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CIPS: Asia/Pacific & International Real Estate Interpreting Country Assessment Model Data Geography The area can provide a relative measure of potential market size when compared to other known markets. The size of the capital city is another clue to market size. The capital city is typically, but not always, the major market in a country, and is usually the one for which real estate data is reported. Resort areas that attract foreign buyers are important. Import/export access and costs reveal a great deal about the accessibility of a market, as does the existence of convenient trading partners Favorable characteristics + Ease of infrastructure development provides a good look at intramarket accessibility. + Ease and degree of social and economic interaction provides insight into market accessibility for internal and external markets. + Topographical influences on development can reveal the market’s national resources including unique natural resources + The higher the density, the higher the real estate prices. + Reasonable consumption-to-savings ratio and Increasing per capita income + An educated workforce and high rates of literacy. + Balance between birth and death rates. Low birth rates lead to an aging population. Government The powers, attitudes, structures, and stability of a government can determine the success or failure of the economy. Democracy, open markets, structural stability, tax incentives, and minimalist regulation are positive characteristics. Memberships in agreements and alliances can indicate a country’s approach to international trade and foreign investment. Favorable characteristics + Laws that preserve free markets through minimal restriction of foreign-owned assets + Minimal legal restrictions on ownership, capital flow, wages and prices People + Anti-inflationary monetary policies Population size corresponds directly to total demand for real estate, particularly for residential properties. Population growth rates determine increases or decreases in housing and retail demand as well as beneficial or detrimental growth in terms of the overall economy. More than 3 percent is generally considered too rapid for sustainable growth. Population density can influence the makeup of an economy and the types of real estate properties that serve the economy. + Conservative fiscal policies and balanced budgets Favorable characteristics Economy + Capacity of business infrastructure including communication systems, banking, regulation of banking, corporate structures, and distribution systems indicate support for economic activity. 228 A stable population growth rate of 1–3 percent is considered healthy if the economy can keep up with the needed changes such as housing, schools and jobs. + Reasonable tax laws and rates on income, gains, sales, imports/exports, corporations, for domestic and foreign parties + Promotion of trade agreements and alliances + History of stability Resources Survey of base industries, their level of development and the potential of untapped industries and base product competitive standing. Availability, costs, and mobility of labor and management supply. Inflation rates, including historical periods of depressions or hyper-inflation, measure the loss or gain of consumer purchasing power in a market. The higher the inflation rate, the more products and services cost. If wages cannot keep pace with inflationary trends, purchasing power declines along with the standard of living. Stock markets and exchange rate trends indicate a country's economic performance compared to other countries in terms of balance of trade, inflation and per capita GDP. The size and compositions of the labor force indicates the market’s potential attractiveness to foreign companies who hire local labor. The unemployment rate is an indication of the economy's actual output compared to its potential output. GDP is a measure of a country’s economic health. GDP per capita measures the economic output per unit of population. GDP growth measures the trends in overall output. The resources, products and industries of an economy describe its unique character and convey its level of advancement. Developed economies typically specialize in manufacturing, technology, financial services and communications. Less developed economies are engaged in agriculture, export of natural resources, and labor-intensive industries. Exports indicate the economy's strengths and base industries. Imports reveal the country's shortcomings, needs and wants. Trading partners can reveal the country's economic alliances and dependencies. Trade balances compare the net difference between total imports and total exports. A positive trade balance means the production of exports has outpaced the cost of imports. A negative trade balance indicates consumption has exceeded production. Favorable characteristics + Internationally traded currency + Stable banking system + Controls on liquidity and the money supply + Increasing exchange rates against currencies of other countries + Steadily growing GDP + Positive trade balance + History of stable inflation rates + Low unemployment + Stable, competitive base products and services + Availability of adequate labor and management + Technological advancement + Developed business infrastructure including communication systems, corporate structures and distribution systems. Infrastructure Infrastructure is essential for sustaining economic growth. A country cannot expand or prosper it is lacks adequate infrastructure systems. Favorable characteristics + Water, power and waste disposal systems operating below capacity Real Estate Notary fees, commissions, stamp duties, land registration fees, transfer taxes, acquisition taxes and value-added taxes can all determine the cost of acquiring a property in a particular market. Acquisition costs vary from country to country. The commission rate indicates what cooperating brokers may expect to earn from a transaction. Rental rates provide a picture of the market's occupancy costs by type of property as well as a comparison to other markets. Patterns in leasing rates are insights into local supply and demand conditions. Size of the real estate market can determine the volume of transactions, the sophistication of the market, and the potential commission income to expect in the 229 CIPS: Asia/Pacific & International Real Estate market. Vacancy rates quantify the difference between the market's supply and demand for properties. Increasing rents and decreasing vacancy rates indicate a landlord's market. Favorable characteristics Cultural Issues A country's ethnicities, languages, religions, and history create a country's unique identity. Understanding a nation's culture facilitates working with its people. + Rational land use regulations Favorable characteristics + Adequate number of support organizations: title, finance, property management, construction, insurance, engineering, architectural, appraisal, and brokerage organizations + Favorable cultural attitudes toward business, industry, and trade + Laws favoring private, unrestricted ownership + Reasonable landlord-tenant relations and leasing + Affordable mortgage finance availability Lease Trends Lease terms provide comparison data. Quantifying other occupancy costs, this information also enables cost comparisons with other markets. Yields reveal a general relationship between property sale prices and net income, assuming a property is fully rented. As demand for properties goes up, yields begin to fall. (Higher prices divided into net incomes produce lower returns.) Favorable characteristics + History of attractive investment returns + Availability of high-quality properties + Positive absorption rate + Competitive capitalization rates + High occupancy rates 230 + Informed views of world events, and other nationalities and cultures + Religious and cultural norms that do not preclude open trade with other countries + High standards for educational institutions and medical facilities