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1 Industry Economic Characteristics Keppel Land is basically in the business of property trading and property fund management As of 2004 90 of Keppel Lands revenue comes from property trading and investment We can categorize these activities under the real estate industry The biggest problem with the Real Estate industry is that it is extremely uncertain Property prices are extremely volatile and have no specific pattern This is primarily due to 2 fundamental issues Current bank accounting practices The time lag between demand signal and actual supply It is these factors which create the property bubble Time Lag between Demand Signal and Actual Supply Property development has a cycle of 2-3 years Owing to such a huge lag in time it is possible that even the demand for the particular properties to change Thus it is possible for 10 increase in demand to produce a 50 increase in supply It has happened in Singapore as well when the property values reached their peak in 1997 only to fall by 40 in 2004 Current Bank Accounting Practices Consumers continuously depend on banks to finance their property purchases Banks on the other hand fund these purchases as an increase in their value also means an increase of the banks assets However it must be noted that a banks willingness in lending is directly proportional to the economy of the country In times of recession banks reduce lending sharply because property prices are going down affecting their balance sheets drastically When this happens few people can afford to buy property thus posing a great problem to the real estate industry Now the demand for property is primarily driven by population growth and a rising economy Population growth in a country simply means more demand for housing Keppel Land is banking on the rapid urbanization of Asian cities and their rising economy as the sources of
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