Property Economics and Finance: Investor Profit & Economic Model

This report provides a detailed analysis of property economics and finance, focusing on factors influencing investor profit, such as GDP, inflation, and property supply. It formulates a basic economic model that emphasizes the relationship between investor profit, economic performance, and property performance. The model is then applied to a case study involving the construction of an airport in Western Sydney, considering developmental activities and factors affecting property demand. The evaluation of the economic model application assesses the impact of interest rates, inflation, property demand, GDP, and foreign exchange rates on investor profit, providing insights into the dynamics between economic indicators and market indicators. Desklib offers a platform for students to access similar solved assignments and past papers.

Running head: PROPERTY ECONOMICS AND FINANCE
Property Economics and Finance
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Executive Summary
The report has stated on the basic elements related to property finance with indicators like GDP,
confidence, inflation, employment, household wealth and property supply influencing the
investor profit. Some of the different types of the other aspects of the study has formulated a
basic economic model. This model has emphasized on the relationship of investor profit,
economic performance and property performance. The economic model has shown the relation
of investor profit which has revealed the relation among property indicators and economic
indicators. The next important section of discussion has applied the model in the given case
study for construction of an airport in the Western Sydney region. The rationale for the
construction of the new airport in this region is seen with the fact that demand for the aviation
services in the next twenty years is forecasted to grow to a significant level. To relate the
economic model in the given study the project has considered all the developmental activities
which needs to be carried out near the airport. The application of the economic model is
observed with the investor’s profit which is evaluated with the summation of the “Interest Rate,
Inflation, Property Demand, GDP and Foreign Exchange Rate”. The evaluation of economic
model application is evident with the factors affecting the property demand for Sydney Airport.

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Table of Contents
Introduction......................................................................................................................................2
Principles of property economics....................................................................................................2
Formulating a basic economic model..............................................................................................4
Applying the formulated model to the project provided.................................................................6
Evaluation of economic model application.....................................................................................7
Conclusion.......................................................................................................................................8
Referencing......................................................................................................................................9

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Introduction
The report aims to discuss the basic elements related to property finance with the use of
indicators such as GDP, confidence, inflation, employment, household wealth and property
supply influencing the investor profit. Other aspects of the study have formulated a basic
economic model. This structure has emphasized on the relationship of investor profit and
economic performance and property performance. Such a model will be able to show the relation
of investor profit which equates with the property indicators and economic indicators. The next
important discussion has applied the model in the case study for construction of an airport in
Western Sydney. The rationale for the construction of the new airport in this region is seen with
increasing forecasted demand in the aviation services in next twenty years to a significant level.
To relate the economic model in the given study the project has considered all the developmental
activities which needs to be carried out near the airport. Some of the main consideration will be
taken with the “commercial, industrial, and residential properties or a combination of them”. The
next stage of the stage has evaluated the economic model. The evaluation of the discussion is
followed with the understanding of the dynamics among the economy indicators and market
indicators. The evaluation of these pointers will be able to understand the link between property
development and investment project. The important aspect of the description of the assignment is
aimed to identify the market indicators affecting the construction of the new airport in Western
Sydney (Akbaret al., 2015).
Principles of property economics
The principles related to property economics are associated with the supply and demand,
anticipation, balance, conformity, externalities and substitution. The principle of supply and
demand relates to the demand for an item due to the scarcity of the commodity. In general, a
property with higher demand tends to bear an increased value. On the other hand, in case the
demand for a property is seen to be low then the value will diminish accordingly. The principle
of anticipation is inferred with the value of a property with future benefits. The future benefits
normally take form of intangibles. This principle uses the increase in the value as per the
anticipated benefits. For instance, if an individual purchased a property for $ 290,000 and similar
property is available for $240,000, then an additional amount of $ 50,000 is paid for the

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anticipated benefits of the pool and not the cost. The principle of balance is considered with the
property and environment in which the property is seen to be located. This consideration relates
to the usage of land. This principle also states on the relationship between the cost of property,
added cost and the value it can return. In terms of the optimum use of land, there would be
greater instance of blend of land use. The optimum land use concept will be consisting of a
mixture of “apartments, single-family, contemporary shopping centres and nearby employment
centres” (Sinnett et al., 2016).
The conformity principle is seen to be like balance but relates more to the characteristics
of the real estate. It can hold the maximum value which is maintained with the aspects of
reasonable conformity and non-monotonous uniformity among the properties. The main features
of the principle of substitution relates to the decisions made by the real estate buyers and
appraised as per the thought process of the appraiser. The substitution process is considered to
identify the important elements of the various types of the other alternatives which is associated
to satisfaction of similar wants, needs and desires. A prudent purchaser will be able to apply the
various principles pertaining to the cost of building or buying another property. It needs to be
observed that the effect of substitution can maintain the market balance. The substitution is based
on the cost approach, sales comparison approach and income capitalization approach. The
externalities principle is relied on the four major forces which are seen to be outside the property
limits influencing the social, political, physical and economic boundaries. These concepts are
depicted to be subjective in nature and action of buyers and sellers can maintain the values which
are influenced by the forces which are outside the subject property’s boundaries (Cook et al.,
2016).
Some of the other important indicators affecting the value of the property is associated to
the “economic factors and non-economic factors such as interest rates and GDP”. The increasing
nature of GDP can state on the economic production of a region and the representation for the
same is seen to be based on per capita basis. This consideration is useful in stating growth in the
GDP and standard of living as the income rises. The confidence aspect is considered with the
property decline, which is regarded considered as a critical indicator for the valuation of the
property and several types of the other factors directly related to the valuation resulting in the
reduced profits and price. In addition to this, the consumer price index is regarded as an

