5 PRODUCTIVITY ANALYSIS

1. 5 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.

2. 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.

4. 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.

5. 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

6. 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.

7. 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.

8. 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.

9. 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.

10. 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?

11. 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.

12. 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

13. 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.

15. 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;

16. 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.

17. 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.

18. 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 relevant 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.

19. 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?

20. Figure 5.2: “The Attributes” and Productivity Analysis

21. 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.