Property development: a lead-time management framework

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PROPERTY DEVELOPMENT:

A LEAD-TIME MANAGEMENT FRAMEWORK

by Ruan Stander

Supervisor: Dr B. Botha Co-supervisor: Dr F. Geminiani

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PROPERTY DEVELOPMENT:

A LEAD-TIME MANAGEMENT FRAMEWORK

A dissertation submitted in fulfilment of the requirements for the degree of MASTERS OF TECHNOLOGY IN QUANTITY SURVEYING in the Faculty of Engineering, the Built Environment and Information Technology, at the Nelson Mandela Metropolitan University.

by Ruan Stander

January 2016

Supervisor: Dr B. Botha Co-supervisor: Dr F. Geminiani

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DEPARTMENT OF ACADEMIC ADMINISTRATION EXAMINATION SECTION

SUMMERSTRAND NORTH CAMPUS PO Box 77000

Nelson Mandela Metropolitan University Port Elizabeth

6013

Enquiries: Postgraduate Examination Officer

DECLARATION OF CANDIDATE

NAME: RUAN

STUDENT NUMBER: STANDER

QUALIFICATION: MASTERS OF TECHNOLOGIAE IN QUANTITY SURVEYING

TITLE OF RESEARCH DISSERTATION: PROPERTY DEVELOPMENT: A LEAD-TIME MANAGEMENT FRAMEWORK

In accordance with the General Prospectus of the Nelson Mandela Metropolitan University (2015), specifically clause G 5.6.3, I hereby declare that the above-mentioned research dissertation is my own work and that it has not previously been submitted for assessment to another university or for another qualification.

SIGNATURE: ………..

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ACKNOWLEDGEMENTS

 To Jesus Christ, my Lord and Saviour. I could not have completed this study without His strength and guidance which have carried me through all of the tough times. Thank you Lord for the strength, knowledge and determination, through which I am truly blessed. Thank you Lord for walking this path with me and holding my hand.

 To my father and mother, Ben and Berdie Stander, for being such wonderful and understanding parents and never wavering in your love and support. I am so grateful that you are always willing to assist and stand by me, regardless of the situation or problem. You give up everything just to make sure I accomplish my goals, including assisting me over several years with financial costs incurred for which you have always provided without question. There are no better parents.

 To my girlfriend, Melandré, who has been a part of my life for the last five years. Thank you for being my girlfriend, as well as my best friend. You stood by me through tough times, late nights and reassured me that I can accomplish anything if I believe in myself. Thank you for all of your support and assistance with my study. You are the ONE whom I always waited for and will love you forever and always.

 To my in-laws, thank you for all of the support, laughter and friendship. I could not have asked for better in-laws. Thank you for accommodating me, your hospitality is greatly appreciated. I will cherish our times together for a long time to come.

 My supervisor, Dr Brink Botha for his guidance, assistance and positive attitude, always smiling and making me feel that anything is possible if you

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only believe.

 To those people in the property development, real estate and conveyancing environment who assisted me during the completion of my dissertation and to those who took the time out of their busy schedules to complete the research questionnaire.

 Thank you to all the librarians, as well as Ms. Thomas, for your kind assistance.

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LIST OF ABBREVIATIONS

ASTM American Society for Testing Materials

BCA Building Control Authority

CEO Chief Executive Officer

CF Cancellation Figures

CSF Critical Success Factors

FICA Financial Intelligence Centre Act

GDP Gross Domestic Product

GFC Global Financial Crisis

LTV Loan to Value

NEMA National Environmental Management Act

PM Project Management

PMI Project Management Institute

PmBOK Project Management Body of Knowledge

RSS Rich Site Summary

SANS South African National Standards

SEO Search Engine Optimisation

SEM Structural Equation Model

VAT Value Added Tax

WBCSD World Business Council for Sustainable

Development

WCED World Commission on Environment and

Development

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ABSTRACT

Property development is a complex activity, with a series of stages involving many players with differing objectives, all operating within the building cycle context and its interaction with business and credit cycles. Before developers commit to acquiring land and sign a building contract, they first evaluate the market to establish a project’s viability, and secure finance and planning consents. (Cadman and Topping, 1995: 27). The residential property developer must have a fair knowledge of the changes in the economy and be able to interpret data collected. This knowledge is critical in order to make good business decisions and for future project planning. Understanding the economic variables and the impact these have on households, provides knowledge to the consumer to assist with financial planning and future investment options (Vogel, 2012: 14).

Currently, everyone is aware of the huge negative impact of the global economic crisis, especially concerning international investment companies in western countries. Many businesses have ceased operations and some investment banks have experienced large scale bankruptcy due to the economic crisis and resulting recession. The Chinese economy suffered losses in the crisis as well (Yiping, 2011: 6). Even though the export industry experienced a huge negative impact in the economic crisis, the Chinese government announced that GDP growth remained at 8.7% in 2009. The highest contributor towards the Chinese GDP growth was the real estate industry (Yiping, 2011: 6). Presently in China, the real estate industry is a new economic growth point and the main industry in its Gross Domestic Product.

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Currently, the real estate market in China is facing unprecedented opportunities and challenges (Yiping, 2011: 6).

From the above-mentioned statement by Yiping (2011: 6), it is evident that property development plays a major role in Gross Domestic Product (GDP) of global economies worldwide as well as in South Africa and that change in the supply and demand value of property impacts the performance of the property market. In times of property booms, the property market escalates and there is an under supply of property. This makes it a seller’s market, which stimulates the economy, as was the case during the period of 2004 to 2008.

When the property bust hit in 2009, the world experienced an inevitable downturn in economic markets. This was known as the Global Financial Crisis (GFC) and was due to various factors such as: increased interest rates; increase of stricter mortgage bond approvals; recession and other possible financial regulatory factors. A downturn in property prices became evident and property development was negatively impacted (Reed, Sims and Cadman, 2015). This impact on the property sector caused a relative over supply of property, making it a limited buyer’s market and forced real estate agents, property developers and owners to decrease the price of property thus negatively affecting the GDP of the economy.

