Deconstructing Issues of Developments and Developers - Essay Example

Deconstructing Issues of Developments and Developers: A Book Review Delving on the issues regarding real e is a daunting task. The real e market is characterized by the complex web of interaction with buyers, sellers and exchanging real property rights for other assets, usually money. This type of interaction occurs in different areas, for different reasons, and in relation to different types of property. Thus, the real estate market is divided into categories, based upon the differences among property types and their appeal to corresponding markets. The markets for these categories of real estate are further divided into submarkets that are based upon the preferences of buyers and sellers. These divisions facilitate the study of real estate markets. The attempt of its editors Guys and Henneberry to produce a book that encompasses all the appropriate issues regarding real estate development in the UK is far from being commendable. It is not just ground-breaking, but it is useful for people who would want to take a peek on real estate issues in general without the pains of jargons and technical know-how. Their book Development and Developers - Perspectives on Property have pioneered an interdisciplinary outlook in the world of property development and property developers To elaborate the significance of this book, it is supplemental to delve on the formation of real estate. In simple terms, real estate market is formed by the interaction of buyers and sellers in exchanging real property rights for other assets, usually money. Considered as special type of asset, real estate should be viewed in the context of the overall economic life of a nation. In terms of wealth in open economies, for example, it is clear that, although national and international trends influence the level and pattern of real estate values, the property industry in its turn affects many, if not most, economic activities by virtue of its collective size. Also, in the majority of countries, a significant proportion of total wealth is related to real property. This type of interaction occurs in different areas, for different reasons, and in relation to different types of property. Thus, the real estate market is divided into categories, based upon the differences among property types and their appeal to corresponding markets. The markets for these categories of real estate are further divided into submarkets that are based upon the preferences of buyers and sellers. These divisions facilitate the study of real estate markets. All real estate markets are influenced by the perceptions, motivations and interactions of the buyers and sellers of real property, which in turn are subject to many social, economic, government and environmental influences. Real estate markets may be studied in terms of locational, competitive and supply and demand characteristics as they relate to overall real estate market conditions. The term "real estate" embraces a wide range of concepts, uses and concerns. A sense of land and property recognizes the diverse physical, legal, economic and cultural characteristics that can exist in different geographical locations and within alternative political systems. Real estate includes the interests, benefits and rights inherent in the ownership of land and buildings. It is thus a "bundle of rights" whereby each stick in the bundle represents a distinct and separate right to use real estate, to sell it, to lease it, to enter it, or to give it away. These rights may be held separately or collectively. To varying degrees they are also subject to such powers of government as taxation, eminent domain, escheat, building ordinance, administrative regulation and planning control. Likewise, the notion of a "market economy" is a variable concept. From a near "laissez faire" philosophy, with little or no government intervention, at one extreme, to a policy predicating a high degree of regulation at the other, with sundry systems in between. No two markets can be said to be the same. In the context of a real estate market, however, property is popularly held to demonstrate certain common features: heterogeneity, tangibility, durability, immobility, adaptability and indivisibility. It is also said to require large amounts of capital to acquire, pose difficult legal problems in respect of ownership, incur high costs of transfer and be costly to manage. Like most trite generalizations of this kind, there is some fact and some fiction. Nevertheless, what can be affirmed is that the real estate market in an open economy is a complex imbroglio of theories, practices and procedures, which alter according to situation and circumstance. One of the issues the book talked is the British office market research. Using the evolution of the British office property market as an example, the book demonstrated how development actors, through their initiatives and responses, are constantly reshaping changing property development. The British office market experienced a pronounced office cycle across the late 1980s and early 1990s, as did many other major financial centres in Europe and Australasia (Goetzmann and Wachter, 1995). Rapidly increasing rents and capital values gave way to oversupply, high vacancy levels and falling prices, as extraordinary quantities of space came on line concurrently with the onset of a recession. The consequences of the real estate crash fed back into the broader financial system through adverse impacts on institutional investment performance, bank bad-debt provisions and asset values of the corporate sector. Thus, it has been seen as weaknesses of sustainability and the associated commercial development process. To illustrate: Large industrial companies, for example, can raise finance internally and develop buildings tailor-made to their own requirements. Such developments might even appear financially unviable using traditional financial appraisal techniques but may provide other benefits to the