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important indicator of the property demand. In situations when there are inflation people are seen
to restrict their spending decisions. Instead of the decision to spend the people often decide to opt
for the strategy of saving. There have been several considerations which has shown the
repercussions of real estate investment and its implications on the buyer’s properties which
cannot be considered for sale. In addition to this, the significant considerations for the
employment has a crucial role in maintaining stable property market. Unemployment is another
important aspect which has a direct negative influence on the principles on the property market.
In various situations, people may not be willing to pay their rents and mortgage amount. The
implication of this is seen with considerable amount of increase in the mortgage sale along with a
falling price in the property. In addition to this, certain aspects such as changes in the household
wealth makes people to upgrade their lifestyle. The increase in the wealth is seen to be based on
the different types of the important consideration for GFC savings (Pugalis & Tan, 2017).
Formulating a basic economic model
The formulation of the economic model is identified with several types of economic and
property conditions. The real investor profit is seen to be dependent on the various types of the
factors such as “interest rates, inflation, Gross Domestic Product and Foreign Exchange Rate”.
Henceforth, the main equation of the property is formulated:
Investor Profit = Interest Rate + Inflation + Property Demand + GDP + Foreign Exchange Rate
The main factors affecting the investor profit is considered for the formulation of the
economic model which has combined the economic as well as the property related factors. In
situations when there is an increase in the interest rate, the mortgage lenders are seen to increase
the cost of variable associated to the mortgage payments. The higher rate of interest will make
the purchase of the property look less attractive. However, from the investors point of view this
is seen as a profitable venture. In Australia majority of the residents are depicted with a variable
mortgage and even a small change in the interest rate can have a big impact on the affordability
aspect of buying the house (Jennings et al., 2015).
The property demand is critical in the formulation of the economic model. This is mainly
seen with the fact that more is the value of the location, more will be the demand. For instance,

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the properties which are seen to be located beside a beach is more likely to be tagged with a
higher price tag. The major landmarks such as airports calls for a premium price on setup of local
business. This is due to the demand factor associated with the property (Pol, 2016).
The deciding factor with the inflation is based on the element whether the property prices
will increase or decrease in such a situation. In general, the increase in inflation rate is expected
to drive up the prices of the property to a certain extent. These factors are evident with various
types of the considerations which are seen to be based on the reducing spending power. Inflation
has the power to dynamically affect the cost of credit (Shanahan et al., 2014). The essential costs
such as food grains and rise in the petrol price is understood to be relied on the common man’s
income. It needs to be further seen that in Australia due to increase in cost of borrowing the
income in most cases remained static and people wary for taking any kind of loan. This is mostly
evident in case of house property. The natural reaction for the real estate developers will be able
to consider the various types of the other factors which will be able to considerably affect the
baseline factors for the investment purpose (Voyer et al., 2017).
Due to the general characteristics of the increasing nature of the inflation the economic
model has considered that any sort of increase in in the same would be conducive in increasing
the overall value of the property. The understanding of the effect of inflation in the long term and
short term can have a major impact on the prices of the property (Mitchell, 2016).
The increase in the prices are seen to be based on the GDP as well. In case there is an
increase in the price, then the wealth effect will be likely seen in terms of the consumer
spending. This will lead to higher aggregate demand and expected to cause an increase in the real
GDP and increased growth in the economy. The consumption spending on the housing services
is able to bring more amount of gross rent and utilities paid by the renters. It is to be also
understood that the owners imputed GDP has been long recognized with the standard practice in
terms of the national income. The increase in GDP is directly related to the residential
investment and the consumption spending on the housing service. This is a contributing factor
for the different types of the services which are associated to the investors profit (Settre &
Wheeler, 2016).