This research was conducted by means of a review of the related literature as well as an empirical study. The empirical study was conducted with the use of a quantitative statistical approach. In this study, research questionnaires as a data collection tool were distributed to members of the sample population. The primary

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objective of the study was to develop a framework for the successful delivery of residential developments in South Africa, especially in the context of time. A descriptive survey was conducted among professional property development practitioners, real estate agencies, conveyancers and project managers in South Africa.

Keywords: Financial Regulatory Factors; Project Management; Property Developer; Property Development; Real Estate.

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LIST OF TABLES

Table 1.1 Budget of the study 27

Table 3.1 Project manager roles according to RIBA Plan 66

Table 3.2 Summary of causes of delays in construction projects from a literature review 72 Table 3.3 Project critical success factors 77 Table 3.4 Summary of literature reviews from various authors for project success 79

Table 3.5 Project time management overview 82 Table 3.6 Scheduling overview 83 Table 3.7 Bond registration process 135

Table 3.8 The registration Process 138

Table 5.1 Response rate 170

Table 5.2 Questionnaire design 189

Table 5.3 The Likert scale points and related variables 191

Table 6.1 Mean property development experience of Respondents 200

Table 6.2 Indicates the mean age of respondents 202

Table 6.3 The extent to which political influences influence the effectiveness of on-time development of residential property in South Africa 204

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Table 6.4 The extent to which property economics influence the effectiveness of on-time development of residential

property in South Africa 206

Table 6.5 The extent to which social changes influence the

effectiveness of on-time development of residential

Table 6.6 The extent to which technological factors influence

the effectiveness of on-time development of residential

Table 6.7 The extent to which environmental regulations influence the effectiveness of on-time development of residential

Table 6.8 The extent to which legislation issues influence

Table 6.9 The extent to which project management factors influence

Table 6.10 The extent to which mortgage bonds factors influence

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Table 6.11 The extent to which certain factors influence

Table 6.12 Respondents’ rating of the importance of obtaining

mortgage finance for first time buyers of residential

real estate 219

Table 6.13 Respondents’ rating of the effectiveness of real estate

agents in the residential real estate process 220 Table 6.14 Respondents’ rating of the effectiveness of conveyancing

firms in the residential real estate process 220 Table 6.15 Respondents’ rating of the effectiveness of residential

property developers in the residential real estate process 221

Table 6.16 Respondents’ rating of the level of agreement on the statement that property development plays a major role

in the Gross Domestic Product (GDP) of the economy worldwide and the change in the supply and demand

value of property impact on-time development of

residential property in South Africa 222

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LIST OF FIGURES

Figure 1.1 Property Development: A Lead-Time Management

Framework 14

Figure 1.2 Property Development: A Lead-Time Management Framework 25

Figure 2.1 National demand patterns for fixed property in the private sector 34 Figure 3.1 The management process 68

Figure 3.2 The economy’s cyclical growth path 87 Figure 3.3 Property clock 89 Figure 3.4 Demand-pull and cost-push inflation 122

Figure 4.1 Property Development: A Lead-Time Management Framework 163

Figure 5.1 Qualitative versus quantitative analysis 179

Figure 5.2 Median 182

Figure 5.3 Mode 183

Figure 5.4 Normal distributed data 185

Figure 5.5 Mean and median 185

Figure 6.1 Percentage of cities where questionnaires were received from respondents 197

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property development projects 197 Figure 6.3 Percentage of respondents involved in residential

real estate industry 198

Figure 6.4 Percentage of respondents who consider themselves

as professional entities within the property

development industry 198

Figure 6.5 Percentage of respondents who are registered with

a professional body for example: SAPOA, SACPVP,

EAAB, SACQSP or RICS 199

Figure 6.6 Percentage of respondents with variable years of experience within the property development industry 200 Figure 6.7 Percentage of respondents with variable ages 201

Figure 6.8 Percentage of respondents with different genders 202 Figure 6.9 Percentage of respondents with qualifications 202

Framework 225

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CHAPTER ONE

THE RESEARCH BACKGROUND

1.1. INTRODUCTION

Property development and the different aspects affecting its success have been extensively investigated. The topic has attracted an enormous amount of academic enquiry from the real estate industry in which it is based, as well as from other disciplines such as those with economists, political economists, urban theorists, social and institutional theorists (Drane, 2013: 2).

What is property development and what determines its success?

Property development is much like any other economic activity in that it seeks to satisfy demands arising in a market through the application of scarce resources (Isaac, O'Leary and Daley, 2010: 4). Property development is an extremely complex activity which involves (or which should involve) a vast range of considerations over a wide range of inter-related subject areas. It is probably the most complex activity undertaken by property people with the exception perhaps of ‘active’ property management, which should incorporate development activities (Millington, 2000: ix). Undertaking property development is largely about the process of developing a property. There are different perceptions about what the process actually involves, which is due in part to the actual country within which a property development is occurring and the actual location itself. A successful property development project cannot operate efficiently in isolation from its environment (Keeping and Shiers,

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2004; Botha, 2013: 4). Property development as a whole has to balance social, economic and environmental needs. From this, any successful property development project must offer investors security, infrastructure and efficiency, and should put the needs of citizens at the forefront of all its planning activities (Keeping and Shiers, 2004; Botha, 2013: 4).

A study conducted by Aliyu, Kasim and Martin (2011: 1) in Nigeria, investigated the factors affecting housing development in the Makama Jahun area of Bauchi Metropolis, Nigeria and stated that Bowyer (2008) noted that the major symptoms of urban housing problems include:

 An absolute shortage of housing units.

 The emergence and proliferation of slums and squatter settlements, especially in large cities.

 Rising house rents.

 A growing inability of citizens to buy or build their own houses.

