- Residential real estate developers
- Commercial and mixed use real estate developers
- Industrial real estate developers
Profit model of residential real estate developers
Profit model of commercial real estate developers
Profit model of industrial real estate developers
Factors that Affect Value
- Land bank - the value of a real estate developer is directly influenced by its land bank. As the larger the land bank, usually means the developer can make more profits from developing the land banks later. Hence, the land bank that a real estate company has is always disclosed in detail in the listed companies' reports.
- Inventories - Real estate inventories an be separated into a few categories. Usually increasing values of construction-in-progress and land held for development will translate to higher future earningswill translate to higher future earnings for the company:
- Completed developments - properties whose construction has been completed
- Construction-in-progress - means the value of properties under construction.
- Land held for development - value of land help for future developments.
- Investment properties - properties held for rent or sale
- Customers deposits - for residential projects, it is often that developers will collect customers deposits or even prepayments of entire houses prior to completion of the units. As these properties are pre-sold and their profit and loss have yet to be recognized in the income statement, growing customer deposits could signal increasing revenue and most likely profits in the coming years ahead.
- Housing prices - the profits from real estate developers that primarily sell their developments come from selling the units at above costs. Hence, the moving of housing prices have direct impact on the profitability of residential real estate developers. Usually the stock price of real estate developers have high correlation with the anticipated housing price direction.
- Rental rates - Rental rates are especially important for commercial and industrial real estate developers as most of them do not sell all the units that they developed but they keep these units for rental returns. Rental rates have direct bearing on stock prices of such developers and REITs.
- Industry consolidation - as economic difficulties mount and economies of scale becomes more important, mergers and acquisition activities will also drive prices of real estate companies as the merged entities might be more efficient given a larger land bank.
- Macro economic factors - government policies play a huge role in controlling property prices as the following factors will determine the direction of property prices. We have listed
|Land supply||Down||Positive on short term price but will affect future profitability if land bank dries up|
Valuing Real Estate Developers