occupier/ developer such as a more efficient business, generating greater profits, or the prestige associated with an impressive (but expensive) headquarters building (p. 75) Noting that market research for office real estate is 63 years or so out of date, the book reminded that market analysis based on service sector employment relies on forecasts For instance, the City of London office market is of interest in part because it behaved similarly to those of numerous other major cities. This market is of special interest because of its international character: 34 percent of office space is occupied by non - UK firms and 20 percent is owned overseas (Chesterton/EGi, 1997). Nevertheless, such models offer a different but powerful and elegant analysis of the operation of the property market. With the book, I learned that there are three types of analysis are typically used to assess demand for offices at the level of an individual market: economic, demographic and survey based. The intellectual antecedents of the model estimated are Rosen (1984), who laid out the basic supply and demand equations; Corcoran (1987), who introduced the concept of equilibrium rents; and Hendershott and Kane (1995), who embedded equilibrium rents in an estimated rental adjustment equation and related property values mathematically to expectations of future vacancy and rent adjustments through a present-value relation. The dependence of equilibrium rents on real interest rates and of property values on rents provides a direct link from the capital markets to the property markets. This includes not only analysis of the rental adjustment process, linking that adjustment to real interest and vacancy rates, but also estimates of the demand for and supply of space. The resulting model is used to simulate the effects of changes in employment growth and in real interest rates on the system. The work thus sheds light on the behaviour of developers, investors and tenants. Development and Developers: Perspectives on Property have also featured on globalisation processes that involve an adaptation of established structures and practices to accommodate the requirements of transnational property interests. The book delved on the issue of globalization in the world of real estate property in the UK. They observed that the internationalisation of property consultancy firms is more than just a result of the emergence of a global demand for property and property services: This suggests a multilayered and fragmented process of change, with new and traditional practices coexisting sometimes in conflictive ways with evolution towards 'maturity' and implying a sectorally differentiated process. Purpose-built shopping centres, monofunctional office buildings and out-of-town business parks have often been found amongst products, especially in cities where there is a tradition of small scale family- owned retail, mixed-use commercial buildings, or mixed-use commercial districts as in both Milan and Madrid. In this sense, evolution towards 'maturity' has also meant a certain degree of homogenisation of the built environment, towards a pattern that is recognised and sought after by international players (p. 243). As an advancement of interconnectedness of all parts of the world, particularly in communication and commerce, globalization has become the buzzword of the Information Age. Many experts would say that globalization as the dominant theme of present and future world history. Globalization refers to a comprehensivetermfor the emergence of a global society in which economic, political, environmental, and cultural events in one part of the world quickly come to have significance for people in other parts of the world. Comprehensively, globalisation is the result of advances in communication, transportation, and information technologies. It describes the growing economic, political, technological, and cultural linkages that connect individuals, communities, businesses, and governments around the world. Globalization also involves the growth of multinational corporations (businesses that have operations or investments in many countries) and transnational corporations (businesses that see themselves functioning in a global marketplace). The international institutions that oversee world trade and finance play an increasingly important role in this era of globalisation (Tabb, 2005). Inevitably, it is learned that when the excesses of the go-go 1980s disappeared, seemingly overnight, the corporate community fell precipitously into recession. Suddenly, large corporations were being caricatured as oversized, slow-moving and inefficient. Their response was to seek flexibility to allow them respond to changes and uncertainty in their markets, which were being dramatically changed by the twin forces of technology and globalisation. Consequently, the focus of corporate management shifted to downsizing, delayering, re- engineering: methods for becoming leaner, more efficient and more a single, inflexible product (the institutional building lease and specification) was found badly wanting and woefully unable to respond to an emerging imbalance between the levels of its output. In connection, property development also has revenue-raising potential. The current review of planning law will make it easier for a local council to insist that a developer provides social housing or a municipal swimming pool in return for permission to build a new superstore or hotel. So long as an effective watchdog can stop unnecessary developments, this institutionalised system of "fronthanders" would be vastly superior to the hole-and-corner world of backhanders that has characterised municipal planning since time immemorial. Consequently, urban housing markets have become important sites for neoliberalisation, as witnessed by the elimination of rent controls, state withdrawal from housing provision, and the facilitation of speculative investment in inner-city sites. As Smith argues, inner-city gentrification is one particularly