The development of new residential property is both exciting and challenging and the end product makes the entire project worthwhile if properly managed. Project managers contribute to the success of property development by ensuring that the development of new residential property is effectively and efficiently managed and stay within the budget set out from inception to completion of the project. Selection of a highly experienced and knowledgeable project manager to properly manage the project is crucial to guarantee on-time delivery of the project and to achieve the project aim. A project manager with insufficient experience can have a profound

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effect on the project’s delivery time if ineffectively managed and at the same time cause financial losses or worse, leading to the abandonment of the project. Project management may be defined as the overall planning, coordination and control of a project from inception to completion aimed at meeting a client’s requirements in order to produce a functionally and financially viable project that will be completed on time within authorized cost and to the required quality standards (Wiley and Sons, 1996: xxii).

How do environmental regulations affect property development?

As mentioned in the above statement by Millington (2000: ix), property development involves a vast range of considerations which need to be taken into account for success. One such consideration, which can possibly affect timely delivery of a development project and needs to be addressed, is environmental regulation. Environmental regulation is a significant hurdle in the housing development process, and is a major part of national efforts to protect biodiversity, environmental amenities and other landscape features such as wetlands (Sunding, 2005: 277). Governments routinely conduct environmental reviews of proposed projects at all levels to ensure that development is compatible with environmental protection or at least that economic and environmental objectives are balanced in some manner (Sunding, 2005: 277). Environmental review is often the pacing item in a housing development project, especially as local environmental reviews can be impacted by federal decisions about mitigation and avoidance. Project delay causes losses to consumers who must live in a sub-optimal location for some period of time, and also to developers and landowners who must wait for receipt of project revenues

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(Sunding, 2005: 277). Environmental activities can therefore be targeted at different levels and cities can also use different instruments to integrate the environment into urban planning and management approaches, such as: policy instruments, process instruments, property planning instruments as well as good governed management activities (Adendorff, 2011; Gurry, 2011; Botha, 2013: 4).

What impact does the performance of the economy play on property development?

Cyclical performance of the property market is another possible factor, which a property developer must take into consideration in order for the development to be successful. One of the fundamental basics of economics is that markets move in cycles. Markets experience boom times, followed by a period of market correction and a downturn, before the next boom arrives. This is a natural phenomenon evident in all markets, and whether it is called ‘boom and bust’, ‘bulls or bears’ or simply ‘peaks and troughs’, investors can be absolutely certain that neither a growth period nor a downturn in any market will last forever. The recent downturn in the property sector from 2009 onwards has possibly been the hardest felt by many property investors, real estate agencies and property developers (Property24, 2011). The status of property cycles at any given point in time can diversely affect the success of any property development and the developer needs to be fully aware of its status (Reed et al., 2015). The dizzying heights of the most recent property boom, when house price growth peaked at an average annual rate of 32% in 2004, as well as the protracted recovery period in which the property industry has been languishing since late 2009, are prime examples of fluctuations which obscure the

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otherwise clear cyclical movements in the property industry (Property24, 2011). Throughout the period of 2009 to 2011 downturn, sellers kept referring back to the peak prices of 2004 to 2008 and refused to accept that if they genuinely wanted to sell, some sort of price cut would be essential, as mentioned by Bill Rawson, Chairman of the Rawson Property Group (Property24, 2014). Bill Rawson also stated that it was a seller’s market with stock shortages and a good dose of realism, however sellers were once again becoming overly optimistic about the market (Property24, 2014).

How important is it to have proper funding in place?

Those involved in property development will find that an important part of the process is the satisfactory arrangement of finance which will usually entail either the use of the developer's own money (the developer's equity), the use of loan money, or a combination of both, the last probably being the most common arrangement (Millington, 2000: 2). During the 2009 Global Financial Crisis (GFC), financial institutions became firm in the approval of mortgage bonds and as a result of these strict regulations, interest rates were increased to compensate for over-lending and losses incurred by financial institutions not being able to recover certain loans. Since then, an increasing number of prospective buyers are forced to consider using their own personal income to purchase property rather than being able to obtain a mortgage bond. In an economic downturn, owners and prospective owners of buildings may prefer to maintain their existing stock and delay new work, and therefore the number of mortgage approvals has a strong effect on the housing market (Chamberlin, 2009: 24-26; Adendorff, C.M., Botha, B., van Zyl, C., 2012:

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128). Mortgage financing has also been strongly affected by prevailing conditions in credit markets (Chamberlin, 2009: 25). In less affluent areas in particular, but by no means only in these areas, as many as 50 to 60 percent of all bond applications can be rejected, and this statement is exacerbated if the buyer is not counselled by a good agent (Property24, 2014).

What factors determine the success of residential markets?

Housing market outcomes can be influenced by a range of different factors. In the long run, house prices will tend to converge to the cost of new housing construction (including land). However, house prices like all asset prices, can diverge from their justifiable long-run equilibrium for extended periods of time (Watson, 2013: 2). Housing market equilibrium can be explained with two basic theories and each can best explain the data in particular circumstances. The most common approach is to assume that the price of housing reflects the marginal cost of construction and development. For example, housing is expensive because land (an input to housing) is expensive. In this view, commonly called the neo-classical approach to housing market equilibrium and taught to every graduate student in urban economics, density will adjust to equate the price of land with its marginal value to consumers. This view also holds that developers do not earn excess profits from their activities (Sunding, 2005: 278).

An alternative approach stresses the importance of regulations, such as zoning and density controls, that limits the supply of housing. In this approach, the marginal cost of construction and development can be far below the market price of a house,

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because houses are rationed among a number of consumers and their prices are bid up accordingly. Thus, in the regulation-focused approach, housing prices reflect scarcity more than the costs of production. In this view, the value of land with a house on it can be far above the willingness of consumers to pay for an additional unit of lot size (Sunding, 2005: 278).

