5 5 PRODUCTIVITY ANALYSISPRODUCTIVITY ANALYSIS

Objective of this chapter:Objective of this chapter:

To discuss the rationale for, functions and aspects of To discuss the rationale for, functions and aspects of productivity analysis in the real estate market study, productivity analysis in the real estate market study, covering: physical, legal, and environmental aspects.covering: physical, legal, and environmental aspects.

Expected learning results:Expected learning results:

▪ ▪ understand what is productivity analysis;understand what is productivity analysis;▪ ▪ discuss the essential aspects of productivity analysis;discuss the essential aspects of productivity analysis;▪ ▪ relate these aspects to the productivity of a specific relate these aspects to the productivity of a specific

site.site.

IntroductionIntroduction

► Analysis of the capacity of property to house economic activities, Analysis of the capacity of property to house economic activities, supply services, and provide amenities to meet human needs.supply 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 Capacity depends on the manner in which the factors of production

are combined in the property and the way potential consumers react are combined in the property and the way potential consumers react to the mix of property attributesto 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 The focus: characteristics of a property to establish its competitive

position in the market.position in 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 * founded on the economic distribution, i.e., allocates returns to a

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

marketmarket can compare unlike, but similar estate products over time.can compare unlike, but similar estate products over time. * basis of hedonic pricing of property products.* basis of hedonic pricing of property products.

Main Functions of PAMain Functions of PA

► Two of the functions of productivity analysis:Two of the functions of productivity analysis:

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

market segmentation. For durable goods and real property, market segmentation. For durable goods and real property, productivity analysis reflects the operation of the principle of productivity analysis reflects the operation of the principle of substitution.substitution.

* To identify the attributes desired by the market, enabling the * To identify the attributes desired by the market, enabling the analysts to compare and contrast competitive properties to analysts to compare and contrast competitive properties to establish their differences and the market’s pricing of those establish their differences and the market’s pricing of those differences.differences.

► Productivity analysis also deals with general property attributes. Productivity analysis also deals with general property attributes. They include physical attributes, legal attributes, and locational They include physical attributes, legal attributes, and locational attributes.attributes.

PHYSICAL ATTRIBUTES AND PHYSICAL ATTRIBUTES AND PRODUCTIVITY ANALYSISPRODUCTIVITY ANALYSIS

►Real estate immobile but many uses.Real estate immobile but many uses.►Address the flexibility of real estate Address the flexibility of real estate

useuse►Highest and best use?Highest and best use?►Consider:Consider:►Physical conditions: Physical conditions:

advantages/disadvantagesadvantages/disadvantages

PHYSICAL ATTRIBUTES AND PRODUCTIVITY ANALYSIS PHYSICAL ATTRIBUTES AND PRODUCTIVITY ANALYSIS (contd.)(contd.)

► Investigate physical attributes of siteInvestigate 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 influence development plan, locational

relationship, value.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, Natural: geological features, terrain, soils, ground cover, scenic views,

creeks, brooks, site orientation (to sun, wind, sea, infrastructure, creeks, brooks, site orientation (to sun, wind, sea, infrastructure, transportation, etc.)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.► Capital improvements: site improvements & building structures.Capital improvements: site improvements & building structures.► Site improvements: on-site & off-site.Site improvements: on-site & off-site.

PHYSICAL ATTRIBUTES AND PRODUCTIVITY PHYSICAL ATTRIBUTES AND PRODUCTIVITY ANALYSIS (contd.)ANALYSIS (contd.)

► On-site: grading, levelling, terraced slope, retaining walls, On-site: grading, levelling, terraced slope, retaining walls, drainage system, landscaping, surfaced area (e.g. drainage system, landscaping, surfaced area (e.g. driveways, walks, parking areas), underground (e.g. driveways, walks, parking areas), underground (e.g. sewers, water laterals, gas lines, electric cable).sewers, water laterals, gas lines, electric cable).

► Expenditure to be taken into account in feasibility study.Expenditure to be taken into account in feasibility study.► Off-site improvements: street & roads, public sewage, Off-site improvements: street & roads, public sewage,

water, disposal plant, pumping station, sidewalks, etc.water, disposal plant, pumping station, sidewalks, etc.► Installed by developer, local authority, public companies.Installed by developer, local authority, public companies.► Determine competitive advantage of site.Determine competitive advantage of site.► Expenditure to be taken into account in feasibility study.Expenditure to be taken into account in feasibility study.► Building structures: quality of facilities, attractiveness of Building structures: quality of facilities, attractiveness of

structure, functional efficiency.structure, functional efficiency.► Influence market taste, preference, and demand.Influence market taste, preference, and demand.

PHYSICAL ATTRIBUTES AND PRODUCTIVITY PHYSICAL ATTRIBUTES AND PRODUCTIVITY ANALYSIS (contd.)ANALYSIS (contd.)

