INTENDED VS EMERGENCE STRATEGY IN THE REAL ESTATE SECTOR

Intended VS Emergence Strategy in the Real Estate Sector (In Kuwait)

Intended VS Emergence Strategy in the Real Estate Sector (In Kuwait)

Introduction

The Intended real estate market witnessed an unprecedented boom from 2002-2007. However, the economic downturn of 2008 had a severe impact on the industry. The overall response to this recession has been characterised by a clear movement from projects targeting the premium segment to those catering to middle and low income segments of the economy. An important driver of this movement has been the recently announced government policies including interest rate rebates and the fiscal stimulus towards urban development. The established players moved down the customer chain, offering housing units in the range of KWD. 15-25(Jacob, Welch, Simms 2009: 1) . However, there has been an emergence of a whole new set of players who have launched projects in the range of KWD. The strategy of these Emergence Strategy in the Real Estate developers is fundamentally different from the traditional industry. (Mintzberg & Waters 1985: 257)

Intended imbalances in real estate

Intended imbalances in real estate markets can jeopardize the soundness of the financial sector, due to banks' central role as mortgage lenders and the frequent use of real estate as collateral. (Johnson, Scholes, Whittington 2008: 1)Corrections of real estate prices have preceded financial crises in the past, so policymakers often assess financial sector vulnerability on the basis of property prices, among other indicators. We address the questions of whether and how deviations from fundamentals in the real estate sector transmit to the (in)stability of banks. (Simons 2000: 41)

Inherently frequent and persistent deviations from fundamental values in real estate markets are central to the real estate-financial fragility nexus. In a frictionless world, property (just like any other asset) is priced by discounting expected cash flows, which in this case depend on demand and supply for real estate. (Anthony & Govindarajan 2007: 23) The latter depend on macroeconomic fundamentals, such as population growth, real income, or wealth. House prices then should reflect economic cycles. But this relationship is likely to be muted for three main reasons. First, real estate involves nonstandardized assets that differ in quality and are (regionally) segmented. Second, the absence of central trading places implies imperfect information and price negotiations that both lack transparency and involve high transaction costs. Third, supply responses in the housing market are sluggish due to construction lags and limited land availability. As a result, Intended deviations from long-run equilibria are more likely in the housing market, relative to financial markets(Anthony, Dearden, Govindarajan 1992: 41).

The real estate industry is an industry in which many of you will have to make some choices about how you will compete in the future. Past modes of behavior probably will not carry you through the next decade. The questions are how do you think about the question of strategy for your business and how do you do that in a constructive way. In looking at any industry, whether it is real ...