Supply conditions, which are influenced by a range of regulatory and geographic factors, are a key determinant of housing market outcomes. Low housing supply responsiveness can result in volatile house price inflation and increases in house prices that appear to be semi-permanent. Expectations of future capital gains, perhaps based on past experience, can amplify the impact of supply constraints, resulting in overshooting of house prices. This can drive a wedge between house price and rental inflation. As house price and rental inflation often behave differently, it is important to diagnose supply conditions independently of rental prices (Watson, 2013: 2). Renting a house is a form of current consumption, whereas owning a house is an investment in varying degrees. For a landlord, owning a house is an investment that generates both rental income (net of expenses) and capital gains (or losses). An owner-occupier consumes the current rental services implicitly associated with the property and is exposed to capital gains (or losses). If an owner-occupier is in a shared living situation, they are trading some of their imputed rents for actual rental income (Watson, 2013: 3).

The market to purchase property is much more than a market for accommodation. Demand to purchase a house is influenced by a range of factors, including the expected future costs and benefits associated with owning that property. Many of

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these payoffs are uncertain. Expectations of future house prices and mortgage interest rates influence how much a person is willing to bid for a house at present. The more binding or pervasive supply constraints are, the more an increase in demand will result in rising house prices rather than increased building activity (Watson, 2013: 2). In the long run, supply will respond to rising house prices and house prices will return towards their equilibrium level, which is partly determined inter alia by regulatory factors. However, house prices can be subject to speculative dynamics in the short term. Rising house prices can give rise to increased expectations of future house price appreciation, amplifying the increase in prices. This can occur even if there is no change in the number of households wishing to purchase a home. Potential buyers will just bid more aggressively than otherwise (Watson, 2013: 6).

Supply and demand of residential property, as an economic variable, does have a profound effect on the national economy and constitutes a major part of the Gross Domestic Product (GDP) of the property market in terms sales and rent, in South Africa. Housing represents one of the most important components of the Gross Domestic Product (GDP) and for households it weighs heavily on both the asset side and the liability side of the balance sheets (Blixen-Finecke, 2010: 1). Applicable to this paper, it is evident that any positive increase in the GDP will increase the Rand value of houses. Other factors such as demographic location and demand for the proposed development also increase or decrease the selling price. The research findings indicate that the GDP contributes to 69% in the changes that occur in the house price index (Vogel, 2012: 14). A further 25% contributes change via factors such as: inflation rate, household disposable income, final household consumption,

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and household and debt ratio. The projected theory of the house price and GDP increase may be tested in the future when the latest statistical data is released on house prices and the GDP (Vogel, 2012: 14). Property developers should carefully examine the GDP values of the economy to determine the current status of the property market. It would possibly determine whether a new residential development project would be worthwhile or not.

1.2. THE RESEARCH PROBLEM AND RELATED OBJECTIVES

Residential property development in South Africa is developing at a slow pace. The primary objective of this research was the development of a framework for the successful delivery of residential developments in South Africa, especially in the context of time. For this study, the empirical testing entailed the scrutiny and analysis of both primary and secondary sources (Abrey, 2015: 8).

1.2.1 The development of a framework of on-time development of residential property in South Africa

The objectives of the study were:

 To determine whether the PESTEL (political, economic, social, technological, legal and environmental) analysis can influence the effectiveness of on-time delivery of residential development projects in South Africa.

 To determine if any shortfall in full mortgage bond approval plays a role in delaying the development of residential property in South Africa.

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 To determine the prevalence of project management and the effectiveness of on-time delivery of developments of residential property in South Africa.  To empirically test the proposed framework amongst property developers,

real-estate agencies and conveyancers in South Africa..

1.3. THE STATEMENT OF THE PROBLEM

According to Susan Chapman, franchisee for the Rawson Property Group’s Port Elizabeth platinum franchise, as cited by Property24 (2011), any doubts among people in Port Elizabeth regarding the local residential property market’s ability to revive, have been summarily dispelled. The above-mentioned statement by Property24 (2011) regarding the market revival in Port Elizabeth, is a prime example that South Africa’s residential property market has rapidly contracted in terms of sales and development. South Africa is currently experiencing a downturn in its property market, which may further contribute to slower development in the country.

1.4. THE SUB-PROBLEMS

The following sub-problems were developed.

Sub-problem 1:

South Africa’s government paucity of funds has a political influence on residential property developments.

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Sub-problem 2:

The downturn in the economy effects on-time delivery of residential property developments in South Africa.

Sub-problem 3:

Demographics, buying habits, and lifestyle changes, as social factors in the local economy impact on-time delivery of residential property developments in South Africa.

Sub-problem 4:

Technological changes impact on-time delivery of residential property developments in South Africa.

Sub-problem 5:

Environmental regulations impact on-time delivery of residential property developments in South Africa.

Sub-problem 6:

The legal transfer of property title deeds prepared by conveyancers, impacts on-time delivery of residential property developments in South Africa.

Sub-problem 7:

Residential property developments in South Africa lack sufficient mortgage bonds to financially assist developers to continue with developments.

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Sub-problem 8:

Residential property developments in South Africa are not properly managed in the context of time, due to project managers who lack sufficient experience.

1.5. HYPOTHESES

To address the objectives as set out above, the following research hypotheses were tested:

Hypothesis 1: The majority of the population rate highly, the influence of political factors on the effectiveness of on-time development of residential property in South Africa.

Hypothesis 2: The majority of the population rate highly, the influence of the economy on the effectiveness of on-time development of residential property in South Africa.

Hypothesis 3: The majority of the population rate highly, the influence of social factors on the effectiveness of on-time development of residential property in South Africa.

Hypothesis 4: The majority of the population rate highly, the influence of technological innovation on the effectiveness of on-time development of residential property in South Africa.

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Hypothesis 5: The majority of the population rate highly, the influence of environmental regulations on the effectiveness of on-time development of residential property in South Africa.

Hypothesis 6: The majority of the population rate highly, the influence of legislation issues on the effectiveness of on-time development of residential property in South Africa.

