Strategy for LPPEP EA Examination

Strategy for Examination

Go here to read of this Article relating to "How to Best Tackle the LPPEP Examination for Estate Agents".

2017 Part 2 Result!!!

Eligibility for Examination & Practical Experience

Q. (Also posted in my-realproperty2)

I would like to know, how could i access to your question bank?

There is a question bank at my-realestateforum.blogspot.com. It is for public. 2011-2017 past year questions are all there.

The question with answers (suggested answers) are in my private blogs. Part 1 is at my-realproperty1.blogspot.com.

You need to be invited to read my private blog. How to do this is easy, I have to get a few things from you.

1. Your Full Name:
2. Your HP for WhatSApp:
3. Your current Job:

4. Your Location city:

Q.

Perhaps, you could help to clear my doubt by telling me the flow to be REA.
Am i allow to take the exam without attending any classes offer by the recognize university?

As long as you have SPM - with a least 5 passes and 3 of them being credits with 1 of the credit passes in Mathematics or Science or Accounts or Commerce - Rule 32 (2) (b) of Valuers, Appraisers and Estate Agents Rules, 1986 (hereafter VAEA Rules 1986).

Yes, you can do self-study without attending any class offered.

Q.
After passing this exam, i have to under training as PEA for 2 yrs in order to proceed for TPC?

Yes, PEA for 2 years is required and it is counted after passing of the Part 2 Exam while being registered as PEA. Earlier experience as REN is not counted.

Rule 45 of VAEA Rules 1986:

45. Practical Experience.

(1B) The minimum practical training and experience required for a candidate to be registered as an estate agent are-

(a) that he has passed the Test of Professional Competence set by the Board; and

(b) that he has two years post-qualifying practical training and experience in Malaysia under a registered estate agent in a registered estate agency firm.

(2) The two years post-qualifying practical training and experience required ... (omitted for simplicity) shall be on a full-time basis.

Q.
or can my current experience replace the 2 yrs as PEA?

No. See above.

Ref:

Rules 32 & 45 of Valuers, Appraisers and Estate Agents Rules, 1986.

Horizontal member of support

Q.
Explain the following building terms with diagram when necessary.

• Joists
• Stringers
• Headers
• Purlins
• Rafters
• Girts
• Lintels
• Girders
• Spandrels
• Trusses

A.
In most buildings, the superstructure systems consists of floor and roof desks, horizontal members that support them, and vertical members that support the other components.

The horizontal members are generally known as beams, but they also are called by different names in specific applications. For example:

• Joists are closely spaced to carry light loads.

• Stringers support stairs.

• Headers support structural members around openings in floors, roofs, and walls.

• Purlins are placed horizontally to carry level roof decks.

• Rafters are placed on an incline to carry sloping roof decks.

See above image.

• Girts are light horizontal members that span between columns to support walls.

• Lintels are light horizontal beams that support walls at floor levels in mutistorey buildings or that carry the part of walls above openings for doors and windows.

• Girders may be heavily loaded beams of horizontal members that support other beams.

• Spandrels carry exterior walls and support edges of floors and roofs in multistorey buildings. In concrete or steel construction, an exterior beam extending from column to column usually carrying an exterior wall load is known as a spandrel beam.

• Trusses serve the same purposes as girders but consists of slender horizontal, vertical, and inclined components with large open spaces between them. The spaces are triangular in shape. Lights beams similarly formed are called open-web joists.

"a framework, typically consisting of rafters, posts, and struts, supporting a roof, bridge, or other structure."

A.
Merritt & Ricketts (2001) Building Design and Construction Handbook. Six Edition. McGraw-Hill. Page 1.11.
Pictures download from public domain within search by Google.

Exemption equivalent to Estate Agent Examination Malaysia

Q.
List down the exemption route equivalent to Estate Agent's Examination.

A. (Repost from my-realproperty2.blogspot.com)

Exemption Route

Rule 43 Exemptions

(1) The Board may accept the examinations of institutions of higher learning or professional institutions either in Malaysia or overseas in lieu of the Board's examinations if it is satisfied that the standard thereof is not less than that of the Board's examinations.

(2) In considering such examinations regard shall be had to-

(a) the minimum entry tor such institutions requirements;
(b) the syllabus content and whether or not the subjects studied have relevance to Malaysian practice;
(c) the questions set;
(d) the standard of marking;
(e) the library facilities of the institutions; and
(f) the practical experience gained by the applicant while studying at such institutions.

