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PDM611S - PROPERTY DEVELOPMENT AND MARKETING - 1ST OPP - JUNE 2023 |
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nAm I BIA un IVERS ITY
OF SCIEnCE
TECHnOLOGY
FACULTY OF ENGINEERING AND THE BUILT ENVIRONMENT
DEPARTMENT OF LAND AND SPATIAL SCIENCES
QUALIFICATION(S): BACHELOR OF PROPERTYSTUDIES
DIPLOMA IN PROPERTYSTUDIES
QUALIFICATION(S) CODE: 08BPRS
06DPRS
NQF LEVEL: 6
COURSE CODE: PDM611S
COURSE NAME: PROPERTYDEVELOPMENT AND
MARKETING
EXAMS SESSION: JUNE 2023
PAPER:
THEORY
DURATION:
3 HOURS
MARKS:
100
EXAMINER(S)
MODERATOR:
FIRST OPPORTUNITY EXAMINATION QUESTION PAPER
SAMUEL ATO K. HAYFORD
UAURIKA KAHIREKE
INSTRUCTIONS
1. Read the entire question paper before answering the Questions.
2. Please write clearly and legibly!
3. The question paper contains a total of 5 questions.
4. You must answer ALL QUESTIONS.
5. Make sure your Student Number is on the EXAMINATION BOOK(S).
PERMISSIBLE MATERIALS
1. Non-programmable Scientific Calculator
THIS QUESTION PAPER CONSISTS OF 7 PAGES (Including this front page)
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Property Development and Marketing
PDM611S
Question 1
For each of the following statements indicate whether it is 'TRUE' or 'FALSE'. Each correct answer carries 1
mark.
(25)
a) Accounting rate of Return (ARR) also known as Return on Invested Capital (ROie) of a development
project in terms of the magnitude of profit an investor generates for every dollar invested in project
before accounting for taxes.
(1)
b) Investors need market information at every stage in their real estate investment decision making.
They must estimate the most likely cash flow from each investment alternative.
(1)
c) Real estate investment decision is essentially a matter of interpreting information about the real
estate market in general and the subject parcel in particular.
(1)
d) Building control implemented and enforced by local authorities ensures that building works complies
with the building regulation and a set of standards intended to protect peoples safety, health and
welfare in and around the built environment.
(1)
e) The Bill of Quantities provides projects specific measured quantities of the items of work identified by
the drawings and specification of the Planning consultant.
(1)
f) The Loan to Value ratio is a risk assessment instrument used by financial institution to examine the
affordability of potential buyers of real estate before approving mortgage application. It is used to
assess the strength of the supply side of the real estate market during market analysis stage of
property development.
(1)
g) Agreement or Letter of Intent with Anchor Tenants are critical for a financial institution to finance
construction of commercial properties such as shopping mall.
(1)
h) Market analysis for proposed real estate development considers market area, economic trends,
supply and demand indicators, market conditions, and feasibility factors. No due cognizance must be
given to Institutional factors such as culture, customs and traditions, habitual ways of thinking and of
doing things.
(1)
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Property Development and Marketing
PDM611S
i) With an exclusive right to sell listing, the seller employs only one agent and must pay that agent a
commission regardless of whether it is the agent or the seller who finds a buyer provided the buyer is
found within the listing period.
(1)
j) Under an exclusive agency listing, the agent is given the exclusive right to represent the seller, but
the seller can avoid paying the agent a commission by selling the property to someone not procured
by the agent.
(1)
k) From the Real Estate investor's perspective, the client brief and spectacular architectural design of
the proposed development is central to the success of the development project and its important
cannot be underestimated.
(1)
I) Design and costing stages typically involve contribution from all the professional team members. It is
therefore the role of the Building Contractor to ensure there is fluent co-ordination between each
stage of the development when producing the design and costing.
(1)
m) By the Accounting Rate of Return (ARR) and the Discounted Cash Flow (DCF) techniques of
investment appraisal, a set of decision rules which can differentiate acceptable from unacceptable
alternatives is required.
(1)
n) The highest and best use of a site is usually the most costly building or the building producing the
highest net operating income.
(1)
o) In defining a market area for a housing project, a major link, for example, is place of employment as
determined by the time, expense and difficulty of the journey to work.
(1)
p) Failure to undertake market research deprives an investor the opportunity to know he is offering an
inferior product and service. Even worse, the investor may be trying to ask a premium for an already
outdated product.
(1)
q) Economic use of land resources is analysed from the framework of physically possible, institutionally
viable and economically acceptable.
(1)
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Property Development and Marketing
PDM611S
r) A real estate market research problem can be quite general such as determining the community
demand for housing which does not address any specific property type, location but focussing on the
strength of demand for a particular land parcel.
(1)
s) Rental rates or levels provide a good indicator of the supply and demand situation for income
producing properties.
(1)
t) A positive Net Present Value (NPV) indicates that the projected earnings generated by a project or
investment - in future dollars terms - exceeds the anticipated costs, also in future dollars.
(1)
u) By Discounted cash Flow technique for evaluating development projects, it is assumed that an
investment with a positive NPV will be profitable, and an investment with a negative NPV will result
in a net loss.
(1)
v) The decision criteria which form the basis for selection of mutually exclusive development projects
dictates that only investments with positive NPV values should be considered.
(1)
w) High vacancy rates indicate an oversupply of real estate which ultimately pressures rental rates
downward because there is so much competition among landlords for tenants.
(1)
x) When low occupancy rates occur, it is a landlord's market. The low rates create higher demand for
existing units which, in turn, keeps market prices higher.
(1)
y) Increase in number of properties listing for sale reflects a situation in which the cost of renting a
home is low as compared to the cost of buying a home.
