6 PRODUCTIVITY ANALYSIS

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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
• ? relate these aspects to the productivity of a
  specific site.

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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 Lancasters 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 propertys
  attributes and their pricing in the market
• ? can compare unlike, but similar
  estate products over time.
• basis of hedonic pricing of property
  products.

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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
  markets 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
• Identify limitations in use
• Possibility of physical alteration during holding
  period
• Physical constraints ? influence development
  plan, locational relationship, value.
• What is the sites 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.

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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.
• Influence market taste, preference, and demand.

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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/ta
  rget groups.
• Functional efficiency capacity to satisfy
  contemporary tastes preferences.
• E.g., r/ship between internal design and current
  market standards.

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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-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).
• Influence on project if not carried out?

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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
• 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

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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
• Techniques for minimise harms.

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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 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 man-hours, money,
  skills and equipment committed to a
  pre-feasibility study and the assessment should
  be completed within the time frame of that study.

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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.

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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.

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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.
• Nevertheless, politically manoeuvrable?

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Figure 5.2 The Attributes and Productivity
Analysis
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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. Sites 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.