Rule 44 Examinations of other institutions

The examinations of institutions of higher learning or professional institution either in Malaysia or overseas that the Board considers of a standard not less than that of its written examinations shall be as specified in the Sixth Schedule.

Professional Institution are listed in Sixth Schedule as recognized to be registered as valuer - hence also recognized as Estate Agent:

As Valuers

1. MALAYSIA:

(a) Institution of Surveyors (Malaysia)

(i) Diploma of the Institution of Surveyors (Malaysia) (General Practice)
(ii) Diploma of the Institution of Surveyors (Malaysia) (Property Consultancy and Valuation Surveying)(PCVS - or PMVS) Property Management Valuation Surveying

2. AUSTRALIA:

(a) Australian Institute of Valuers

(i) Diploma of Australian Institute of Valuers

3. NEW ZEALAND

(a) New Zealand Institute of Valuers

(i) Diploma of New Zealand Institute of Valuers

4. UNITED KINGDOM

(a) Royal Institution of Chartered Surveyors (RICS)

(i) Diploma of the Royal Institution of Chartered Surveyors (General Practice)

(b) The Incorporated Society of Valuers and Auctioneers

(i) Diploma of the Incorporated Society of Valuers and Auctioneers (General Practice Division) (1982 Syllabus)

***************************************

As Registered Estate Agents

A pass in the final examination of the following:-

Academic Qualifications

1. All the professional qualifications recognized by the Board for registration as valuers.

Other Academic Qualifications:

1. MALAYSIA

(a) Institute Teknologi MARA (now UiTM)

• (i) Diploma in Estate Management

(b) Universiti Teknologi Malaysia

• (i) Diploma in Valuation

2. AUSTRALIA

(a) Moorabin College of Technical and Further Education, Victoria

• (i) Advance Certificate Course in Estate Agency

Professional Qualifications

1. All the professional qualifications recognized by the Board for registration as valuers.
2. Board of Valuers, Appraisers and Estate Agents-

• (a) Certificate in Estate Agency
• (b) Diploma in Estate Agency

3. Institution of Surveyors (Malaysia) or RISM

* Candidates are required to pass the Intermediate Examination in the following subjects:

(a) Surveyors General Practice
(b) Property Consultancy and Valuation Surveying (Property Management Valuation Surveying)

##############################################

TEST OF PROFESSIONAL COMPETENCE RECOGNISED BY THE BOARD

A. For registration as Valuers

1. MALAYSIA
(a) Institution of Surveyors (Malaysia)

• (i) Test of Professional Competence for General Practice in Surveying
• (ii) Property Consultancy and Valuation Surveying

B. For registration as Estate Agents

1. MALAYSIA

(a) Instutute of Surveyors (Malaysia)

• (i) Test of Professional Competence for General Practice Surveying
• (ii) Property Consultancy and Valuation Surveying.

Ref:

Rule 43 Valuers, Appraisers and Estate Agents Rules 1986.

Examination details to become a Registered Estate Agent in Malaysia

Q.
List down the examination requirements to qualify as Registered Estate Agent.

A. (Repost from my-realproperty2.blogspot.com)

Examination

Rule 29 Conduct of examination

(1) The Board shall conduct examinations for candidates desiring to be registered as Valuers, Estate Agents, Probationary Valuers or Probationary Estate Agents as such times as the Board deems fit.

Rule 32 Eligibility

(1) Candidates for these examinations shall not be less than seventeen years of age on the 1st January of the year of the examination.

(2) (b) Candidates for the estate agent's examinations must show proof to satisfaction of the Board that they possess not less than a Sijil Pelajaran Malaysia or its equivalent with not less than five subject passes of which at least three shall be credit level passes and at least one of the credit passes shall be in Mathematics or Science or Accounts or Commerce;

(4) Candidates for the Estate Agent's Examination must satisfy the Board that-

[Despite the below requirement, you are strongly encouraged to put in your application for examination. Although you might not have satisfied the below requirements, the Board has in the past given rooms for flexibility to adult who are working in various industries.]

(a) they have been working full-time in an office a registered estate agent assisting in estate agency work for at least six months before the date of the application to sit for the examination; or

(b) they are engaged in full-time study in a technical college, an institution or an university approved by the Board.

Rule 33A Estate Agent's Examinations.