important site for this reworking. Gentrification emerged as a "crucial urban strategy for city governments in consort with private capital in cities around the world" in the 1990s, he argues. The result is more aggressive and generalized programs of gentrification (albeit often anesthetized under the banner of "urban regeneration"), motivated by the intensified logic of global interurban competition: The willingness and ability of local players and institutions to accommodate those new forms of the built environment. Further research is needed to test whether similar processes can be detected in other 'maturing' markets in Europe, although preliminary evidence seems to be positive. Anyway, the two case studies confirm the proposition that the formation of a global property market involves the harmonisation and homogenisation of markets, structures and practices across countries, but in a context of re-creation and re-affirmation of local specificity (p. 243). All in all, there are fourteen issues discussed extensively in the book. These chapters focused mostly on the research aspects but it also offers insights both from recent findings and from respected practitioners. The books chapters are the following: Approaching development; The market context of property development activity; Modelling the development sector of the property market; Market research for office real estate; The financial appraisal of development projects; Developers' decisions and property market behaviour; The organisation of property development professions and practices; The impact of land management and development strategies on urban redevelopment prospects; Developers in local property markets - assessing the implications of developer experiences and attitudes in the re-use of vacant industrial buildings in an old industrial area; System dynamics and the commercial development process - towards an understanding of complex behaviour and change; Evolution in the supply of commercial real estate: the emergence of a new relationship between suppliers and occupiers of real estate; Global players and the reshaping of local property markets: global pressures and local reactions; Developing interests: environmental innovation and the social organisation of the property business; Property companies and the remaking of markets: stories from the 1990s; Conclusions: interpreting development. These series of papers draws together for the first time a range of perspectives and approaches and highlights the benefits of different research approaches and methods. The editors of the book, Simon Guy and John Henneberry have written papers, along with other real property experts and other related field scholars, to provide a roundabout survey on: 1.) The development of quantitative and qualitative research methods, 2.) Theories ranging from mainstream economics to social constructivism and 3.) exhibits the inter-relationships between the economic and the social; and between individuals and organisations and their environments. The two editors, Simon Guy and John Henneberry, have authored 4 other research studies that deal with developing a Sociology of Urban Development. This related to innovative application of a sociological approach to the property and architectural business to highlight a range of institutional actors that tend to be either neglected or studied in isolation, when considering urban development. Their research on technological innovation has demonstrated how the changing social organisation of these diverse development interests can transform the design of buildings, networks and cities. Notable publications here include A Sociology of Energy, Buildings and the Environment (Guy. and Shove, Routledge 2000) which makes the case for a deeper sociological understanding of the processes of knowledge formation and technology transfer in order to develop a greater appreciation of the social structuring of technical change. My own experience of scanning through the book gave me a thorough outlook that would be helpful to the virtual understanding of all issues that relate to property development and property developers. Viewed from the research angle, these papers have presented various data about the current status of real estate business in the UK and provide an outlook of its imminent future. Easily understood and an enjoyable read, the series of papers provided me with a very useful framework in the combination of understanding the "big picture" for property development; private property investment analysis, and a critical analysis of the theory and practice of economic impact analysis about the real estate business. In conclusion, the book achieved its purpose of presenting the issues of property developers and developments in general, methodological and theoretical advances and on their relevance of their research findings to development practice and urban policy formulation. With the approach to these issues, the papers are termed less technically to reach out to people who might be interested to dwell in these areas of studies. Bibliography Chesterton/EGi. 1997. London Office Database. Estates Gazette interactive: London. Corcoran, P. 1987. Explaining the Commercial Real Estate Market. Journal of Portfolio Management: 15-21. Goetzmann, W. & Wachter, S. 1995. The Global Real Estate Crash: Evidence from An International Database. Working Paper, Yale School of Management, July. Guy, S and Henneberry, J (eds). 2002. Development and Developers: Perspectives on Property, Oxford: Blackwells. Guy, S. and Shove, E. 2000. A Sociology of Energy, Buildings and the Environment: Constructing Knowledge, Designing Practice, Routledge. Hendershott, P. and Kane, E. 1995. US Office Market Values During the Past Decade: How Distorted Have Appraisals Been Real Estate Economics 23: 101-116. Rosen, K. 1984. Toward a Model of the Office Building Sector. AREUEA Journal 12: 261-219. Tabb, William K. 2005. Globalization. Microsoft Encarta 2005 (CD-ROM). Redmond, WA: Microsoft Corporation. Read More