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As per the construction of the economic model it needs to be considered that the “Interest
Rate, Inflation, Property Demand, GDP and Foreign Exchange Rate” will be able to significantly
have a positive impact on the investors profit. The formulation of the economic model is based
on property factors such as demographics. This aspect is seen to be evident in terms of the
migration which takes place with the level of population. The facilities such as parking, will also
add to the property value. This is directly related to the property demand in the areas with major
landmarks. The government policies and subsidies also play a determining role in terms of
property demand and prices (Florec et al., 2016).
Applying the formulated model to the project provided
As per the given case it needs to be understood that the goods transport link is taken into
consideration with the increasing aviation demand. The investment cost of the project is
depicted to be higher than the existing airport projects. This is seen to be evident with airport
length of 10.5 Km. The construction stage 1 will be seen with the increasing demand for the
services and the goods in Western Sydney. In addition to this, the construction period is expected
to generate an additional $ 1.9 Billion for the Western Sydney economy. The construction of
period is also discerned to generate more than 11,000 jobs related to the service industry. In the
early 2030s the proposed Western Sydney Airport is expected to create more than 29,200 jobs by
the end of 2063 (Florec et al., 2016).
The application of the economic model “Investor Profit = Interest Rate + Inflation +
Property Demand + GDP + Foreign Exchange Rate”, is expected to ensure maximum amount of
profit to the investment agencies planning to invest in the construction of the new airport. Based
on the recent reports it needs to be understood that the banks are increasing the overall rate of
interest for the borrowers. This is done mainly to lift the sale of the property. The connectivity of
the airport will be conducive in terms of creation of new jobs and contribute to the overall
economic growth of the country. This factor is seen to be beneficial for driving the property
demand. As per the market point of view the total scope of increase in the interest rate is
considered with a chance of 50:50 ratio and the increase of 1.75% from the current rate of 1.5%.
The “National Australia Bank” are considering for increase in two rates by 2018. The forecast of

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increasing interest rate will contribute to the overall increase in the investor profit (Florec et al.,
2016).
The effect of inflation on the property price is grounded on the tendency of currency to
reduce the overall purchasing power. This consideration distorts the image of not only the
individual assets but also economy. The effect of inflation in the property of Australia is directly
related to affect the overall nature of the demand for the land (Miller et al., 2015).
There have been several factors associated to the property factors, such as construction of
the airport in 1,780 hectares greenfield site. The first stage will consist of a 3.7 km runway,
which will be able to handle 10 million passengers. The factors are directly related to be
associated to drive increase the demand of the airport. In addition to this, the property value at
the site of the airport will relate to high quality transport connectivity. This factor is given with
the fact that “Australian and New South Wales Governments” are investing in “new transport
connections through the $3.6 billion”. The property factors have shown several types of the other
increasing trend which is associated to handling of more than 82 million passengers every year
(Roberts, Beckley & Tull, 2014). The connectivity factors for the airport will be also considered
with increasing property value. The property factors will be seen to be conducive in increasing
the overall investor profit for the project. The changes pertaining to the Foreign Exchange Rate is
seen to affect the overseas investors in the construction program. The Australian Dollar is highly
volatile and prone to movement with 1% up or down in a single day. This consideration is seen
to be depicted with the changes in the large currency transfers and can dramatically change in
short period of time. A weak AUD exchange is depicted with a quicker sale of property, however
from the investors point of view this is not seen to be profitable venture (Rimmer, 2017).
Evaluation of economic model application
The evaluation of the economic model application is seen with the benefits in terms of
the environmental and the developmental requirements, preparation of the airport sites and
airspace design. The evaluation importance is also understood to be conducive with the
determining an Airport operator and developer. The consideration of the interest rate will be able
to track the investor’s property as per the increase or decrease in the rate of interest. Moreover,
the evaluation of the model is seen to be conducive in addressing the present situation of the

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property demand for the construction of the new airport (Florec & Pannell, 2016). The several
types of the positive aspects of the property demand is influencing the investor’s profit in the
major way. Furthermore, the important considerations for the sustainability aspect is also able to
reflect the “Infrastructure Sustainability Council of Australia ratings”, “Green Star ratings” and
“National Australian Built Environment Rating System”. The changes in the foreign exchange
rates will be able to contribute to the investment decisions made by the foreign investors. The
construction of the airport is further observed to simulate the local economy in industries relating
to aviation like retail, professional service, transportation and logistics. The economic impacts
will be able to draw more amount of “economic activity, population growth, and employment
growth towards Western Sydney”. This consideration is seen to be conducive in terms of the
creating rebalance with the economic development in the Sydney region (McRae-Williams &
Guenther, 2016).
Conclusion
As per the discourse of the study, values of property economics are considered with the
principles related to supply and demand, anticipation, balance, conformity, externalities and
substitution. The formulation of the basic economic model is recognized to be considered with
the combination of economic as well as the property related factors. In situations when there is
an increase in the interest rate, the mortgage lenders are seen to increase the cost of variable
associated to the mortgage payments. The higher rate of interest will make the purchase of the
property look less attractive. However, from the investor point of view this is seen as a profitable
venture. In addition to this, the applying the formulated model to the project is considered with
the devising of the economic model which can combine the economic as well as the property
related factors. In situations when there is an increase in the interest rate, the mortgage lenders
are seen to increase the cost of variable associated to the mortgage payments. Evaluation of
economic model application is considered with the application of the economic model such as
“Investor Profit = Interest Rate + Inflation + Property Demand + GDP + Foreign Exchange
Rate”, which is expected to ensure maximum amount of profit to the investment agencies. Based
on the recent reports it needs to be understood that the banks are increasing the overall rate of
interest for the borrowers. This is done mainly to lift the sale of the property.

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