Property Market Research (Lecture 6)

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6

PRODUCTIVITY ANALYSIS

Objective of this chapter:

To discuss the rationale for, functions and aspects of

productivity analysis in the real estate market study,

covering: physical, legal, and environmental aspects.

Expected learning results:

▪

understand what is productivity analysis;

▪

discuss the essential aspects of productivity analysis;

▪

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Introduction

► Analysis of the capacity of property to house economic activities, supply _{Analysis of the capacity of property to house economic activities, supply} services, and provide amenities to meet human needs.

services, and provide amenities to meet human needs.

► P = O/C (P = productivity; O = actual output; C = potential output).P = O/C (P = productivity; O = actual output; C = potential output). ► P _P O versus C_{O versus C}

► Capacity depends on the manner in which the factors of production are _{Capacity depends on the manner in which the factors of production are}

combined in the property and the way potential consumers react to the mix of

property attributes

► Reasons for productivity analysis:_{Reasons for productivity analysis:}

* heterogeneous nature of individual properties,* heterogeneous nature of individual properties,

* potential of a site for more than one use,* potential of a site for more than one use,

* an appraisal practice.* an appraisal practice.

► The focus: characteristics of a property to establish its competitive position in The focus: characteristics of a property to establish its competitive position in the market.

the market.

► Links Lancaster’s consumer theory to real estate:_{Links Lancaster’s consumer theory to real estate:}

* attributes of product are priced in the market.* attributes of product are priced in the market.

► * founded on the economic distribution, i.e., allocates returns to a product * founded on the economic distribution, i.e., allocates returns to a product

among factors of production.among factors of production.

* relates the value of product to the marketability of its attributes. * relates the value of product to the marketability of its attributes.

* identify the value of a property’s attributes and their pricing in the market* identify the value of a property’s attributes and their pricing in the market

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Main Functions of PA

►

Two of the functions of productivity analysis:

* To identify the extent of the market and the possibility of further

market segmentation. For durable goods and real property,

productivity analysis reflects the operation of the principle of

substitution.

* To identify the attributes desired by the market, enabling the

analysts to compare and contrast competitive properties to

establish their differences and the market’s pricing of those

differences.

►

Productivity analysis also deals with general property attributes. They

include physical attributes, legal attributes, and locational attributes.

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PHYSICAL ATTRIBUTES AND PRODUCTIVITY

ANALYSIS

►

Real estate immobile but many uses.

►

Address the flexibility of real estate use

►

Highest and best use?

►

Consider:

►

Physical conditions:

advantages/disadvantages

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PHYSICAL ATTRIBUTES AND PRODUCTIVITY ANALYSIS

(contd.)

► Investigate physical attributes of site_{Investigate physical attributes of site} ► Identify limitations in useIdentify limitations in use

► Possibility of physical alteration during holding periodPossibility of physical alteration during holding period

► Physical constraints _{Physical constraints} influence development plan, locational relationship, value._{influence development plan, locational relationship, value.} ► What is the site’s productive potential?What is the site’s productive potential?

► Which sites have similar attributes and, thus, become competitors?_{Which sites have similar attributes and, thus, become competitors?} ► Physical attributes: natural vs man-made.Physical attributes: natural vs man-made.

► Natural: geological features, terrain, soils, ground cover, scenic views, creeks, Natural: geological features, terrain, soils, ground cover, scenic views, creeks, brooks, site orientation (to sun, wind, sea, infrastructure, transportation, etc.)

brooks, site orientation (to sun, wind, sea, infrastructure, transportation, etc.)

► Examples of evaluation:Examples of evaluation: ► ““The parcel too small for…”The parcel too small for…”

► “_“The shape limits access, visibility, and…”_{The shape limits access, visibility, and…”} ► ““The slope is too steep…”The slope is too steep…”

► Man-made attributes: land and capital improvements._{Man-made attributes: land and capital improvements.} ► Capital is dominant _{Capital is dominant} economic viability of a land parcel._{economic viability of a land parcel.}

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PHYSICAL ATTRIBUTES AND PRODUCTIVITY

ANALYSIS (contd.)

►

On-site: grading, levelling, terraced slope, retaining walls,

drainage system, landscaping, surfaced area (e.g.

driveways, walks, parking areas), underground (e.g.

sewers, water laterals, gas lines, electric cable).

►

Expenditure to be taken into account in feasibility study.

►

Off-site improvements: street & roads, public sewage,

water, disposal plant, pumping station, sidewalks, etc.

►

Installed by developer, local authority, public companies.

►

Determine competitive advantage of site.

►

Expenditure to be taken into account in feasibility study.

►

Building structures: quality of facilities, attractiveness of

structure, functional efficiency.

