As a registered valuer, I will further discuss on the understanding of economic cycleand property cycle to Mr. Alex. Economic does not grow in a straight line. Instead, economies fluctuate between periods of strong growth and weak or negatvie growth, known as the economic growth or business cycle. One widely held economic cycle theory is based on the relationship between supply and demand, and economic activity. First and foremost, the demand in the marketplace for property arises from all the various activities that society pursues and the consequent need for properties in which to pursue those activities. Property in itself has virtually no value, any value it possess is derived from the usses to which it can be put. Thus, the demand is a reflection of the short-term and long-term changes in the economy. Mr. Alex has to undestand that the economic cycle is not moving in tandem with the property cycle when business improves. The early reference on this statement include the building cycles by Richard Barras (1994). As many property developments and investments are closely linked to the economic and business frameworks, there is usually a relationship between property cycles and business cycles. This relationship is as shown in Figure 1 below, where there is a clear relationship between the property market, economy market and financial markets. A simplified version of Barras’ analysis is further discussed. Beginning with the business upturn, the demand is strengthen and increase, causing to the rising rents, property the demand for property declines. the business cycle has already moved into a downstring. The banks may also fund a second wave of speculative development activity. . As the economy subsidies. a healthy economic growth and inflation remains low. the inventory rebuilding that we saw in the initial recovery period leads to greater hiring activity by firms and.prices picking up and capital values trigger the start of the new developmenet cycle upswing. businesses invest to expand capacity If credit expansion accompanies the business cycle upswing. it can lead to a full-blown economic boom. this condition can increase one developer and other consumers’ confidence. as employment rises so too does consumer confidence. accompanied by a tightening of monetary policy to combat the inflationary effects of the economic boom. because of the long lead times in bringing forward new development. This is the healthiest phase of the economic cycle. This in turn leads to strong sales. as growth can be robust without overheating or higher inflation. By the time the development cycle reaches its peak. the fall in rents and values continues. As the economy moves into recession. By here. supply remains fairly tight and values continue to rise. property companies are hit by the credit squeeze. To meet increased demand for their goods and services. This phase usually lasts a year to several years provided growth is at a not-toorapid and thus sustainable pace. However. bankruptcies increase and the development cycle is choked off. rents and values fall as a result and the vacancy stock increases in supply. During this period. uncertainty relates to factors which are unpredictable and in respoect of which it is therefore not only difficult but perhaps impossible for a developer to take precautions. their skill and their professional expertise. A developer should seek to satisfy market demand by providing property suitable for potential users and sited in appropriate locations. the fact that at some future date a war may break out or a government may introduce new legislation which may affect the success of a development may be completely unpredictable at the date of commencing a scheme. It should be developed at a cost which enables the completed development to be let or sold at a price which is low enough to attract suffiecient would-be users or customers to pay that sum for its use which in turn provides the developer with an adequate net return to reward him or her for their labour. By here. and to compensate them for the risks taken in undertaking the development. . however to try to identify the risks that may be inherent in a scheme and to seek either to elimanate those risks or where elimination is impossible. to make provision to minize the problems those risks could cause. For example. Property development involves a decision to commence a development for use at a future date that is on completion of the development and the future being uncertain it is impossible to rid a developement scheme of uncertainty. no matter how thorough the research of the developer may be.The local economy It should never be overlooked that risk and uncrtainty exist in the property development process. possibly using such devices as contingency allowances or taking out insurance cover. An extremely important part of the developer’s activities is .