Transcript 6 PRODUCTIVITY ANALYSIS Objective of this chapter: To discuss the rationale for, functions and aspects of productivity analysis in the real estate market.

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;
▪ relate these aspects to the productivity of a specific site.
Introduction
►
►
►
►
►
►
►
►
Analysis of the capacity of property to house economic activities, supply
services, and provide amenities to meet human needs.
P = O/C (P = productivity; O = actual output; C = potential output).
P  O versus C
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:
* heterogeneous nature of individual properties,
* potential of a site for more than one use,
* an appraisal practice.
The focus: characteristics of a property to establish its competitive position in
the market.
Links Lancaster’s consumer theory to real estate:
* attributes of product are priced in the market.
* founded on the economic distribution, i.e., allocates returns to a product
among factors of production.
* 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
 can compare unlike, but similar estate products over time.
* basis of hedonic pricing of property products.
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.
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
PHYSICAL ATTRIBUTES AND PRODUCTIVITY ANALYSIS
(contd.)
►
►
►
►
►
►
►
►
►
►
►
►
►
►
►
►
Investigate physical attributes of site
Identify limitations in use
Possibility of physical alteration during holding period
Physical constraints  influence development plan, locational relationship, value.
What is the site’s productive potential?
Which sites have similar attributes and, thus, become competitors?
Physical attributes: natural vs man-made.
Natural: geological features, terrain, soils, ground cover, scenic views, creeks,
brooks, site orientation (to sun, wind, sea, infrastructure, transportation, etc.)
Examples of evaluation:
“The parcel too small for…”
“The shape limits access, visibility, and…”
“The slope is too steep…”
Man-made attributes: land and capital improvements.
Capital is dominant  economic viability of a land parcel.
Capital improvements: site improvements & building structures.
Site improvements: on-site & off-site.
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.
► Influence market taste, preference, and demand.
►
PHYSICAL ATTRIBUTES AND PRODUCTIVITY
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.
E.g., r/ship between internal design and current market standards.
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 & timeshare.
►
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).
Influence on project if not carried out?
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.
►
EIA (contd.)
Environmental Quality Act, 1974, among property-related projects:
EIA Guidelines For Coastal Resort Development Projects
EIA Guidelines For Industrial Estate Development
Penilaian Kesan Kepada Alam Sekeliling Bagi Pembangunan
Padang Golf
EIA Guidelines For Development of Resort and Hotel Facilities In
Hill Stations
EIA Guidelines For Development of Tourist and Recreational
Facilities In National Parks
EIA Guidelines For Development of Tourist and Recreational
Facilities On Islands in Marine Parks
EIA Guidelines For Industrial Projects
EIA Guidelines For Municipal Solid Waste and Sewage Treatment
and Disposal Projects
► Must be conducted by those registered with the DOE
►
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;
* Techniques for minimise harms.
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;
►
The EIA Steps
►
Preliminary Assessment
►
The objectives of Preliminary Assessment for prescribed activities are
* 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.
►
►
►
►
►
►
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
"in house", or by a consultant.
Some form of public participation is mandatory.
Environmental data collection may be necessary and close liaison between the
assessor and relevant environment related agencies is encouraged.
The results of Preliminary Assessment are reported formally for examination and
approval by the project approving authority and the Director General of
Environmental Quality.
Preliminary Assessment requires resources that are a small proportion of the manhours, money, skills and equipment committed to a pre-feasibility study and the
assessment should be completed within the time frame of that study.
EIA Steps (contd)
►
Detailed Assessment
►
The objectives of Detailed Assessment for prescribed activities with potentially
significant residual environmental impact include :
* to describe the significant residual environmental impacts predicted from the
final
project plan;
* to specify mitigating and abatement measures in the final project plan; and
* to identify the environmental costs and benefits of the project to the
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
the results of Preliminary Assessment are issued for each project.
The Assessment might be conducted "in house" or by a consultant.
The assessment method is selected according to the nature of the project; some
form of public participation is required.
Environmental data collection is almost certainly necessary
The results of Detailed Assessment is reported formally.
EIA Steps (contd.)
►
The EIA Review Process
►
The objectives of Review for Prescribed Activities subjected to Detailed
Assessment include:
* to critically review the Detailed Assessment reports;
* to evaluate development and environmental costs and benefits of the final
project plan;
* to formulate recommendations and guidelines to the project approving
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 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
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
any Review Panel established. The selection of the experts depends on the areas
of environmental impacts to be reviewed.
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.
Nevertheless, “politically” manoeuvrable?
Figure 5.2: “The Attributes” and Productivity Analysis
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
and development budgets.