Hypothesis 7: The majority of the population rate highly, the influence of mortgage bonds on the effectiveness of on-time development of residential property in South Africa.

Hypothesis 8: The majority of the population rate highly, the influence of project management on the effectiveness of on-time development of residential property in South Africa.

The relationships (hypotheses) described above are depicted in graphical format in Figure 1.1 below.

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The proposed conceptual framework was empirically tested among respondents within the sample population.

FIGURE 1.1: PROPERTY DEVELOPMENT: A LEAD-TIME

MANAGEMENT FRAMEWORK

Contributing

factors causing

delays to

residential

development

Perceived Success of On-Time Development

of Residential Property in South Africa

Political Influences

Property

Economics

Social Changes

Technological Changes

Environmental

Regulations

Legislation

Issues

Mortgage

Bonds

Project

Management

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1.6. DELIMITATION OF THE STUDY

Anderson and Poole (2009: 23) explain that delimitations refer to ways in which the investigation is reduced in size to make it manageable and this should not be confused with limitations. This study took place within South Africa and was limited to residential property developers, conveyance firms and real estate agencies.

1.7. RESEARCH ASSUMPTIONS

According to Leedy and Ormrod (2010: 89) assumptions about the research are necessary, as without them the research problem itself could not exist. The assumptions in this study therefore included the assumption that residential property within South Africa is currently developing at a slower rate than it should be.

1.8. RESEARCH DESIGN AND METHODOLOGY

In order to assess the research problem and the objectives of the study, the research strategy was divided into two main categories namely, primary and the secondary sources.

1.8.1. Secondary sources

According to Anderson and Poole (2009: 22) secondary sources of information are summaries of information gathered from primary sources. In this study, the secondary data was obtained from sources such as e-journals, online research

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As suggested by Struwig and Stead (2010: 80), a researcher must firstly examine secondary data carefully to make sure it fits the needs of the research. Struwig and Stead (2010: 80) further suggest that a researcher must also determine the reliability of the data collected. This can be done by examining the internal consistency, test-retest reliability or the validity of the data to determine whether the data has been collected and reported with care and precision (Struwig and Stead, 2010: 80).

For the purpose of this study, a comprehensive systematic review of literature was performed to assess the accessibility of residential property development in South Africa. This review of literature revealed the limited amount of research available. Furthermore, it was found that to date, no studies accurately determining the rate of development have been undertaken. Further limitations were found regarding possible factors contributing to delay in the development of residential property in South Africa. As there is a paucity of information regarding the contributing factors unique to property development, most of the information regarding possible factors which may lead to delayed development, have been inferred from general property studies.

1.8.2. Primary sources

Primary sources of information include: first-hand accounts of experimentation and investigation (articles in professional journals, monographs, doctoral theses, interviews and questionnaires); original works (letters, diaries, eyewitness accounts, poems, novels, autobiographies) and reports (proceedings of parliament, court testimony, reports of government departments and agencies, annual reports)

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(Anderson and Poole, 2009: 22). For the purpose of this study, a quantitative questionnaire was used as the primary data collection method and was circulated among residential property developers, conveyance firms and real estate agencies. This was done to enhance the reliability and validity of the study.

1.8.3. Sample

Struwig and Stead (2010: 117) mention that the sampling method selected by the researcher is crucial as it forms the foundation for assumptions and deductions made about the primary data collected. Sampling procedures can be divided into non-probability and probability sampling techniques. In non-probability sampling, the probability of any particular member of the population being chosen is unknown (Struwig and Stead, 2010: 111). In probability sampling, every element in the population has a known non-zero probability of selection (Struwig and Stead, 2010: 112). For the purpose of this study, a probability sampling technique was used and was limited to property developers, conveyance firms and real estate agencies. In order to achieve a satisfactory response rate, confidentiality was considered as a high priority.

1.8.4. Research methodology

The purpose of this study was to investigate the possible contributing factors affecting on-time delivery of the development of residential property in South Africa, and to develop a framework for the successful delivery of residential development in South Africa, especially in the context of time. The study was conducted by means

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of a review of the related literature as well as a quantitative study, which adopted a statistical approach (Abrey, 2015: 16).

1.8.5. Measurement instrument

The quantitative research method used purposefully for this study, was conducted by means of a self-administered research questionnaire among the identified research sample. Perceptions and attitudes of property developers, conveyancers and real estate agents in the research sample were measured. The questionnaire items were assessed by a 7-point Likert-type scale.

1.8.6. Design of the survey

Two types of research methods can be utilised for research purposes, namely qualitative and quantitative. For this study, a quantitative research method was implemented. Struwig and Stead (2010: 4) explain that quantitative research is a form of conclusive research involving large representative samples and fairly structured data collection procedures. Struwig and Stead (2010: 4) further explain that the primary role of quantitative research is to test hypotheses. A hypothesis is a proposition (or statement) regarding the relationship between two or more variables (phenomena) and a hypothesis can be tested (Struwig and Stead, 2010: 4). This study used a questionnaire to gather data from respondents. Different variations of questionnaires do exist and the most common types are those of interviewer administered questionnaires and self-administered questionnaires (Struwig and Stead, 2010: 89). In this study, different styles of questioning in the questionnaire were purposefully used to increase the likelihood of respondents answering the

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questions accurately. The different types of questions used in this study varied from closed-ended and open-ended questions, multiple choice, dichotomous (yes/no options) and scaled responses. This allowed for a structured and unstructured questionnaire, which ensured validity and reliability of the questionnaire (Struwig and Stead, 2010: 94).

1.8.7. Design of the study

This study used a quantitative research methodology to facilitate the process of gathering data to address the research objectives. Data for the quantitative method can be gathered from primary sources, secondary sources, related research questions and the hypotheses. For the purpose of this study, the primary data was obtained by interpreting the self-administered research questionnaire responses. In addition to the primary data, the secondary data was collected from sources, which consisted of e-journals, online research studies, library books, online books, published articles, newspaper articles, magazines and post-graduate studies. The questionnaire was designed in such a manner that the questions relative to the study were easily and readily understood by the respondents. It was important to minimise the time required to complete the questionnaire to increase the response rate (Abrey, 2015: 17). Most of the questions were close-ended questions and consisted of a 7-point Likert-type scale to ensure ease of answering by respondents.

