PROPERTY DEVELOPMENT

(BPE 35203)
LW 5
Prepared by:
AP Sr. Dr. Azlina Binti Md. Yassin, Co-ordinator
Dr Sabariah Eni
Dept. of Real Estate Management
University Tun Hussein Onn Malaysia
18th November 2021
 LW5:

PRICES & PROPERTY

DEVELOPMENT CYCLE
 LW5 - Topic Outline
• Part 1: Property Development
Revenue & Expenses
• Part 2: Price & Importance of
price
– Property prices
– Pricing Strategy
– Pricing methods
• Part 3: Property
development cycle
• Part 4: Marketing and
Branding.
Part 1:
 Property Development
Revenue and Expenses
• Property development revenue shall
comprise:
– the selling price agreed in the sale and
purchase agreements; and
– any additional revenue due to variation in
development work.
•
• A variation is an instruction by the customer for a change in the scope of the work to
be performed under the development project contract (sale and purchase
agreement). A variation may lead to an increase or a decrease in property
development revenue. Examples of variations are changes in the specifications or
design of the asset and changes in the duration of the development project contract.
• A variation is included in property development revenue when:
– (a) it is probable that the customer will approve the variation and the amount of
revenue arising from the variation; and
– (b) the amount of revenue can be reliably measured.
• Property development revenue shall be recognised in respect of all development
units that have been sold.
• Revenue recognition commences when all the following criteria are met:
– when the sale of the development unit is effected, e.g. upon the signing of the
individual sale and purchase agreements;
– upon the commencement of development and construction activities; and
– when the financial outcome of the development activities can be reliably
estimated.
 The financial outcome of a development
activity can be reliably estimated when all of
the following conditions are satisfied:

1. total revenue from the development activities can be measured

reliably;
2. specific identification (e.g. direct building costs);
3. relative sales values where specific identification is not possible;
or
4. other appropriate methods consistently applied where allocation
based on relative sales value is impracticable.
5. the costs attributable to the development activities can be clearly
identified and measured reliably so that actual development costs
incurred can be compared with prior estimates.

https://www.masb.org.my/article.php?id=357
 Part 2: What is price

• Price exists in many forms

– Fare
– Fee
– Rent
– Rate
– Commission
– Premium etc
 What Is Price

Marketing: exchanging valuable product

This exchange is effected using money
Therefore, price is a measure of value in monetary
term
Key words for price: money and exchange
Money: medium of exchange, sometime a
commodity, it make transaction effective and
efficient.
Exchange: not necessarily need money for example
barter trade.
Importance of price
 Importance of price

• Determine profitability
• Market signal
• Essential Marketing mix - flexibility of price to
change in response in many factors
• Ingredient of product strategy - : range of prices as
a result to many property types in a development
• Main element in distribution strategy
• Influence buyers’ perception - expectation
• Instrument of competition
 Pricing objectives

• Return on investment
• Target/realistic profit
• Survival
• Sale volume/market share
• Revenue/liquidity
• Other pricing objectives
– Stimulate demand
– Product positioning
– Financial performance
 Pricing And Competition

Competition relies solely on price manipulation

Price offer ways to attack competitor, it will success if
competitors are unable to match the price; competitive
advantage.
Developers mainly use non-price competition; Product
differentiation
Adopting price competition carefully; depend on the elasticity
of demand.
Inelastic demand, pricing strategy may not effective tool.
If demand is elastic, further analysis need to be conducted to
fine whether lowering or increasing the price will result in
desired level of demand or sales revenue.
Which ball is the most
beautiful?
 Pricing strategy

• Take into account quantitative and qualitative

factors
• Strategy:
– High price approach
– Low price approach
 Pricing strategy (cont.)

• Is it high price good for business?

• Is it low price reduces profit margin?
 Pricing strategy (cont.)
PRICING SITUATION OF USAGE
STRATEGY
High-active For prestige/high quality
products/small target market/new
product/avoid retaliation
High-passive High-priced products with non-
price factors (eg. Status)
Low-active Price is the main factor in
purchase decision/existence of
stiff market competition/company
has cost advantage
Low-passive Small company with lower-cost
features
EXAMPLE IN PROPERTY
Resort and leisure
properties, high cost
properties
Same as above
Medium-cost housing
properties, some
commercial and industrial
properties
Medium-cost properties
Pricing Strategies
 Pricing Strategy And Product Concept

Pricing Strategy Example of Product Strategy

Cost cutting Low cost, out of town bungalow with 3,000 sq. ft.