► Quality often linked to construction cost.Quality often linked to construction cost.► Quality is identified by structural standard and by alternative Quality is identified by structural standard and by alternative

development in the market.development in the market.► Standards define marketability attributes of a project.Standards define marketability attributes of a project.► Marketability attributes Marketability attributes product type, its use, market product type, its use, market

competition, capture, absorption.competition, capture, absorption.► Attractiveness is looked upon from the perspective of a Attractiveness is looked upon from the perspective of a

market segment that defines the standards.market segment that defines the standards.► identify prospective buyers/investors/tenants/target groups.identify prospective buyers/investors/tenants/target groups.► Functional efficiency: capacity to satisfy contemporary tastes Functional efficiency: capacity to satisfy contemporary tastes

& preferences.& preferences.► E.g., r/ship between internal design and current market E.g., r/ship between internal design and current market

standards.standards.

LEGAL ATTRIBUTES AND PRODUCTIVITY LEGAL ATTRIBUTES AND PRODUCTIVITY ANALYSISANALYSIS

► Affect the economic/market potential of project.Affect the economic/market potential of project.► Spatial dimensions of property are defined in the Spatial dimensions of property are defined in the

legal description.legal description.► Specify the interests to owners, users, investors.Specify the interests to owners, users, investors.► Surface rights, air rights, mineral rights, sub-surface Surface rights, air rights, mineral rights, sub-surface

tunnel rights.tunnel rights.► Temporal dimensions Temporal dimensions alternative property alternative property

products.products.► E.g. legal estates makes possible mortgage & E.g. legal estates makes possible mortgage &

investment contract.investment contract.► fee simple estate makes possible condominium & fee simple estate makes possible condominium &

time-share.time-share.

ENVIRONMENTAL ATTRIBUTES AND ENVIRONMENTAL ATTRIBUTES AND PRODUCTIVITY ANALYSISPRODUCTIVITY ANALYSIS

► EIA is essentially a planning tool for preventing environmental EIA is essentially a planning tool for preventing environmental problems due to an action.problems due to an action.

► Concern over the impact of project development on the environment.Concern over the impact of project development on the environment.► To avoid costly mistakes in project implementation, either because To avoid costly mistakes in project implementation, either because

of:of: * environmental damages that are likely to arise during project * environmental damages that are likely to arise during project implementation;implementation; * modifications that may be required subsequently in order to make * modifications that may be required subsequently in order to make

the action environmentally sustainable.the action environmentally sustainable.► A specialised segment of analysis of property project.A specialised segment of analysis of property project.► Multi-disciplinary.Multi-disciplinary.► Preparation of environmental impact analysis is required for Preparation of environmental impact analysis is required for

prescribed activities, including property projects (e.g. mix prescribed activities, including property projects (e.g. mix development, hotel, manufacturing site).development, hotel, manufacturing site).

► Influence on project if not carried out?Influence on project if not carried out?

EIA (contd.)EIA (contd.)

► Many EIA reports on property projects are preliminary Many EIA reports on property projects are preliminary assessment.assessment.

► The objectives of Preliminary Assessment for The objectives of Preliminary Assessment for prescribed activities:prescribed activities:

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

available;available; * to identify and incorporate into the project plan * to identify and incorporate into the project plan appropriate abatement and mitigating measures;appropriate abatement and mitigating measures; * to identify significant residual environmental impacts. * to identify significant residual environmental impacts. ► In Malaysia, EIA is required under section 34A, In Malaysia, EIA is required under section 34A,

Environmental Quality Act, 1974. Environmental Quality Act, 1974.

EIA (contd.)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► Must be conducted by those registered with the DOEMust be conducted by those registered with the DOE

EIA (contd.)EIA (contd.)

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

* Statement of present conditions (including probable * Statement of present conditions (including probable environmental environmental

impacts);impacts); * Proposed alternative actions and probable impact of the * Proposed alternative actions and probable impact of the

actions;actions; * Expected future conditions and impacts (distinguish * Expected future conditions and impacts (distinguish

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

and and irretrievable losses);irretrievable losses); * Alternative action chosen and means of evaluation;* Alternative action chosen and means of evaluation; * Probable impacts of chosen action & unavoidable impacts * Probable impacts of chosen action & unavoidable impacts

remain;remain; * Techniques for minimise harms.* Techniques for minimise harms.

EIA (contd.)EIA (contd.)

► In the Malaysian case, follow In the Malaysian case, follow A handbook of EIA A handbook of EIA Guidelines and specific guidelines for the prescribed Guidelines and specific guidelines for the prescribed activities (examples listed above).activities (examples listed above).

