2.3.1. Socio-economic feasibility
To determine whether a development will be successful or not, the feasibility study takes all the relevant factors into account in order to establish whether the socio-economic climate is favourable for the active and effective implementation of the development (Cloete, 1999: 128; Botha, 2013: 122). The potential market must be characterised by determining selected indicators of economic activity, of which the individual and joint movements correlate with movement of the market. Of additional importance is the identification of socio-political factors as having a positive or negative influence on the market (Cloete, 1999: 128; Botha, 2013: 122). The various factors determining the prices and rent in the different property markets are summarized in Figure 2.1.
Both supply and demand factors can be analysed on a national as well as on a local level. The content of an economic feasibility study varies in extent and in the emphasis placed on the different factors, according to the type of fixed property involved. Socio-economic factors of importance to property development can be classified under the headings of: demographic factors; urban growth patterns;
housing tendencies; tendencies in the building industry and property market;
personal income and expenditure patterns; macro-economic factors; local economic conditions and applicable national and local political factors (Cloete, 1999: 129;
Botha, 2013: 123). The relative importance of the different factors varies according
FIGURE 2.1: NATIONAL DEMAND PATTERNS FOR FIXED PROPERTY IN THE PRIVATE SECTOR
Source: McMahan (1976: 85)
to the type of property development considered, for example a block of flats versus a shopping complex (Cloete, 1999: 129; Botha, 2013: 123).
2.3.2. Social media
The way people make purchase decisions is changing. A luxury property search used to rely greatly on agents and numerous visits to unsuitable properties to find the right one (Ross, 2013). Both time consuming and expensive, this process had its downsides, but for such an important and expensive purchase, consumers would always invest that time to ensure they made the right decision (Ross, 2013).
However, times are changing. The internet, and more specifically, social media, has brought with it huge changes to the luxury property purchase decision-making process (Ross, 2013). While the need to be sure and find out everything about a property before purchase has not changed, the way that people source information has changed (Ross, 2013).
In the past buyers would await agents’ new property lists, with details for each property dutifully printed out and posted on a weekly basis (Ross, 2013). The immediacy of social media now means that customers instead expect to know as soon as a new property goes on the market, and many will follow Twitter, Facebook and RSS feeds of various agents to snap up the best properties as soon as they come onto the market (Ross, 2013). Whether they are sharing videos, listings or advice with their communities and prospective buyers or sellers, real estate professionals are making progress in using social media for real results (Ross, 2013).
Over the past two years, real estate professionals have found creative ways to overcome the real estate crisis, including finding innovative uses for social media (Swallow, 2010). After facing drops in home sales well into 2010, real estate professionals have been forced to utilize their offline skills in an increasingly social way online. By using photo and video sharing to enhance listings, along with professional networking sites to hone their sales skills, real estate veterans have made strides in moving inventory in tough times (Swallow, 2010).
2.3.3. Demographic factors
The increase in population is a function of the existing size and growth rate of the population. National population growth rates are a function of births versus deaths, and immigration versus emigration. Local population growth rates are a function of the same factors, as well as of migration patterns within the country or area.
Migration patterns include regional migration, urbanisation, urban suburban relocations and industrial growth patterns. The type of population can be determined by means of the age distribution of the population, as well as the size, type and duration of households, including retirement patterns and marriage and divorce figures (Cloete, 1999: 130; UN, 2011; Botha, 2013: 124).
2.3.4. Urban growth pattern
The direction and pattern of growth within a community or local market area is important for determining the market demand in a specific area. Four different theories of land-use development patterns are traditionally used: the Concentric Circle Theory (Burgess), the Axial Theory (Babcock), the Sector Theory (Hoyt) and
the Multiple Core Theory (Harris and Ulman, 1945). Applying these theories to a certain area, may help to determine the market demand (Cloete, 1999: 130; UN, 2010; Botha, 2013: 124).
These are just a few of the trends influencing current demand for homes, the capability of the industry to supply them and the capacity of the environment to accommodate them (Golland and Blake, 2004: 7). Population growth is obviously a key driver of demand, although pressure on housing varies greatly between regions.
There are countless ramifications of demand, for example, the rising numbers of young adults and elderly people wanting single-person accommodation, which is manifested in the need for smaller average sized dwellings and gardens (Golland and Blake, 2004: 7).
2.3.5. Property tendencies
This analysis should include data about the type, age, condition, occupation and value of existing property. Special attention should be paid to changes in open spaces and the ratio between owner occupation. An analysis must be done of tendencies in the demand for different types of property, for example changing preferences for the different facilities in a living unit, the demand for medium and high-density housing, the demand for low-cost housing or the demand for decentralised industrial land (Cloete, 1999: 130; UN, 2011; Botha, 2013: 125).
2.3.6. Macro-economic factors
Investment in fixed property correlates with the national economy largely. Owing to the fact that fixed property consists of large economic units, loan capital is generally used in the development and selling of fixed property. The liquidity in the national economy and especially in financing institutions is therefore very important (Cloete, 1999: 130; UN, 2011; Botha, 2013: 125).
2.3.7. Trends in the building industry
The building industry shows unique characteristics that should be considered when making investment decisions on property developments. Escalation in building costs and shortages of materials, skilled labour and professional expertise can have a very negative effect on the financial merit of a property development (Cloete, 1999:
131; UN, 2011; Botha, 2013: 125).
2.3.8. Income and expenditure patterns
The potential demand for property only becomes an effective demand when potential users have sufficient income to buy or rent the property concerned. The income of households and the part of this income spent on housing therefore are determinants of the housing market, while disposable incomes and the consumer confidence in the future economy have an effect on expenditure patterns and therefore eventually on the commercial and industrial property markets (Cloete, 1999: 131; UN, 2011; Botha, 2013: 126).
2.3.9. Local economic conditions
The analysis of retail, wholesale, services and manufacturing statistics indicate the relative stability of the local economy, while supply statistics provide an indication of the demand for property, as well as the extent and type in a specific area (Cloete, 1999: 131; Botha, 2013: 126).
2.3.10. Political factors
Policies of local, provincial and national authorities have an impact on many factors that are important to fixed property. Land use, building regulations, zoning, rent control, tax legislation, housing assistance, labour and group areas legislation, and monetary and fiscal policy are some of the factors that are important to the fixed property market (Cloete, 1999: 131; UN, 2011; Botha, 2013: 126).