The research questionnaire was designed to include questions, which were short and concise to keep the respondents interested and enthusiastic in answering the questionnaire, without the loss of concentration. In addition, open-ended questions

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opinions relative to the research topic (Abrey, 2015: 17). In this study, respondents were required to provide short answers in the interest of brevity, thus ensuring a quicker response time on the questionnaires. The questionnaire was presented in English and addressed for the attention of property developers, conveyance firms and real estate agencies. An attached covering letter assured the respondents that all of the responses would be treated with confidentiality. Furthermore, respondents were not asked to reveal any confidential information (Abrey, 2015: 17).

1.8.8. Collecting and interpreting the data

In this study, the following processes were taken into consideration. The quantitative data was obtained through interpretation, analysis and cross-referencing. The data from quantitative questionnaire responses was collected in an impartial and unbiased manner (Abrey, 2015: 18). The results and findings were presented in various forms such as text, tables and figures. The conclusions and recommendations were based upon the analysis of the primary and secondary data (Abrey, 2015: 18).

1.9. CONTRIBUTION TO THE BODY OF KNOWLEDGE

This research aimed to contribute to the body of knowledge of property development in South Africa. This was done by addressing the slow rate of the development of residential property. It also aimed at improving the on-time delivery framework that can be utilised by property developers.

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1.10. ETHICAL CONSIDERATIONS

Research ethics provide researchers with a code of moral guidelines on how to conduct research in a morally acceptable way (Struwig and Stead, 2010: 66). In this study, the following ethical considerations were of importance. Primary and secondary sources of information for this research were used, all information used was correctly referenced, and in each case, acknowledgement of the original authorship was provided. Abrey (2015: 18) refers to Fischler (2014: 11) who mentions that when conducting research one must respect the rights of the participants, honour the requests and restrictions of the research site and report the research fully and honestly.

1.11. DEFINITION OF CONCEPTS

Lead-time: Investopedia (2015b) defines lead-time as the amount of time that elapses between when a process starts and when it is completed. Investopedia (2015b) further explains that lead-time is examined closely in manufacturing, supply chain management and project management, as companies want to reduce the amount of time it takes to deliver products to the market. In business, lead-time minimization is normally preferred (Investopedia, 2015b).

Property Development: Property development can be described in its widest sense as any activity which changes the state of land (Millington, 2000: 1). Such a change is often evidenced in one of three main ways, namely:

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 By the demolition of existing buildings and their replacement with new buildings.

 Through the improvement of existing buildings by improving their state of repair and by improving the fixtures and fittings, they contain (Millington, 2000: 1).

Property Developer: A developer should seek to satisfy market demand by providing property suitable for potential users and sited in appropriate locations. 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 sufficient would-be users to pay that sum for its use. This in turn provides the developer with an adequate net return to reward for their labour, skill and professional expertise and to compensate them for the risks taken in undertaking the development (Millington, 2000: 5).

Real Estate: Investopedia (2015a) defines real estate as property comprised of land and buildings situated on the land. Real estate also encompasses the natural resources of the land including uncultivated flora and fauna, farmed crops and livestock, water and minerals. Although media often refers to the term real estate market from the perspective of residential living, real estate can be grouped into three broad categories based on its use: residential, commercial and industrial (Investopedia, 2015a). Examples of residential real estate, include: undeveloped land; houses; condominiums and town-houses; examples of commercial real estate are office buildings, warehouses and retail store buildings and examples of industrial real estate are factories, mines and farms (Investopedia, 2015a).

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Mortgage Bonds: When a lending institution such as a bank lends a large sum of money to enable someone to buy a property, it requires some form of security (IOLProperty, 2015). In most cases, the property itself is the bank’s security and the mortgage bond is the legal instrument that gives the bank the right to that security (IOLProperty, 2015). The security is effected when the bond is endorsed on the title deed of the property and registered at the Deeds Office, and it means that the property owner cannot transfer ownership without the permission of the bond-holder (the bank) (IOLProperty, 2015). The bondholder will of course not agree to the cancellation of the bond to allow transfer until the amount outstanding on the home loan has been repaid (IOLProperty, 2015). Thus, the amount due to the lender is secured though the bond, which is why it is common to talk of bond instalments instead of home loan instalments, or changes in the bond rate instead of the home loan interest rate (IOLProperty, 2015).

Project Management: Abrey (2015: 20) refers to The Project Management Institute (2013: 417) which defines project management as the application of knowledge, skills, tools and techniques to project activities in order to meet project requirements. This is achieved through the appropriate application and integration of the five project process groups namely, initiating, planning, executing, monitoring and controlling and closing (PMI, 2013: 418).

PESTEL Analysis: Team FME (2013) explains that all organisations need to identify external factors within their environment that could have an impact on their operations. Team FME (2013) further explains that many of these will be things that

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the organisation has no control over, but the implications of which need to be understood. A popular tool for identifying these external factors is the PESTEL Analysis, which can be used to help consider political, economic, social, technological, legal and environmental issues (Team FME, 2013). As organisations become more globalized, expanding their existing borders, the PESTEL techniques ensure that they thoroughly question each of these factors and consider their impact (Team FME, 2013).