(1) The estate agent's examinations set by the Board shall consist of-

(a) a Part I Examination;
(b) a Part II Examination;
(c) a Test of Professional Competence.

(2) The Part I Examination and Part II Examination shall be written examinations.

(3) The Test of Professional Competence shall consist of a practical examination and an oral examination.

(4) A candidate shall pass all of the subjects in each of the Examinations specified in paragraph (1) to be eligible to proceed to the next level of the Examination prescribed.

(5) A candidate shall pass all of the subjects in each of the Examinations specified in subparagraphs (a) and (b) of paragraph (1) in the following manner:

• (a) in relation to the Part I Examination, in not more than three attempts and within a period of three years; and
• (b) in relation to the Part II Examination, in not more than three attempts and within a period of four years.

(6) A candidate for the Test of Professional Competence shall satisfy the following conditions:

• (a) has been registered as a probationary estate agent under the Act; and
• (b) has either-

• (i) passed the Part II Examination specified in paragraph (1) and completed two years of post-qualifying practical experience in an estate agency firm

• (ii) passed the examination of an institution of higher learning or a professional institution specified in the Sixth Schedule and completed one year of post-qualifying practical experience in an estate agency firm; or

• (iii) passed any other examinations approved by the Board and completed two years of post-qualifying practical experience in an estate agency firm.

(7) The Board may issue guidelines to facilitate the conducting of the Test of Professional Competence.

(8) A candidate who has passed the Test of Professional Competence shall be considered to have passed the estate agent's examinations.

Rule 41 Diploma.

The Board shall confer a diploma on every candidate who has passed the Part II Examination of the estate agent's examinations under Rule 33A.

Ref:
[X] own account based on 2014-2017 registration of examination.
Valuers, Appraisers and Estate Agent Rules 1986.

Examination and Result - What do you expect?

Below was posted 30 Jan, 2017 before the result was announced.

The feelings are mixed. Joy and some disappointment every time when results of LPPEH is announced.

Even at this auspicious hours, where everything should be just superb, I just want to say this ~ reality in exam.

To you all out there. The mindset for the exam is something very intriguing. It is at time like shopping for a property too. Straight away deal is not as great as the one you have negotiated long. The process of negotiating is a sweet memory ~ some later time of course.

When you could pass all the easy papers, you would wish that you could also pass the tough ones too. However, when tough ones are too tough, sometimes, we just can't. Indeed, you ask why can't I be the lucky one to pass. The substance is no more important. I also want to pass 6 in 1 attempt!

Individual would have a set of defense system and I succumb to this 'kaisu' mentality too. I am also worried not passing my tough paper - D02 Law. I'm dreadful to this paper all the time and, not just this 3rd time. It is like the more you retake this paper, the worst it feels.

We never really know why we failed or passed. They never give back the answer script. The marking might just be very lenient for papers like Acc, BT1 and Eco. On the other hand, it is just too tough when comes to Law, Tax and Mkt. The same effort (time and focus) we put on each subject would not yield similar results.

Someone can pass the paper in 1 attempt. Why not me? I'm afraid there is no answer to that. Method of study, good material, good teacher? I don't know for sure.

We have to take that as a measure of how averagely we were among the rest. Yet, this average is not any other average in life. It is exam average. Life is a bigger thing.

It is however some sort of racing circuit when you take exam. So, I can understand that at times, we won't feel failure as something nice to share and shout about. The courage to face failure is sometimes hard to come by. Even for me. I had failed many times in my public exams before. So, it is just natural I shy away after some time.

Amidst, our sharing of success and failure is answerable only to ourselves, nobody else. I cannot take away your passes, or give my failures to you. So, the courage to face it is what I think is most difficult as yourself is the mirror in reflection. The more serious you are, the less courage you will have to face failure. Why? Because you put so much effort in it. Imagine your best friend were to say 'NO' to you!!! I'm sure it is hard to swallow.

Whatever said, I hope that whoever failed, you can pick it up and challenge yourself again. It is yourself to face this and nobody else. So, don't be discouraged.

Adult learning is never the simple ABC like in school. We have so much family and work commitment in order to deliver the meals on the table. It is courage and perseverance that made you take this exam. So, please give a pat on your shoulder and say that you can do it again!!!

🐔🐔GongXi GongXi!!

30.01.2017
Eve of receiving 2016 LPPEH Exam Results.

What, Where and How to Study for the LPPEH Exam for REA?

