial Property Markets. London: Routledge. Kenworthy, Jeffrey and Peter Newman. (1998). Sustainability and Cities, Washington DC: Island Press Books. Lai, Rose Neng, Ko Wang, andYuqing Zhou. (2004). Real Estate Economics, Vol (32), Issue: 2. 2004, page 329. Leach, R. and Percy-Smith, J.,. (2001) Local Governance in Britain. Basingstoke: Palgrave. Oatley, N. (ed.). (1998). Cities, Economic Competition and Urban Policy. London: Paul Chapman Publishing. Paehlke, Robert. (2004). "Greenville: Applying Green Principles to Buildings and Urban Planning Is a Sound Long-Term Investment of Public Dollars," Alternatives Journal, Vol 30 (5). Ratcliffe, John, Michael Stubbs and Michael Shepherd. (2003). Urban Planning and Real Estate Development. New York:Spon Press. Rising, Nelson. (2001) "The Real Estate Industry and Environmental Protectionism Can Coexist: Builders Are Finding Ways to Increase Profits While Providing Ecological Benefits to Society." USA Today, Vol (130), Issue 2678. Online sources King Comprehensive County plan. Http:///www.kingcounty.gov Read More