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1.12. CONCEPTUAL LEAD-TIME MANAGEMENT FRAMEWORK

FIGURE 1.2: PROPERTY DEVELOPMENT: A LEAD-TIME

MANAGEMENT FRAMEWORK

Contributing

factors causing

delays to

residential

development

Perceived Success of On-Time Development

of Residential Property in South Africa

Political Influences

Property

Economics

Social Changes

Technological Changes

Environmental

Regulations

Legislation

Issues

Mortgage

Bonds

Project

Management

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1.13. STRUCTURE OF THE DISSERTATION

Chapter 1 addresses the research background, which includes: an introduction; the research problem and related objectives; the statement of the problem; sub-problems and hypotheses. The delimitations of the study, the assumptions, research design and methodology, the contribution to the body of knowledge, ethical considerations, definition of concepts and the theoretical framework are also presented.

Chapter 2 presents the review of the literature related to property development in the residential sector. The following topics are included in the review: property development; social aspects mortgage bonds; residential markets; real estate agencies and conveyance firms.

Chapter 3 presents the review of the literature related to lead-time in supply chain towards property development. The following topics are included in the review: project management; political influences; economic changes; technological innovation; legislation issues and environmental considerations.

Chapter 4 presents the operationalisation of the variables. The independent variables and dependent variables are operationalized.

Chapter 5 presents the research methodology. The sample strata, the research background and the design of the survey are presented.

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Chapter 6 presents the empirical results. The results, the testing of the hypotheses and the empirical framework are presented.

Chapter 7 presents the summary, conclusions and recommendations of the study.

1.14. BUDGET

Table 1.1: Budget of the study

ITEM COST

Consumable Details Expert group:

Letter of information and informed consent Confidentiality statement Questionnaire 100 x 2s/s= 200@ 50c = R100.00 100 x 1s/s =8@50c = R50.00 120x10s/s=1200@50c = R600.00 Library Charges

Photocopying journals, books etc.

R1000.00

Travel Costs

Travel between East London and Port Elizabeth

600.0 km x 12 visits @ R2.90/km = R 20880.00

Other

Visiting property developers, real estate agents and conveyance firms

Proof reading of dissertation Statistical analysis

1000km @ R2.90/km = R2900.00

@ R2400.00 @ R2800.00

TOTAL R 30730.00

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CHAPTER TWO

PROPERTY DEVELOPMENT IN THE RESIDENTIAL SECTOR

2.1. INTRODUCTION

Residential real estate is a type of leased property, containing either a single family or multi-family structure that is available for occupation for non-business purposes. Residences can be classified by, if and how they are connected to neighbouring residences and land (DAS, 2015). Homes are the core ingredient of neighbourhoods, villages and towns and have influenced the siting of schools, shops, health centres and children’s play areas (Golland and Blake, 2004: 5).

Different types of housing tenure can be used for the same physical type. For example, connected residents might be owned by a single entity and leased out, or owned separately with an agreement covering the relationship between units and common areas and concerns (DAS, 2015). The residential component of cities consists of between 70% and 80% of the total city area (Prinsloo and Prinsloo, 2004: 127). It is therefore critical to understand the nature and forces having an impact on the residential market. In a city, such as Tokyo with 27 million residents living in ±9.5 million housing units, the importance of residential components in our cities is clear (Prinsloo and Prinsloo, 2004: 127).

One of the most important advances in the British construction industry over the past two decades, is the recognition that housing development is a multi-faceted

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process in which virtually all aspects of everyday life have some input (Golland and Blake, 2004: 4). Housing development in Britain over the past couple of decades has been affected by undercurrents that are partly global, European and domestic in origin (Golland and Blake, 2004: 5).

2.2. PROPERTY DEVELOPMENT

What roles do property development and developers play in the residential real estate sector?

According to Peiser and Hamilton (2012: 3), real estate development or property development, is a multi-faceted business, encompassing activities that range from the renovation and re-leasing of existing buildings to the purchase of raw land and the sale of improved land or parcels to others. Residential development coinciding with certain lifestyles and specific socio-economic circumstances further enhances the dynamic nature of the residential component of urban space (Prinsloo and Prinsloo, 2004: 128). As mentioned earlier, the residential component is arguably the most important component in the whole functioning of a city. Residential development has a direct impact on all other aspects in a city (Prinsloo and Prinsloo, 2004: 128). Examples of these aspects are:

 Impact on retail services.

 Infrastructure - roads, water, electricity and refuge removal.

 The office component of cities, i.e. most decentralised offices normally located in the more affluent residential areas.

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 The industrial component.  Entertainment facilities.

 All other sectors and services found within a city.

2.2.1. Property developer

Real estate development can be one of the largest contributors to wealth in society (Hall and Lowies, 2010: 63; Abrey, 2015: 65). It plays a key role in determining the level of economic prosperity of individuals, business firms and the country (Hall and Lowies, 2010: 63). Property developers can have a positive impact on a community, especially when they develop residential property (Hall and Lowies, 2010: 63; Abrey, 2015: 65). However, for residential property developers to be successful wealth creators, they have to conduct sound financial planning, make the right decisions and use prudent financial management techniques (Hall and Lowies, 2010: 63; Abrey, 2015: 65).

A successful developer does not underestimate the importance of studying the preferences of consumers before starting a housing project (Botha, 2013: 116). Developers are the coordinators of the activities, converting ideas on paper into real property (Peiser and Hamilton, 2012: 3). Developers usually take the greatest risk in the creation or renovation of real estate and receive the greatest rewards. Developers buy land, determine the marketing of the property, and develop the building program and design (Peiser and Hamilton, 2012: 3). In addition they obtain the necessary public approval, finance real estate deals, build or have builders build projects, create, imagine, control and orchestrate the process of development from

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the beginning to the end (Peiser and Hamilton, 2012: 3). Developers work with many different professionals along each step of this process, including architects, city planners, engineers, surveyors, inspectors, contractors, leasing agents and others (Peiser and Hamilton, 2012: 3).

2.2.2. Objectives of the developer

The specific objectives of a developer are a result of their particular development strategy (Botha, 2013: 121). During the process of strategic planning, decisions are made regarding objectives, changes in objectives, the sources that have to be used to achieve the objectives and the policy that will be followed in obtaining, utilising and arranging these sources (Botha, 2013: 121; Abrey, 2015: 44). The strategic objectives consist of economic objectives aimed at optimising the effectiveness of the total resource conversion process, as well as social or non-economic objectives (Botha, 2013: 121; Abrey, 2015: 44).