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ANALYSIS (contd.)

►

Quality often linked to construction cost.

►

Quality is identified by structural standard and by alternative

development in the market.

►

Standards define marketability attributes of a project.

►

Marketability attributes



product type, its use, market competition,

capture, absorption.

►

Attractiveness is looked upon from the perspective of a market

segment that defines the standards.

►



identify prospective buyers/investors/tenants/target groups.

►

Functional efficiency: capacity to satisfy contemporary tastes &

preferences.

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LEGAL ATTRIBUTES AND PRODUCTIVITY

ANALYSIS

►

Affect the economic/market potential of project.

►

Spatial dimensions of property are defined in the legal

description.

►

Specify the interests to owners, users, investors.

►

Surface rights, air rights, mineral rights, sub-surface tunnel

rights.

►

Temporal dimensions



alternative property products.

►

E.g. legal estates makes possible mortgage & investment

contract.

►

fee simple estate makes possible condominium & time-

fee simple estate makes possible condominium &

time-share.

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ENVIRONMENTAL ATTRIBUTES AND

PRODUCTIVITY ANALYSIS

►

EIA is essentially a planning tool for preventing environmental problems

due to an action.

►

Concern over the impact of project development on the environment.

►

To avoid costly mistakes in project implementation, either because of:

* environmental damages that are likely to arise during project

implementation;

* modifications that may be required subsequently in order to make

the action environmentally sustainable.

►

A specialised segment of analysis of property project.

►

Multi-disciplinary.

►

Preparation of environmental impact analysis is required for prescribed

activities, including property projects (e.g. mix development, hotel,

manufacturing site).

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EIA (contd.)

►

Many EIA reports on property projects are preliminary

assessment.

►

The objectives of Preliminary Assessment for prescribed

activities:

* to examine and select the best from the project options

available;

* to identify and incorporate into the project plan

appropriate abatement and mitigating measures;

* to identify significant residual environmental impacts.

►

In Malaysia, EIA is required under section 34A,

Environmental Quality Act, 1974.

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EIA (contd.)

► Environmental Quality Act, 1974, among property-related projects:_{Environmental Quality Act, 1974, among property-related projects:}

EIA Guidelines For Coastal Resort Development Projects EIA Guidelines For Coastal Resort Development Projects

EIA Guidelines For Industrial Estate DevelopmentEIA Guidelines For Industrial Estate Development

Penilaian Kesan Kepada Alam Sekeliling Bagi Pembangunan Penilaian Kesan Kepada Alam Sekeliling Bagi Pembangunan

Padang GolfPadang Golf

EIA Guidelines For Development of Resort and Hotel Facilities In EIA Guidelines For Development of Resort and Hotel Facilities In

Hill Stations Hill Stations

EIA Guidelines For Development of Tourist and Recreational EIA Guidelines For Development of Tourist and Recreational

Facilities In National ParksFacilities In National Parks

EIA Guidelines For Development of Tourist and Recreational EIA Guidelines For Development of Tourist and Recreational

Facilities On Islands in Marine ParksFacilities On Islands in Marine Parks

EIA Guidelines For Industrial ProjectsEIA Guidelines For Industrial Projects

EIA Guidelines For Municipal Solid Waste and Sewage Treatment EIA Guidelines For Municipal Solid Waste and Sewage Treatment

and Disposal Projectsand Disposal Projects

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EIA (contd.)

►

Given the description of the proposed project, EIA is a 6-step process:

* Statement of present conditions (including probable environmental

impacts);

* Proposed alternative actions and probable impact of the actions;

* Expected future conditions and impacts (distinguish between

adverse & beneficial, short-term and long-term, irreversible and

irretrievable losses);

* Alternative action chosen and means of evaluation;

* Probable impacts of chosen action & unavoidable impacts remain;

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EIA (contd.)

►

In the Malaysian case, follow

A handbook of EIA Guidelines

and specific guidelines for the prescribed activities

(examples listed above).

►

Brief EIA Procedures in Malaysia

►

The EIA procedure adopted in Malaysia consists of three

major steps. The steps in the EIA procedure are as follows:

* Preliminary assessment of all prescribed activities;

* Detailed assessment of those prescribed activities for

which significant residual environmental impacts have been

predicted in the preliminary assessment;

* Review of assessment reports;

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The EIA Steps

►

Preliminary Assessment

► The objectives of Preliminary Assessment for prescribed activities areThe objectives of Preliminary Assessment for prescribed activities are

* to examine and select the best from the project options available.* to examine and select the best from the project options available.

* to identify and incorporate into the project plan appropriate abatement and * to identify and incorporate into the project plan appropriate abatement and mitigating

mitigating

measures.measures.