Selling the same product at lower initial price and

Price harvesting later slowly increase price in subsequent
development
Same or lower differential price (10-20%) with
Choice maximisation
choices of architectural style/design

Unique architectural style/design for high price

Value-to-cost product (i.e. 35% premium) and lowering the cost
maximisation of other less unique product (i.e. 5% discount)
compared to similar competing product in market
Pricing methods
 Pricing methods

• Cost plus and mark up pricing (most

popular)
• Break even pricing
• Market comparison
• Statistical-based estimation
• Consumer-based pricing (income, loan
margin, interest rate & length of loan)
 Cost-plus And Mark-up Pricing

Simplest pricing method

Based on pre-determined profit margin
This profit margin is added on the full unit cost of
development.
Example: Say per-unit cost of construction of an apartment is
RM120,000 and a profit margin of 20% is added, the selling
price would be RM120,000(1 + 0.2) = RM144,000
Minimum unit price can also be determine as follow: Unit
Price = unit variable cost + (fixed cost / expected sales unit).
Say, variable cost per unit is RM110,000, project fixed cost is
RM2,800,000 and sales unit is 500, the minimum unit price =
RM110,000 + (RM2,800,000/500)
Example:
 Break Even Pricing

Utilize the concept of fixed and variable cost.

enable to investigate implication of price-volume of
production.

To answer question such as:-

- What price level should be determine with a given
amount of production?
- How many unit of products should be built?
- What if this much price is fixed?
Example:
 Market Comparison

Depends on supply-demand condition and competition in the

market.
Principle: price is set based on what market will bear.
Price variation must be analyze based on market dynamic
and dynamic factors tend to differ from one market to another.
Apple to apple comparison of sold property in a specific
market.
Utilize comparative pricing method.
Compare the cost of production of its product with other
competitor.
The set the unit price not more than average market price of
particular property type.
Example:
 Part 3: Property Development
Process and Cycle

• Property Development involves a wide

range of activities and processes from
purchasing land, building and
developing high rise apartment buildings
and everything in between.

• Property development can be divided

into three prominent stages, namely:
• Pre-development stage
• Development stage
• Post development stage
http://www.nilaiharta.com.my/view/land-development-process-

• Pre-development stage comprising sub-stages of idea

initiation (decision to develop), site selection, feasibility,
financing and planning consents
• Development stage comprising sub-stages of tendering,
construction, project management, leasing, financing and
and-property-development

sale (disposal)
• Post-development stage comprising sub-stages of
maintenance, management, leasing, financing and sale
(disposal).
* New school of thoughts in Malaysia, property development contains only two prominent stages:
i. pre-development stage which combines all the sub-stages in the old school of thoughts’ pre-
development and development stages;
ii. post-development stage
 Property Development
Process

• Malaysian Property Development Process:

https://www.slideshare.net/rehdamalaysia/malaysian-
property-development
Property Development Market Cycle
 Common risks related to
development
• Increases in interest rates which result in increased
holding expenses.
• Increases in construction costs due to increases in
the cost of building materials or labour.
• A downturn in the property market
• Variations occurring in the real estate market between
supply and demand causing adverse fluctuations in
real estate prices.
• Disputes with building and other trade
contractors.
 Common risks related to
development cont.

• Having trades people walk off the job half way through
necessitates finding an alternative builder.
• Unexpected structural defects or building deficiencies that
may be encountered resulting in unexpected expenses being
incurred for repairs or refurbishment.
• Improvements you undertake may not necessarily result in
significant increases in value of your property.
• When it comes to getting your plans across the bureaucratic
line, the best approach is to hope for the best but expect the
worst.
• In between acquiring your development site and obtaining
planning permission, legislation can change and throw a
spanner in the proverbial works.
• A good property developer learns to be risk conscious
rather than risk adverse because the truth is if you
never take a risk you will never make a gain.

• The difference between successful and unsuccessful

developers is that successful people take risks whilst
constantly looking to minimise them.
 Part 4: Marketing and Branding

A Brand - is the promise you make to your audiences.

• Strong brands are valuable assets, because when the promise is
fulfilled, it creates an emotional response.
• Strong brands can create a preference or command a premium and
assure a future stream of revenue.

Branding - is about positioning the brand to fill a need, meet

expectations, build trust and develop relationships. It’s about keeping
your promise differentiated, relevant, compelling and true.

A brand identity - The name and visual expression of that promise is

called, because it gives you a way to identify with the promise being
made.

Brand Strategy – is about determining how many brands you need and
can afford to support, what each brand should stand for, and what
relationships should or should not exist between the brands and the
parent organization.
• Marketing – is about finding and growing a market for the brand that leads
to profitable sales, or in the case of non-profits, that leads to appreciation
and support among key audiences.

• Marketing Strategy – is guided by business goals, and involves

segmenting markets, selecting target audiences, determining pricing,
packaging and distribution, integrating media, and executing creative
campaigns.
# Branding as making, communicating and delivering a promise. Branding is a
long-term commitment.
# Marketing as finding and connecting with the audiences who will most benefit
from that promise.
# By its nature, marketing tends to planned out with shorter term goals.
# Marketing strategies and campaigns will come and go, but brands should
endure.
Branding & Marketing Component
 Summary

• Price plays important role in determining profitability,

market signal, marketing mix and product strategy.
• The most typical objective is to achieve target return
on investment.
• The most common pricing method is cost plus, mark-
up, and break even.
• Branding cannot stand alone
• Good branding supports effective marketing.
• Strong branding makes your marketing easier.
 THANK YOU

See you in next session