Understanding the Investment Fundamentals of the Property Development Sector. A part of the series "Sector Analysis: A Framework for Investors"

Joseph Wong    Alan Lok, CFA, Eunice Chu, ACCA, Guruprasad Jambunathan
15 Apr 2019
Categories: Industry/Sector Analysis, General Market Analysis, Fundamental Analysis, Investment Management

Country or region: Asia Pacific (Overall)

Summary:
INTRODUCTION TO SECTOR ANALYSIS: A FRAMEWORK FOR INVESTORS

The key to a company’s success depends on how well it executes its business model. This calls for optimising the allocation of limited resources to generate sustainable cash flows, for investing in new products, technologies, and services in responding to the wider competitive landscape or societal changes and mega trends, as well as for devising appropriate responses in the face of an evolving macroeconomic, regulatory, and political environment.  

Different industries often require very different business models; and even within the same industry, the model that does add value to the business may vary somewhat from company to company.  

To help investors undertake proper due diligence on a company, we have generated a framework of analysis designed to tease out the following: (1) whether the pertinent factors favour the firm in question; and (2) whether management is effective in executing its business model or value-generating strategies, while responding appropriately to its external environment.

This framework is customised to specific sectors and incorporates interviews with professionals within those sectors. 

 
THE PROPERTY DEVELOPMENT SECTOR - LUMPS, BUMPS AND SLUMPS

In a complex and fast-moving financial world, it’s comforting to know that some sectors remain relatively easy to understand. A case in point is property development. The property developer acquires land and an architect then designs the building and obtains planning approval before passing the baton to the construction team. 

At this stage, the developer could choose to undertake marketing and sales before construction is complete or wait until the last brick falls into place. Either way, you can then calculate the gross development value (GDV) of a project or profit from the project, of which the sum of GDV, excluding the developer’s liabilities, will yield the value of the development.

To read more, download the full sector analysis for the Property Development Sector with accompanying question bank below.

This publication qualifies for 1.0 CE credits under the guidelines of the CFA Institute Continuing Education Program.
We encourage CFA Institute members to login to the CE tracking tool to self-document these credits.  
Date of original publication:

06/28/2018


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