► Brief EIA Procedures in MalaysiaBrief EIA Procedures in Malaysia ► The EIA procedure adopted in Malaysia consists of The EIA procedure adopted in Malaysia consists of

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

* Preliminary assessment of all prescribed activities; * Preliminary assessment of all prescribed activities; * Detailed assessment of those prescribed activities * Detailed assessment of those prescribed activities

for which significant residual environmental impacts for which significant residual environmental impacts have been predicted in the preliminary assessment; have been predicted in the preliminary assessment;

* Review of assessment reports; * Review of assessment reports;

The EIA StepsThe EIA Steps

► Preliminary AssessmentPreliminary 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 * to identify and incorporate into the project plan appropriate abatement

and mitigating and 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 A Preliminary Assessment should normally be initiated during the early stages of project planning.stages of project planning.

► Standard Procedural Steps are provided and the assessment might be Standard Procedural Steps are provided and the assessment might be conducted "in house", or by a consultant.conducted "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 Environmental data collection may be necessary and close liaison

between the assessor and relevant environment related agencies is between the assessor and relevant environment related agencies is encouraged.encouraged.

► The results of Preliminary Assessment are reported formally for The results of Preliminary Assessment are reported formally for examination and approval by the project approving authority and the examination and approval by the project approving authority and the Director General of Environmental Quality.Director General of Environmental Quality.

► Preliminary Assessment requires resources that are a small proportion of Preliminary Assessment requires resources that are a small proportion of the man-hours, money, skills and equipment committed to a pre-the man-hours, money, skills and equipment committed to a pre-feasibility study and the assessment should be completed within the time feasibility study and the assessment should be completed within the time frame of that study. frame of that study.

EIA Steps (contd)EIA Steps (contd)

► Detailed AssessmentDetailed Assessment

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

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

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

and 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 Detailed Assessment should continue during project planning until the project plan is finalised. project plan is finalised.

► Standard procedural steps are provided and specific terms of reference Standard procedural steps are provided and specific terms of reference based on the results of Preliminary Assessment are issued for each project. 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 might be conducted "in house" or by a consultant. ► The assessment method is selected according to the nature of the project; The assessment method is selected according to the nature of the project;

some form of public participation is required.some form of public participation is required.► Environmental data collection is almost certainly necessaryEnvironmental data collection is almost certainly necessary► The results of Detailed Assessment is reported formally. The results of Detailed Assessment is reported formally.

EIA Steps (contd.)EIA Steps (contd.)► The EIA Review ProcessThe 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 * to evaluate development and environmental costs and benefits of the

final project plan; final project plan; * to formulate recommendations and guidelines to the project * to formulate recommendations and guidelines to the project

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

Review of EIA Reports is carried out internally by the DOE for Review of EIA Reports is carried out internally by the DOE for preliminary assessment reports and by an ad hoc Review Panel for preliminary assessment reports and by an ad hoc Review Panel for detailed assessment reports.detailed assessment reports.

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

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

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

PA and Market StudyPA and Market Study

► How the productivity analysis is to be incorporated How the productivity analysis is to be incorporated into the market study?into the market study?

► Fundamentally, used as part of technical and Fundamentally, used as part of technical and economic evaluation of a project.economic evaluation of a project.

► To a lesser extent, perhaps, used as part of To a lesser extent, perhaps, used as part of evaluation of the social and environmental impacts evaluation of the social and environmental impacts of a project.of a project.

► Given all the situs and non situs characteristics of a Given all the situs and non situs characteristics of a property project, productivity analysis helps to property project, productivity analysis helps to make evaluation whether a project is technically make evaluation whether a project is technically feasible, economically viable, socially acceptable, feasible, economically viable, socially acceptable, and environmentally sustainable.and environmentally sustainable.

► Nevertheless, “politically” manoeuvrable?Nevertheless, “politically” manoeuvrable?

Figure 5.2: “The Attributes” and Productivity Analysis

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

reasons: reasons:

1. Best alternative for a proposed development.1. Best alternative for a proposed development.2. Feasiblity for the proposed project and, if not, the 2. Feasiblity for the proposed project and, if not, the

modifications needed.modifications needed.3. It guides the determination of project size or 3. It guides the determination of project size or

density (units per acre).density (units per acre).4. Best area of the site to locate the buildings, and a 4. Best area of the site to locate the buildings, and a

course of action to protect natural resources and course of action to protect natural resources and mitigate any negative environmental impacts. mitigate any negative environmental impacts.

5. Site’s capacity to “carry” the type and number of 5. Site’s capacity to “carry” the type and number of proposed units, the availability of utilities (water, proposed units, the availability of utilities (water, sewer, electricity, gas, roads), and the suitability of sewer, electricity, gas, roads), and the suitability of the site for an on-site septic system if one is the site for an on-site septic system if one is necessary. necessary.

6. Regulatory and legal limitations to development, 6. Regulatory and legal limitations to development, such as local zoning or title restrictions. such as local zoning or title restrictions.

7. Aassist bidders in preparing accurate project 7. Aassist bidders in preparing accurate project schedules and development budgets.schedules and development budgets.