Q.
Would really appreciate if you can advise the notes, books etc study materials which I need to be studying in order to sit for the exam. Is the questions standard? Or is it very wide? I tried to access some of the links in your blog but it failed. Would really appreciate if you can help.

Hope to hear from you soon.

A.
The Written Exam for Estate Agent License, which is held yearly during the 1st week of August, is in fact a Diploma.

Entry requirement is SPM with 3 Credits, one of which has to be Mathematics, Science, Commerce or Accounts.

If you are from UEC route (Chinese Independent School), it is accepted as equivalent.

And, if you have neither but you have a tertiary qualification, you can just submit your application for enrollment as usually it will be accepted.

The method of study is examination based. All in 3 hours or 2 hours depending on the subjects. The depth of syllabus somewhat varies from subject to subject. There are subjects like Building Technology, Economics and Accounting, where the topics are standard and rather limited - hence questions are repeated. However, there are also subjects like Law, Marketing or Taxation where the topics can be rather wide.

You can read about more details on this exam in my blog here.

http://justletak.blogspot.my/p/how-to-become-registered-estate-agent.html

There are various ways to study for this qualification. The conventional way is to sign up with a college which offers this program - Diploma in Estate Agency or Diploma in Real Estate Management, for example. Next, is like what I am doing, I have done self study on this exam from its past years. What it means is I go back to a numbers of years of past year questions and work back to the syllabus. I somewhat found out that there are repeated topics and it would be a good strategy to study this pattern to pass the examination.

Or you can sign up with some exempted programmes which is fully recognized by LPPEH (Lembaga Penilai, Penaksir dan Ejen Harta Tanah) or in English "Board of Valuers, Appraisers and Estate Agents" - BoVAEA. You can check with LPPEH at its website lppeh.gov.my for these programmes.
The blogs I have developed are my-realproperty1.blogspot.com and my-realproperty2.blogspot.com both of which consist of past year questions with my answers. These two blogs are for readers who agreed to join our group, and not for public.

However, the 6 years past year questions are for public viewing at my-realestateforum.blogspot.com. You can take a look there.

If you are serious about this exam, please go to the sign up page below:

http://justletak.blogspot.my/p/to-sign-up.html

About reading list, you can check out the link below.

http://justletak.blogspot.my/p/reading-list.html

However, the Board has a reading list which is very broad. I would recommend that you do NOT go there to source for the books (cost and affordability aside). This is because the examination has evolved from its original form many years ago (2005), and in recent years it also underwent some changes with the new committee within the Lembaga.

Hope the information here can be of some help to you.

What is so good about property trade and estate agency?

Q.
I would like to impro­ve myself with some p­rofessional examinati­on that Estate Agent ­Examination seem like­ one of my option. Af­ter google further in­formation, I found yo­ur blog which is so informative. However, ­I still don't have an­y idea where should I­ start from.

A.
1. LPPEH Board Exam o­r Professional Diplom­a in Estate Agency, o­r Estate Agent Examin­ation - is a once yea­rly exam consisting o­f 2 parts. Each with ­6 papers. Total of 12­ papers. The candidate needs to ­complete all in part ­1 before moving to part 2­. Maximum carry forwa­rd time is 3 years fo­r the papers passed.

2. New syllabus and e­xam mode is not intro­duced so we still adh­ere to this system fo­r now. Fyi, new sylla­bus is 11 papers and ­maximum of years is 5­ years to complete an­y combination of pape­rs. The new system wo­uld do away with carr­y forward limits of 3­ years and introduce ­a new exam schedule w­hich is twice a year.

3. Having passed the ­exam, the candidate w­ill move on to be probationary Estate Agen­t - PEA. The training­ period is 2 years under an observation of­ a Registered Estate ­Agent (REA). During t­his time, the PEA is ­under observation but­ can practice estate ­agency under the lice­nse holder REA. PEA is recognised under the law and it is a temporary position before qualifying as a REA.

4. There is a Test of­ Professional Compete­nce (TPC) interview consisting of a panel ­of 3 judges after the­ candidate have fulfilled ­the 2 years training.­ If the candidate pas­ses the TPC, the cand­idate is registered a­s a fully qualified E­state Agent - called ­REA and allowed to pr­actice the trade of e­state agency.

5. One license is all­owed to manage 20 REN­s - Registered Estate­ Negotiators by the Board. So for ­example, a sizable es­tate agency firm may ­have two principal pa­rtners who are REAs. ­Then, the maximum REN­ allowed is 40.

