Supply and Demand Analysis for Residential Properties

1. Supply and Demand Analysis for Residential Properties

2. 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.

3. Analysing Supply

4. Table 10.2: Over Supply Situation in Johor Bahru, Based on Selected Property Projects Source: Sample survey, 2001.

10. Methods of Estimating Residential Demand

11. Global Demand Analysis

12. 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

13. 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 in-migrants; 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.

14. 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

15. Local Demand Analysis

16. Local Demand Analysis (cont.)

17. Local Demand Analysis (cont.)

18. Local Demand Analysis (cont.)

19. Local Demand Analysis (cont.)

20. Model-Based Demand Prediction

21. Model-Based Demand Analysis (cont.) Variables used

22. 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.

23. Model-Based Demand Analysis (cont.) • QD = qUˆ x QS or • QD’ = adj. qUˆ x QS where QD is predicted demand; qUˆ is estimated take-up rate from the statistical model; and QS is number of units of a given product proposed to be built.

24. 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

25. Model-Based Demand Analysis (cont.)

26. Thank you!