* to identify significant residual environmental impacts. * to identify significant residual environmental impacts. ►

A Preliminary Assessment should normally be initiated during the early stages of

project planning.

► Standard Procedural Steps are provided and the assessment might be conducted Standard Procedural Steps are provided and the assessment might be conducted "in house", or by a consultant.

"in house", or by a consultant.

► Some form of public participation is mandatory._{Some form of public participation is mandatory.}

► Environmental data collection may be necessary and close liaison between the Environmental data collection may be necessary and close liaison between the assessor and relevant environment related agencies is encouraged.

assessor and relevant environment related agencies is encouraged.

► The results of Preliminary Assessment are reported formally for examination and _{The results of Preliminary Assessment are reported formally for examination and} approval by the project approving authority and the Director General of

approval by the project approving authority and the Director General of

Environmental Quality.

► Preliminary Assessment requires resources that are a small proportion of the man-Preliminary Assessment requires resources that are a small proportion of the man-hours, money, skills and equipment committed to a pre-feasibility study and the

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EIA Steps (contd)

► Detailed Assessment_{Detailed Assessment}

► The objectives of Detailed Assessment for prescribed activities with potentially _{The objectives of Detailed Assessment for prescribed activities with potentially} significant residual environmental impact include :

significant residual environmental impact include :

* to describe the significant residual environmental impacts predicted from the * to describe the significant residual environmental impacts predicted from the final

final

project plan; project plan;

* to specify mitigating and abatement measures in the final project plan; and * to specify mitigating and abatement measures in the final project plan; and

* to identify the environmental costs and benefits of the project to the * to identify the environmental costs and benefits of the project to the community.

community.

►

Detailed Assessment should continue during project planning until the project

plan is finalised.

► Standard procedural steps are provided and specific terms of reference based on _{Standard procedural steps are provided and specific terms of reference based on} the results of Preliminary Assessment are issued for each project.

the results of Preliminary Assessment are issued for each project.

► The Assessment might be conducted "in house" or by a consultant. The Assessment might be conducted "in house" or by a consultant.

► The assessment method is selected according to the nature of the project; some _{The assessment method is selected according to the nature of the project; some} form of public participation is required.

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EIA Steps (contd.)

► The EIA Review Process_{The EIA Review Process}

► The objectives of Review for Prescribed Activities subjected to Detailed _{The objectives of Review for Prescribed Activities subjected to Detailed} Assessment include:

Assessment include:

* to critically review the Detailed Assessment reports; * to critically review the Detailed Assessment reports;

* to evaluate development and environmental costs and benefits of the final * to evaluate development and environmental costs and benefits of the final

project plan; project plan;

* to formulate recommendations and guidelines to the project approving * to formulate recommendations and guidelines to the project approving

authority to the implementation of the project. authority to the implementation of the project. ►

Review of EIA Reports is carried out internally by the DOE for preliminary

assessment reports and by an ad hoc Review Panel for detailed assessment

reports.

► Recommendations arising out of the review are transmitted to the relevant _{Recommendations arising out of the review are transmitted to the relevant} project approving authorities for consideration in making a decision on the

project approving authorities for consideration in making a decision on the

project.

► The normal period allocated for a review of a preliminary assessment report is The normal period allocated for a review of a preliminary assessment report is two months while that for a detailed assessment report varies depending on the

two months while that for a detailed assessment report varies depending on the

type of project under review

► The DOE maintains a list of experts who may be called upon to sit as members of _{The DOE maintains a list of experts who may be called upon to sit as members of} any Review Panel established. The selection of the experts depends on the areas

any Review Panel established. The selection of the experts depends on the areas

of environmental impacts to be reviewed.

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PA and Market Study

►

How the productivity analysis is to be incorporated into the

market study?

►

Fundamentally, used as part of technical and economic

evaluation of a project.

►

To a lesser extent, perhaps, used as part of evaluation of

the social and environmental impacts of a project.

►

Given all the situs and non situs characteristics of a

property project, productivity analysis helps to make

evaluation whether a project is technically feasible,

economically viable, socially acceptable, and

environmentally sustainable.

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Ssite analysis is important for, but not limited to the following

reasons:

1. Best alternative for a proposed development.

2. Feasiblity for the proposed project and, if not, the

modifications needed.

3. It guides the determination of project size or density

(units per acre).

4. Best area of the site to locate the buildings, and a course

of action to protect natural resources and mitigate any

negative environmental impacts.

5. Site’s capacity to “carry” the type and number of proposed

units, the availability of utilities (water, sewer, electricity,

gas, roads), and the suitability of the site for an on-site

septic system if one is necessary.

6. Regulatory and legal limitations to development, such as

local zoning or title restrictions.

7. Aassist bidders in preparing accurate project schedules