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PDM611S - PROPERTY DEVELOPMENT AND MARKETING - 1ST OPP - JUNE 2024 |
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nAmlBIA un1VERSITY
OF SCIEnCE Ano TECHnOLOGY
FACULTYOF ENGINEERINGAND THE BUILT ENVIRONMENT
DEPARTMENTOF LAND AND SPATIALSCIENCES
QUALIFICATION(S): BACHELOR OF PROPERTYSTUDIES
DIPLOMA IN PROPERTYSTUDIES
QUALIFICATION(S)CODE: 08BOPS
06DIPS
NQF LEVEL:6
COURSECODE: PDM611S
COURSENAME: PROPERTYDEVELOPMENT AND
MARKETING
EXAMSSESSION:JUNE 2024
PAPER:
THEORY
DURATION: 3 HOURS
MARKS:
100
EXAMINER(S)
FIRSTOPPORTUNITY EXAMINATION QUESTION PAPER
SAMUEL ATO K. HAYFORD
MODERATOR: UAURIKA KAHIREKE
INSTRUCTIONS
1. Read the entire question paper before answering the Questions.
2. Please write clearly and legibly!
3. Please STARTEACHQUESTION ON A FRESHPAGE.
4. The question paper contains a total of S questions.
5. You must answer ALLQUESTIONS.
6. Make sure your Student Number is on the EXAMINATION BOOK(S).
PERMISSIBLEMATERIALS
1. Non-programmable Scientific Calculator
THIS QUESTION PAPERCONSISTSOF 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) All the stakeholders in property development are for profit maximisation and/or capital growth
oriented, except the government whose participation in property development business is motivated
by its financial obligation to its shareholders.
b) Accounting Rate of Return (ARR) also known as Return on Invested Capital (ROIC)of a development
project determines the magnitude of profit an investor generates for every dollar invested in project
before accounting for operating expenses and taxes.
c) Building control implemented and enforced by local authorities ensures that building works comply
with the building regulation and a set of standards intended to protect people's safety, health and
welfare in and around the built environment.
d) The valuation surveyor is responsible for continuously observing and monitoring the relevant real
estate market, advising to ensure adjustment in design specifications, where necessary, is carried out
for that completed project to remain aligned to meeting market needs.
e) Realistically, market analysis carried out to assessthe viability of a development project must be
conducted prior to identifying a suitable specific site for the project development.
f) The Bill of Quantities provides projects specific measured quantities of the items of work identified by
the drawings and specification of the Planning consultant.
g) In assessingthe viability of a development project using the residual method, a project can simply be
concluded as successful if the developer can realise the target percentage of profit without due
regard to the residual value of the site.
h) Smooth completion (marketing) of the project requires that the developer engages the services of a
Real Estate Agent to secure sale of the property e.g. through pre-lets or pre-sales.
First Opportunity Examination Paper
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Property Development and Marketing
PDM611S
i) 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 demand side of the real estate market during market analysis stage of
property development.
j) In implementing a property development project, the contractor gets paid a lump sum from the bank
loan for the entire cost of the project development upon completion.
k) Agreement or Letter of Intent with Anchor Tenants are critical for a financial institution to finance
construction of commercial properties such as shopping mall. The rationale· is that they rent more
spaces and thus generate substantial part of the property's revenue.
I) Market analysis for proposed real estate development considers market area, economic trends,
supply and demand indicators, market conditions, and feasibility factors. A prudent developer must
clear all legal permission (planning) hurdles before full commitment to the development is possible.
m) With an exclusive right to sell listing, the seller employs only one agent and mu~t 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.
n) As an appraisal technique for evaluating of property development project from its financial profit and
risk perspective, the Accounting Rate of Return (ARR)focuses on 'return of capital' outlay whilst the
Discoun.ted Cash Flow (DCF)/Net Present Value (NPV) focus on 'return of capital'.
o) The payback period is the time required to earn back the amount invested in an asset from its net
cash flows.
p) The payback method focuses solely upor. the time required to pay back the initial investment; its
strength lies in its ability to track the long-term profitability of a project.
q) A real estate market research problem can be quite general such as determining the C?mmunity
demand for housing which does not address any specific property type, location but focussing on the
strength of demand for a particular land parcel.