6. Under the law, tra­ding of real estate i­n Malaysia is governe­d under the Valuers, ­Appraisers and Estate­ Agents Act 1981*. This is not the only law, but is the principal law that regulates the Valuers and Estate Agents. Hence, the­ profession has a l­ong term legal positi­on in law, and Malaysian ­government, like any ­government in the wor­ld would want to regu­late this trade for a­ number of reasons.

7. First, it is a source of revenue for the gover­nment. Government collects stamp ­duties for real estat­e transactions. Gover­nment also collect ta­xes for real estate g­ains - Real Property ­Gains Tax. Therefore,­ transacted price is ­important to enable correct revenue payable to g­overnment. Secondly, it is for transparency of assets ownership. More regul­ations will ensure go­vernment collects the­ appropriate taxes. I­t will be more string­ent in the future by ­regulating the trade ­- hence regulating pe­ople who deals with p­roperty, or transacts ­properties. In this context, lawyers, valuers and estate agents will be increasingly regulated. Thus, it is a profession with considerable potential to add value.

8. The property trade­ has a total annual m­arket transaction of estimated RM200 (RM149.9; 2015**) billion in Malaysia in 10 year's time. This is ­huge amount of money ­transacted yearly on ­properties. Hence, an­ industry which is im­mense in potential fo­r biz. If you choose ­to specialise in this­ industry, the potent­ial is enormous and as our population is still growing, more and more people would require housing. The future expansion of property market will be tremendous.

Ref:

Own account.
* Particularly Section 22C of the said Act.

** source from NAPIC at,
http://napic.jpph.gov.my/portal

Confusion with Part II law papers

Q.
I am confused with what are the different areas of laws in the three subjects (D08, D10 and D11) of the Part 2 LPPEH Examination for Estate Agent. Can you clarify?

A.
This is the old syllabus. The corresponding new syllabus will be:

1. D08 Estate Agency Law - Professional Practice
2. D10 Laws relating to Property - No Change
3. D11 Real Estate Agency Practice - No Change

The Board of Valuers, Appraisers and Estate Agent Malaysia had submitted to change the name of D08 Estate Agency Law to Professional Practice because of some confusion over this few papers earlier on.

It is been communicated in earlier circular 142/2012 listed as:

The Estate Agent's Written Examination - New Syllabus here.

In my opinion, Professional Practice is a change to reflect the subject being a broader sense of Estate Agency Laws and Regulations - the laws and regulation governing the practice of Estate Agents.

Why it is not named 'law' and rather ' practice'? This is interesting, as the Board may not want to restrict the subject to being just about laws governing the profession. In other words, a restrictive sense as it is in a lesser scope than the boarder scope that outside the Laws. There are other practice guidelines and ethical standards the profession must uphold. It is thus, 'Practice' to illustrate that it encompasses all the laws and regulations the education and steps to study and qualify for the TPC (Test of Professional Competence) and the CPD that is required to practice Estate Agency.

Whereas, Real Estate Agency Practice D11 is all about laws and the daily activities of practicing estate agent! And, the name 'Practice' is preferred over 'Law' again. The subject is all about the laws, good practices and regulations governing the process of selling, leasing and buying of property (in two words - property transaction). It is about Sale and Purchase Agreement, Lease and Charge, Agency Contract, even procedures of bank loan agreements, etc. Nonetheless, there will be 1 or 2 questions on general management of estate agency. One key area is marketing of a housing project which is similar to Principles of Marketing D05.

The paper 'Laws relating to Property D10' is about other areas of laws which is not so directly involved with the Estate Agents. These are for example, National Land Code, Land Acquisition Act, Strata Titles Act, Town and Country Planning Act, etc. In such manner, Laws relating to Property is much like a continuation of 'D02 Introduction to Law' in the Part 1 Syllabus, except that it is more focus and targeted at laws and regulations of property development, transaction and land alienation.

In short, there are some overlapping areas. The confusions are the overlapping scopes of work of an agency. Think of it in simple analogy, Estate Agents compared to Lawyers. D08 is about Estate Agents, D11 is about Conveyancing Lawyer. D10 is about Lawyer in Court, in litigation over disputes in law.

Law which governs advertisement - much involved with the Valuers, Appraisers and Estate Agent Act, 1981 (APPEH). This law should be concentrated in Estate Agency Law D08 - Professional Practice but, it comes out in Real Estate Agency Practice D11 as well.