The formulation of objectives is also influenced by the developer’s perception of their responsibilities, as well as by the restrictions the environment places on behaviour, thus excluding certain options (Needham, Adair, van Geffen and Matthews, 2003; Botha, 2013: 121; Abrey, 2015: 44). The developer usually has a certain return / risk curve in mind as a criterion for the evaluation of a specific development, even though they often do not formulate it explicitly (Botha, 2013: 122; Abrey, 2015: 44). The effect of risk can be incorporated with the profitability objective by adding a risk premium to an accepted risk-free rate of return (Cloete, 1999; Needham et al., 2003; Botha, 2013: 122; Abrey, 2015: 44).

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The objectives of the developer are of utmost importance as the feasibility of a project is evaluated by the extent to which these objectives are met (Cloete, 2006: 12; Botha, 2013: 121). The objectives may consist of:

 Economic objectives

These entail optimising the use of resources in maximising return of funds invested. The maximising of the return and the skill in being able to employ the optimum amount of capital in the development will result in a financially feasible development (Cloete, 2006: 12). The investment of capital in property provides a hedge against the erosion of the capital through inflation, but the primary objective is still the generation of an income stream (Cloete, 2006: 12).

 Social or other objectives

The objective of governmental institutions is usually the improvement or optimization of services.

In evaluating the return on an investment, a specific attribute (e.g. internal rate of return) has to be decided upon and a scale on which the effectiveness etc. could be compared, has to be selected (e.g. an internal rate of return of 25% per annum) (Cloete, 2006: 12; Botha, 2013: 122). If the developer has financial objectives the aim would be a certain return on his capital investment. The developer often does not have a certain return as objective but rather an idea of a probable flow of income, set against the risk, as a criterion for the evaluation of the development.

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2.3. SOCIAL ASPECTS

2.3.1. Socio-economic feasibility

To determine whether a development will be successful or not, the feasibility study takes all the relevant factors into account in order to establish whether the socio-economic climate is favourable for the active and effective implementation of the development (Cloete, 1999: 128; Botha, 2013: 122). The potential market must be characterised by determining selected indicators of economic activity, of which the individual and joint movements correlate with movement of the market. Of additional importance is the identification of socio-political factors as having a positive or negative influence on the market (Cloete, 1999: 128; Botha, 2013: 122). The various factors determining the prices and rent in the different property markets are summarized in Figure 2.1.

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Both supply and demand factors can be analysed on a national as well as on a local level. The content of an economic feasibility study varies in extent and in the emphasis placed on the different factors, according to the type of fixed property involved. Socio-economic factors of importance to property development can be classified under the headings of: demographic factors; urban growth patterns; housing tendencies; tendencies in the building industry and property market; personal income and expenditure patterns; macro-economic factors; local economic conditions and applicable national and local political factors (Cloete, 1999: 129; Botha, 2013: 123). The relative importance of the different factors varies according

FIGURE 2.1: NATIONAL DEMAND PATTERNS FOR FIXED

PROPERTY IN THE PRIVATE SECTOR

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to the type of property development considered, for example a block of flats versus a shopping complex (Cloete, 1999: 129; Botha, 2013: 123).

2.3.2. Social media

The way people make purchase decisions is changing. A luxury property search used to rely greatly on agents and numerous visits to unsuitable properties to find the right one (Ross, 2013). Both time consuming and expensive, this process had its downsides, but for such an important and expensive purchase, consumers would always invest that time to ensure they made the right decision (Ross, 2013). However, times are changing. The internet, and more specifically, social media, has brought with it huge changes to the luxury property purchase decision-making process (Ross, 2013). While the need to be sure and find out everything about a property before purchase has not changed, the way that people source information has changed (Ross, 2013).

In the past buyers would await agents’ new property lists, with details for each property dutifully printed out and posted on a weekly basis (Ross, 2013). The immediacy of social media now means that customers instead expect to know as soon as a new property goes on the market, and many will follow Twitter, Facebook and RSS feeds of various agents to snap up the best properties as soon as they come onto the market (Ross, 2013). Whether they are sharing videos, listings or advice with their communities and prospective buyers or sellers, real estate professionals are making progress in using social media for real results (Ross, 2013).

Property development: a lead-time management framework

PROPERTY DEVELOPMENT:

A LEAD-TIME MANAGEMENT FRAMEWORK

PROPERTY DEVELOPMENT:

A LEAD-TIME MANAGEMENT FRAMEWORK

ACKNOWLEDGEMENTS

LIST OF ABBREVIATIONS

ABSTRACT

TABLE OF CONTENTS

LIST OF TABLES

LIST OF FIGURES

CHAPTER ONE

THE RESEARCH BACKGROUND

FIGURE 1.1: PROPERTY DEVELOPMENT: A LEAD-TIME

MANAGEMENT FRAMEWORK

Contributing

factors causing

delays to

residential

development

Perceived Success of On-Time Development

of Residential Property in South Africa

Political Influences

Property

Economics

Social Changes

Technological Changes

Environmental

Regulations

Legislation

Issues

Mortgage

Bonds

Project

Management

FIGURE 1.2: PROPERTY DEVELOPMENT: A LEAD-TIME

MANAGEMENT FRAMEWORK

Contributing

factors causing

delays to

residential

development

Perceived Success of On-Time Development

of Residential Property in South Africa

Political Influences

Property

Economics

Social Changes

Technological Changes

Environmental

Regulations

Legislation

Issues

Mortgage

Bonds

Project

Management

CHAPTER TWO

PROPERTY DEVELOPMENT IN THE RESIDENTIAL SECTOR

FIGURE 2.1: NATIONAL DEMAND PATTERNS FOR FIXED

PROPERTY IN THE PRIVATE SECTOR