Supply and Demand Analysis for Residential Properties

Objectives of Chapter:
Discuss the methods that can be used to estimate housing demand. * Estimating demand in general * Local survey-based methods Expected learning results: Main factors in estimating demand for residential properties in general; Apply some methods of estimating demand for residential properties.

Analysing Supply

Table 10.2: Over Supply Situation in Johor Bahru, Based on Selected Property Projects
% of over supply Project Bukit Indah a) Single-storey terrace b) Double-storey terrace Mutiara Rini a) Double-storey terrace b) Double-storey semi-detached Bandar Baru Uda a) Single-storey terrace b) Apartments Indahpura a) Single-storey terrace b) Double-storey terrace Average Source: Sample survey, 2001. 60% 40%

40% 60%

30% 10%

30% 40%

39%

Methods of Estimating Residential Demand

Global Demand Analysis

Global Residential Demand

Total population = 100,000 Eligible age (25 49) = 35% Eligible population = 0.35 x 100,000 = 35,000 Employment = 97% Eligible working population = 0.97 x 35,000 = 33,950 Home ownership = 65% First-time buyer potential demand = 0.35 x 33,950 = 11,883 Buying interest: Non first-time buyers = 8% First-time buyers = 30% Overall potential demand: Non first-time buyers = 0.08 x 0.65 x 33,950 = 1,765 First-time buyers = 0.3 x 11,883 = 3,565 Total = 1,765 + 3,565 = 5,330 Income categories: Low-income = 35% Middle-income = 45% Upper income = 20% Demand by income-based market segments: Low-income segment = 0.35 x 5,330 = 1,866 Middle-income segment = 0.45 x 5,330 = 2,399 Upper-income segment = 0.20 x 5,330 = 1,066

Class Exercise
A town has a working population of 23,000 people. From this figure, 17% are the first-time eligible buyers while 80% of them are non first-time eligible buyers. From these two categories of buyers, 35% are targeted buyers. Entrance to the labour market is estimated to be 2.5% of the working population and 1% are potential buyers. However, only 1% of them are targeted buyers. About 3% of the population working in the town are inmigrants; 1% out of this figure are first-time buyers while 0.5% are non first-time buyers. From the Property Market Report, (PMR) it was found that alien buyers constitutes 0.2% of the total targeted domestic buyers. The information from the PMR also revealed that the market concentration of residential transaction is 64% from the total real estate transaction.

Estimate the demand for properties in the area. If current available stock is 12,000 units, assess the market situation.

Answer
Let say available supply = 12,000 units First-time potential buyers = 5,330 people Assume: one FTPB buys one unit DD-SS balance = 5,300/12,000 = 0.44 DD gap = 12,000-5,330 = 6,670 units Excess supply = 100-44.4% = 55.6% SS excess capacity = 6,670/5,330=125% Severe excess supply, weak demand

Local Demand Analysis

Local Demand Analysis (cont.)

Local Demand Analysis (cont.)

Local Demand Analysis (cont.)

Local Demand Analysis (cont.)

Model-Based Demand Prediction

Model-Based Demand Analysis (cont.)

Variables used
Definition Variable DEMAND (dependent) UNITSUP PRODUC LANREA FLOREA MIDPRICE LOCQUAL Take-up rate Unit built Type of product Average land area Average floor area Mid-point price Quality of project location % sales performance No. of units 1=1-ST; 0=otherwise Sq.m Sq.m RM/unit 1=if strategic; 0=otherwise Measurement

Model-Based Demand Analysis (cont.)

qU = X + u

where qU is (n x 1) column vector of sales performance; X is (n x m) vector of product, locational, and neighbourhood attributes, plus some other pertinent factors influencing sales performance; is (n x 1) column vector of parameter estimates, u is (n x 1) column vector of error term.

Model-Based Demand Analysis (cont.)

QD = qU x QS or QD = adj. qU x QS where QD is predicted demand; qU is estimated take-up rate from the statistical model; and QS is number of units of a given product proposed to be built.

Model-Based Demand Analysis (cont.)

Qu = 71.615 + 0.002720*UNITSUP 0.009567*LAREA 0.001487*FLOREA 4.506*PROD1 13.655*PROD2 11.891*PROD3 0.000006023*MIDPRICE + 37.438*LOCQUAL

Model-Based Demand Analysis (cont.)

Thank you!