Law that governs ethical practice (code of conduct and ethics) - much involved with the APPEH 1981, also appeared in both D08 and D11. On this part of confusion, I rather think it is the way of how question is asked.

Investment and Valuation, Promotional Strategies and Marketing Plans are all common questions in Real Estate Agency Practice D11. Hence, D11 is very much a 'Rojak' of all that is required to know about Estate Agency. It is much like a Management Paper, Law paper and also an Ethics paper.

Laws relating to Property D10 is much a 'clean' paper as like its name, it is about Laws. Although, in some instances question like 'Market Value' does appear, which sounds like 'Taxation' paper. Nevertheless, it is pretty straight forward compared to D08 and D11.

Thus, if one is to choose the combination to sit in a single sitting, the better combinations would be:

D08 + D11 and +D10  as one part, and D07 + D09 + D12 as another part.

In such manner, when valuation and investment or marketing questions appear in the D11, just ignore as you concentrate on the 5 out of 8 questions.

Ref:

Own account

http://www.lppeh.gov.my/circular/CHANGES%20IN%20EXAMINATION%20RULES.pdf

Standard Format RPGT Calculation

Q.
Provide a standard format for calculation of RPGT in Malaysia. Illustrate the various parts and workout of the steps.

A.
MIA (Malaysian Institute of Accountants) has published a concise version of Real Property Gain Tax in 2010. Below is an extract of the workout of the calculation in simple straight forward manner.

Ref:

MIA Publication 6/2010, available at

http://www.mia.org.my/new/downloads/professional/publications/MIA6_2010/Real_Property_Gains_Tax_in_Malaysia.pdf

Economic-Based Analysis, Competitive Analysis & ROI for Retail Shop vs Hotel

Q.
Using the models of Economic-based Analysis and Competitive Analysis, evaluate and comment on the risk and returns of investments in Retail Shop (boutique) versus budget hotel.

A.
Earlier post on Past Year 2013 Q4 is referred here.

The economic-based analysis can be summarized in Table 1.3 of earlier post: Demand in Property Market here.

An approach would be necessary to evaluate the factors found to be common and different to each sub-sector of the property. This is in order to avoid confusion and overlapping arguments on the same interlocked elements. For example, factors like good flow of purchasing crowd would have positive influence on both the retail and hotel business. In fact, retail shops can be converted to budget hotels if it is approved by the local authority (local council). It all depends on the risk appetite of the investor when evaluating which is a better venture. A lot of the decisions are about the background of the investor, his risk appetite and his capital at hand.

Firstly, we look at Economic-based Analysis (extract from Hamid 2007).

Economic-based analysis for hotel:
The variables are -
Type of hotel and star rating (in this case budget hotel), visitors' arrival (domestic and international), hotel guest factors (average length of stay, number of persons sharing a room), annual average operating days, room rates, market share, consumer profiling, spatial characteristics of urban business, hotel's market share.

Economic-based analysis for Retail Shop:
The variables are -
Primary trade area, types of business, average floor size of business premise, state-wide per capita retail spending, population size, household size, per capita income, local and state per capita income differential, consumer consumption and spending characteristics, spatial characteristics of urban business, business' market share.

The similar variables are:

Type of hotel/retail business - where budget hotel is compared to say a retail boutique shop.

Type of segment of market - where budget hotel is for middle class business travelers (middle price range 3-4 days stay) compared to middle income working ladies buying shirts and skirts for office use.

Area size required - where budget hotel would need about 3-4 shoplot size compared to a boutique shop which may only take up a single shop area.

Basic fixed cost investment required - where budget hotel requires furnishing and equipment like air-condition, water-heater and television set, a boutique shop would not require much furniture and fittings apart from display closets and changing rooms.

Other variables are for example, ancillary activities up-stream or down-stream of the investment area. This includes availability of amenities and other source of business or employment activities to supply to the population staying at the area.

The table below summarizes the variables:

Variables specific to only retail shop and not hotel:

• Per-capita income of household surrounding the area,
• Population size
• Socio-economic status
• Consumer spending characteristics
• Spatial characteristics of urban business

Variables specific to only hotel and not retail shop:

• Star rating or grading of hotels
• Visitors' arrival (local, regional or international)
• Hotel guest factors (average length of stay, room sharing, etc.)
• Market share of various grades of hotels (how big is budget hotel business in the totality of hotels)

Hence, various considerations of the factors influencing the economic activities at the area would play the role in deciding which choice of investment is better of or worse of.