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Property Development and Marketing
PDM6115
r) 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.
s) 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 importance
cannot be underestimated.
t) Design and costing stages typically involve contributions 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.
u) 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.
v) In the process of conducting financial analysis of a development project rental revenues can be
estimated by looking at comparable properties in the market and benchmarking existing rental rates.
w) Rental rates or levels provide a good indicator of the supply and demand situation for income
producing properties.
x) 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.
y) 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.
(25]
Question 2
a) "Design and costing stage of the property development process involve contributions from all
members of the professional team". Discuss this statement with reference to any five (5)
professionals highlighting their respective areas of input.
(21)
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Property Development and Marketing
PDM611S
b) List any eight (8) important players in the development of property both in the public and private
sector.
(4)
[21]
Question 3
a) Kuku Shehaama is confronted with a critical real estate investment decision to make regarding two
mutually exclusive investments. With her limited financial resources, she intends to develop stalls of
small units or buy a residential apartment. Capital outlay required to complete Stalls or Apartment
building amount to N$60,400 and N$62,500 respectively. A detailed market survey recently conducted
in the comparable market revealed the following regarding cash inflows.
Investment life
Year 1
Year 2
Year 3
Year 4
Year S
Stalls of Small Units
(N$)
13,400
15,800
18,500
19,800
20,000
Apartment Building (N$)
12,800
13,200
13,800
14,000
15,800
In the process of carrying out the investment appraisal you are informed that the projected incomes
(cash inflows) for year 3 and 4 of both investments are still inclusive of insurance premium of N$1,350
and N$1,560 as well as property taxes amounting to N$2,000 and N$1,800 respectively for Stalls of
Small Units and Apartment Buildings.
You are further informed that it is estimated that the Stall of Small Units and Apartment Building can
be sold 5 years later for N$ 110,000 and N$ 158,000 respectively.
Determine the Accounting Rate of Return (ARR)for the two investments and advise on which of these
mutually exclusive investments should be undertaken by the investor, Kuku Shehaama.
(7)
b) Using the Cashflows for the investments in (a) above,
i)
Determine the Payback Period for Stalls of Small Units and Apartments. [Ignore expenses on
Insurance and property taxes].
(2)
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Property Development and Marketing
Investment Period
Year 1
Year 2
Year 3
Year 4
Year 5
Stalls of Small Units (N$)
13,400
15,800
18,500
19,800
20,000
Apartment Building (N$)
12,800
13,200
13,800
14,000
15,800
PDM611S
ii) Which of the two mutually exclusive investments is preferred and why?
(2)
iii) Support your motivation with any two (2) risks that property investments are usually exposed
to.
(2)
c) Uncle Fikile Mbalula is faced with a real estate investment choice the degree of dependence of which
are mutually exclusive. He intends to develop Joy Apartment Complex or Rosestock Shopping Complex
that will require an outlay of N$64 500 and N$80 200 respectively. A detailed market analysis recently
carried out in the comparable market revealed the following market information regarding income
flow;
Period Joy Apartment Complex
Year 1
Year 2
Year 3
Year 4
N$ 13,500
N$ 15,200
N$ 18,500
N$ 20,500
Rosestock Shopping Complex
N$ 15,000
N$ 15,500
N$ 35,000
N$ 40,000
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$ 1
350.
At the end of the 4th year, the investments are expected to sell for N$175 000 and N$ 180 000
respectively.
Advise on which of these mutually exclusive investments should be undertaken when the investors
target rate is 10%.
(15)
(28]
Question 4
Johannes & Co. Square could reasonably be expected to be used for residential building, an office building
or a commercial building. Below is detail construction and marketing information on the respective uses.
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PDM611S
Types of Use
Residential
Office
Area for
Construction
(sq. m)
455
358
Cost of
construction
(sq.min N$)
750
850
Rental
(N$ sq. m)
55
68
Vacancy
rate(%)
3
2
Assume a market return of 10% on all three buildings. Market capitalization rate of 6%.
Operating
expenses
(N$)
12,500
8,400
You are required to carry out an appraisal to determine the highest and best use that maximises the value
of Johannes & Co. Square and advise accordingly.
(11)
(11]
Question 5
a) List the three (3) Listing Contracts/Mandates as used in Estate Agency and clearly distinguish
between them.
(6)
b) Account for any three (3) 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?
(9)
(15]
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June 2024