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6 PRODUCTIVITY ANALYSIS Objective of this chapter:

To discuss the rationale for, functions and aspects ofproductivity 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, supplyservices, 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 ofproperty 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 inthe 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 productamong 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 furthermarket segmentation. For durable goods and real property,productivity analysis reflects the operation of the principle ofsubstitution.

* To identify the attributes desired by the market, enabling theanalysts to compare and contrast competitive properties toestablish their differences and the markets pricing of those

differences.

Productivity analysis also deals with general property attributes. Theyinclude 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 useHighest 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/target 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 ANDPRODUCTIVITY ANALYSIS

EIA is essentially a planning tool for preventing environmentalproblems 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 projectimplementation;

* modifications that may be required subsequently in order to makethe action environmentally sustainable.

A specialised segment of analysis of property project.

Multi-disciplinary. Preparation of environmental impact analysis is required for prescribedactivities, 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 preliminaryassessment.

The objectives of Preliminary Assessment for prescribedactivities:

* to examine and select the best from the project optionsavailable;

* to identify and incorporate into the project planappropriate 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 ProjectsEIA Guidelines For Industrial Estate DevelopmentPenilaian Kesan Kepada Alam Sekeliling Bagi PembangunanPadang Golf

EIA Guidelines For Development of Resort and Hotel Facilities InHill StationsEIA Guidelines For Development of Tourist and RecreationalFacilities In National ParksEIA Guidelines For Development of Tourist and RecreationalFacilities On Islands in Marine Parks

EIA Guidelines For Industrial ProjectsEIA Guidelines For Municipal Solid Waste and Sewage Treatmentand 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 andirretrievable 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 Guidelinesand 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 beenpredicted 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 andmitigating

measures.* to identify significant residual environmental impacts.

A Preliminary Assessment should normally be initiated during the early stages ofproject 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 theassessor 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 ofEnvironmental 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 theassessment 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 potentiallysignificant residual environmental impact include :

* to describe the significant residual environmental impacts predicted from thefinal

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 thecommunity.

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

Standard procedural steps are provided and specific terms of reference based onthe 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 preliminaryassessment reports and by an ad hoc Review Panel for detailed assessmentreports.

Recommendations arising out of the review are transmitted to the relevantproject approving authorities for consideration in making a decision on theproject.

The normal period allocated for a review of a preliminary assessment report istwo months while that for a detailed assessment report varies depending on thetype of project under review

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

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PA and Market Study

How the productivity analysis is to be incorporated into themarket study?

Fundamentally, used as part of technical and economicevaluation of a project.

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

Given all the situs and non situs characteristics of aproperty project, productivity analysis helps to makeevaluation whether a project is technically feasible,economically viable, socially acceptable, andenvironmentally sustainable.

Nevertheless, politically manoeuvrable?

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Figure 5.2: The Attributes and Productivity Analysis

Ssite analysis is important for but not limited to the following

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Ssite analysis is important for, but not limited to the followingreasons:

1. Best alternative for a proposed development.

2. Feasiblity for the proposed project and, if not, themodifications 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 anynegative 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 aslocal zoning or title restrictions.

7. Aassist bidders in preparing accurate project schedulesand development budgets.