The specific variables of population and per-capita income of the population is key to evaluating the viability of retail shop investment but not hotel as local people would not be staying in the hotel. Therefore, a low socio-economic status of the population would not be encouraging for investment in retail business for Expensive Apparel sector. However, a cheaper labour cost may be good for running the hotel business.

Conversely, a tourist attraction would be able to cater for budget hotels, as backpackers are common nowadays. Not all tourists are going to stay in 5 star hotels anyway. On the other hand, if there is minimum tourism and more of office or business travelers, the surrounding industries would indicate such scenarios.

From the above analysis, hotel investment would demand a bigger initial investment outlay and may face uncertainty of business as it depends a lot on the business travelers who come to this place for ancillary activities - the multinational firms and manufacturing plant at the vicinity of the area. One other consideration is the accessibility of the area (transportation) as people who come in to the place are not resident of the area. Furthermore, the required space for budget hotel is much bigger than retail shop, which also takes up a huge investment outlay (acquisition or lease).

Therefore, as a whole, it is more risky to invest in budget hotel than a retail shop based on the analysis of factors above.

Secondly, utilizing the Competition Analysis

The similar variables are:

Types of existing competitors - where competitor of hotels (how many stars) and boutique (imported or local) are studied.

Segments of competitors - where premium market segment (5 stars hotel) and common segment of market for boutique is targeted.

Size of competitors - where big hotels or retail outlets are in the competition. Existing boutiques.

Price of competition - where hotel rates are high and merchandise are imported.

Market Share - how big a market share is targeted, is there still room for business?

Other factors are: Threat by New Entrants, Substitutes, Government Regulations and Price Strategy.

Based on the competitive analysis above, hotel investment seems to have higher burden of competition than retail shop investment.

The major reasons are existing competitors like 5 star hotels in the area which may already offer the same attractive packages for the business travelers. Next is the potential of substitutes like home-stay and better transportation which would cut down needs of overnight stay. Thirdly, the government regulations which may need further application and approval would post major risk in delaying the project. All these would render the investment risky. However, if the question above has assumed the budget hotel is already in place, this factor is not in consideration unless there is renewal of approval as required continuously.

Thirdly, the Return of Investment (ROI) Analysis
Higher risk may thus attracts bigger returns. However, is this the case valid as an argument for hotel versus retail shop investment?

Hotel Investment - risk and returns

Price pressure
Higher possibility for profit margin as 5 star hotel is already in business. Hence, the budget hotel would have a good start as it offers more affordable range of substitute. This is especially so when rooms are limited in the 5 star hotels. This requires further study on the room rates in the hotels surrounding the area, as well as locality of the budget hotel from the 5 star hotel.

Locality
If the budget hotel has good locality next to the 5 star hotel, there may be overflow of traffic from the 5 star hotel during peak seasons. On the contrary, if the 5 star hotel is a resort, and far away from town, the possibility to enjoy the overflow would be minimal, if not impossible.

Time to break even
As hotel investment is of higher quantum and thus borrowings are inevitable for the capital outlay, the consideration of time to repayment of loan is important. If the price pressure is stiff, and margins gets eroded due to entry of new players (as shop houses are abundance in the vicinity), the investment return is curtailed. Hence, the higher risk of investment.

Retail Shop - boutique risk and returns

Price pressure
As boutique is very much a smaller investment, hence the margin for profit is also smaller. However, due to the merchandise being fashion (personal taste) and brand related, high margins are certainly possible in some franchises. The returns on such merchandise can be very attractive. It is a very lucrative business for lady attire and dinner wears.

Locality
Good locality like being near to business centers/offices would attract big office crowd and hence branded outlets can have high margin and high retail turnover.

Time to break even
Boutique selling clothing would break even very fast as the capital outlay is small and the merchandise are sold usually with high margin especially for the branded goods. Another advantage is that it is usually unpublished pricing (as no two dresses are the same), hence flexibility of pricing is certainly added profit margin.

Thus, for return of investment, boutique investment looks more attractive than hotel investment.

Ref:
Mar Iman, Abdul Hamid. 2007. Property supply and demand. Penerbit UTM. Chapter 3 & 4. Pg 55-101.
Own accounts.