(1)
[25]
Question 2
a) A brownfield known as Xolox has been identified to be a suitable site for the construction of Flexibies
Housing Estate, a plush apartment complex in the outskirt of Omafo metropolis. is to be developed
with the following projections revealed through a real estate market survey.
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Property Development and Marketing
PDM611S
Land acquisition
Quantity Surveyor's estimate of
items of work and specifications
Contractor's Profit
N$ 123 500
N$ 280 000
N$ 58 400
Project evaluation conducted by Abisai Incorporated CCrevealed the following.
• Flexibies will be sold 8 years later for N$ 950 000.
• Income for the first 5 years will be N$122 500 per annum and for the following 4 years, N$95
000 per annum.
• Income taxes estimated at 5% per annum were not taken care of in projecting the income
stream for the last 4 years of operating the facility.
You are required to determine the Accounting Rate of Return for Flexibies Housing Estate.
(6)
b) Meme Aluguntu is confronted with a critical real estate investment decision to make regarding two
mutually exclusive investments. In fact, she intends to purchase an Apartment building or buy a Real
Estate Investment Trust (REIT) that will require an outlay of N$54 500 and N$80 000 respectively. A
detailed market analysis recently carried out in the comparable market revealed the following market
information regarding income flow;
Period
Real Estate Investment Trust (REIT) Apartment Building
Year 1
Year 2
Year 3
Year 4
N$13 000
N$ 25 000
N$ 18 500
N$ 20 500
N$ 15 000
N$ 14 500
N$ 45 000
N$ 46 000
In the process of carrying out the investment appraisal you are informed that the projected income
for year three of the respective investments were inclusive of insurance premium amounting to
N$ 1350.
Advise on which of these mutually exclusive investments should be undertaken when the investors
target rate is 12%.
(15)
[21)
First Opportunity Examination Paper
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PDM611S
Question 3
a) Bossville site could reasonably be expected to be used for any of these types of property
development: Ongapi Court, town house units or a Kantope retail facility. Below is detail construction
and market information on the respective logical uses:
Types of Use
Ongapi Court
Kantope retail
facility
Area for
Construction
(sq. m)
3 500
Rental
(N$ sq. m)
150
Vacancy
rate(%)
3
Credit losses
(N$)
12 000
12 850
194
3
12 500
Operating expenses to be incurred are estimated to be 15% and 18% of the respective effective gross
income for Ongapi Court and Kantope retail facility.
Assume a market return of 12 percent on all two buildings.
Sales of comparable properties have just been concluded for all the two types of uses in N$ as
follows:
Sales Price
Buyer's expected Net operating Income
during the first year of ownership
Ongapi
Court N$
3 500 000
Kantope Retail
Facility
N$
7 560 000
650 000
860 000
It is anticipated that Concession stands in the Kantope Retail developments will generate annual
revenue of N$2 400.
It has been estimated that Professional fees, cost of labour and material, cost of finance and
contractors fees will respectively amount to N$899 and N$689 per square metre for Ongapi Court
and Kantope retail facility.
With the above market information, you are required to conduct an appraisal to determine the
economic use that maximizes the value of Bossville site. Assume lettable area is equal to area of
construction
(18)
b) In your own words state the meaning of any three (3) of the following terms as used in the
development and marketing of properties.
(6)
i) Potential Gross Income (PGI)
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Property Development and Marketing
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ii) Effective Gross Income (EGI)
iii) Vacancy rate
iv) Relationship between vacancy and occupancy rates
PDM611S
[24)
Question 4
a) Account for any four (4) legal requirements under the Estate Agent Act to be complied with by
Principal Estate Agents (i.e. companies, close corporations, partnerships and sole proprietors) when
acting as estate agents?
(12)
b) In dealing with prospective purchasers or lessees, Estate agents have certain legal and ethical
obligations to serve their interest in a professional manner. Briefly explain any four (4) aspects that
constitute rendering of a professional service to a prospective buyer.
(12)
[24)
Question 5
a) Briefly account for the following under site acquisition as a component of property development
process;
i) Legal investigation
(2)
ii) Physical inspection and examination
(2)
b) Briefly explain the role of the Valuation Surveyor as an actor/consultant in a property development
process.
(2)
[6]
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Property Development and Marketing
PDM611S
Land acquisition
Quantity Surveyor's estimate of
items of work and specifications
Contractor's Profit
N$ 123 500
N$ 280 000
N$ 58 400
Project evaluation conducted by Abisai Incorporated CCrevealed the following.
• Flexibies will be sold 8 years later for N$ 950 000.
• Income for the first 5 years will be N$122 500 per annum and for the following 4 years, N$95
000 per annum.
• Income taxes estimated at 5% per annum were not taken care of in projecting the income
stream for the last 4 years of operating the facility.
You are required to determine the Accounting Rate of Return for Flexibies Housing Estate.
(6)
b) Meme Aluguntu is confronted with a critical real estate investment decision to make regarding two
mutually exclusive investments. In fact, she intends to purchase an Apartment building or buy a Real
Estate Investment Trust (REIT) that will require an outlay of N$54 500 and N$80 000 respectively. A
detailed market analysis recently carried out in the comparable market revealed the following market
information regarding income flow;
Period Real Estate Investment Trust {REIT) Apartment Building
Yearl
Year2
Year 3
Year4
N$ 13 000
N$ 25 000
N$ 18 500
N$ 20 500
N$ 15 000
N$ 14 500
N$ 45 000
N$ 46 000
In the process of carrying out the investment appraisal you are informed that the projected income
for year three of the respective investments were inclusive of insurance premium amounting to
N$ 1350.
Advise on which of these mutually exclusive investments should be undertaken when the investors
target rate is 12%.
(15)
[21)
First Opportunity Examination Paper
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June 2023