Pacific Rim Real Estate Society
1998 Conference

Note: To view the papers or presentations (PDF format) you need Adobe Acrobat (best viewed with version 3.0 or better). This is a free program and can be downloaded from The Adobe Web Site. 
Topics
 
Building Operations Heritage Properties Methodology Real Estate in China and Korea
Cycles, Indicies and Forcasts Industrial Markets Modelling Markets Residential Properties
Development Processes Institutional Property Performance Office Market Studies Retail Property Analysis
Economic Influences International Reviews Property Law Rural Issues
Education Keynote Address Property Management Valuations for Public Purposes
Feasibility Methodology Land Contamination Property Transactions Valuation Accuracy 
Fiscaltopia and Local Governments Land Management Property Valuation Variation
 

Building Operations

Critical Analysis of Outgoings in Commercial Property
Peter C. Wills and Colin Dominy,
School of Land Economy,
University of Western Sydney

Key words: Outgoings, Commercial Property Management, Key outgoing ratios, Benchmarking, Internal performance indicators, Tenant satisfaction/retention, Quality management relationship.

This paper investigates the analysis of outgoings/expenditure in commercial properties. The objectives are:
 

It has been common practice in recent years for owners and property managers to treat outgoings as an inevitable consequence of receiving rental income. Little thought was given to analysing and monitoring outgoings as the cost was, usually, passed back to the tenant (recoverable outgoings). Tenants, as they became aware of their rights, and the non-performance of property managers, simply vacated the premises when the lease expired. There is now (especially with the glut of rental property on the market) a change in attitude by owners, asset managers, portfolio managers and property managers, to retain tenants and keep a high level net income. To achieve this costs must be kept to a minimum, and these savings passed on to the tenant. This leads to tenant satisfaction and a scenario where the tenant is more likely to remain in occupation. To carry out this analysis, and meet the goals and objectives of the owners, the property manager must have a quality reporting and analysis system available. It is not enough to analyse the data, there must be available a ‘benchmark’ set of figures that can be used for comparison purposes. The use of the Property Council of Australia (PCA), figures will be investigated. (Note: The PCA was formerly known as the Building Owners and Managers Association, BOMA). The use of different classification of buildings will be reviewed as well as the concept of industry averages, high and low figures. Case studies will be undertaken and reviewed.

From this it is concluded that all participants in the property market now expect a detailed presentation and analysis of outgoing figures. This is now seen as one of the best selling tools, whether trying to lease or sell a building. The accurate analysis of outgoings can also lead to pro-active, quality management, as problems can be identified through internal performance indicators. The quality and reliability of benchmarking is improving as the amount of data available increases. The critical analysis of outgoings appears to be a good starting point for quality management.

Developments in the Building Maintenance Works Sector
Daniel C.W. Ho
Department of Real Estate and Construction
The University of Hong Kong

Keywords: Maintenance works sector, construction industry, standardisation, regulations, training opportunities.

Significant growth in the building maintenance work sector has been evident in many countries due to the aging process of buildings and increasing awareness of the public on the condition of their living environment.  However, the sector is still being considered as fragmented, inefficient, lack of specialisation and control on quality of work.  The verdict is not without reasons. This paper attempts to highlight the general characteristics of the maintenance works sector and its relationship with the construction industry as a whole.  Discussions will be made on overcoming the difficulties in improving the operational efficiency, quality standards etc. with a view to strengthening the market and reputation of firms involved.  With the recent move by the Hong Kong Special Administrative Region government to introduce compulsory inspection and repair of buildings to the territory, certain growth opportunities will emerge which necessitate a structural change to the sector.  Data and research results from both Hong Kong and the UK will be used to illustrate the points and conclusions made.

Cycles, Indices and Forecasts -Go To Top

An Examination of Property Cycles in Australian CBDs - VIEW PAPER
John MacFarlane
School of Land Economy
University of Western Sydney, Hawkesbury

Over the last decade there has been considerable interest and research into property cycles as property professionals contemplated the downturn of the late 80s and early 90s.  Researchers have studied a number of aspects of the property cycle such as its characteristics (Antwi and Henneberry, 1995), its impact on asset performance (Pyhrr, Webb and Born, 1990) or its impact on the valuation process (Born and Pyhrr, 1994).  Much of this research has been qualitative in nature due to the lack of extensive, historic data series (which would ideally include property characteristics such as levels of construction  and obsolescence, take up rates, vacancy rates - both actual and hidden, prices and effective rental rates and levels of investment).  It is only in relatively recent years that the value of collecting such data has been realised.  Nevertheless, there has been some quantitative research and modelling of property cycles in office markets, possibly dating back to the work of Barras (1983) to which the recent work on market equilibrium/disequilibrium (Hendershott, 1996) has added.

This paper extends the work presented in MacFarlane (1997) which developed a market cycle model incorporating features of both the Barras and Hendershott models.  The model will be applied to Australian CBD Office Markets allowing a discussion of differences between the cycles in these markets.

Price Inertia in Perth Housing Markets
Greg Costello
Department of Property Studies
Curtin University of Technology

Keywords: Efficient markets hypothesis, Real estate market efficiency, Housing market efficiency, Hedonic price index ,Repeat-sales index.

The efficient markets hypothesis (Fama, 1970) asserts that abnormal returns are possible in inefficient markets where information can be used to exploit arbitrage opportunities. The weak-form test of market efficiency asserts that market participants using only past price information should not be able to achieve abnormal profits given that a particular market is efficient. This paper examines the weak-form concept of market efficiency as applied to the Perth strata title housing market for the period 1988-96. A rich dataset of information comprising 68,000 transactions was used to construct various hedonic and repeat-sales index models. Tests for serial correlation provide strong evidence of price inertia. Results indicate positive serial correlation coefficients for real quarterly index differences lagged one quarter or monthly index differences lagged three months.  This is strong evidence for rejection of weak-form market efficiency. Further work is required to test whether this time pattern can be exploited for abnormal profits with the inclusion of transaction costs.

Property Market Forecasting - How Good is It?
Professor R.V. (Bob) Hargreaves,
Department of Finance and Property Studies, Massey University,
Palmerston North, New Zealand.

Keywords: Real estate market forecasts, New Zealand, residential property, expert panels.

This paper uses hindsight to assess the accuracy of the Auckland residential property market forecasts over the first year. The paper analyses the performance of the market forecasts by using the Real Estate Institute median house price statistic as the benchmark for price comparisons. Real Estate Institute data is also used to compare actual and forecast sales volumes. In addition, the paper compares what the panellists forecast with what they actually experienced.

The first part of the analysis uses simple linear regression with net percentage experienced as the dependent variable and net percentage forecast as the independent variable.  The results of the regressions for sale prices, sales volumes and combined price and volumes show that forecasts “explain” between 57 percent and 68 percent of the variation in what was subsequently experienced.

The second part of the analysis compares sale price forecasts with changes in the median house price and forecast volumes with actual sales volumes. Panellists forecast the direction of the market changes correctly in the first three quarters and incorrectly in the static fourth quarter.

The ability of the panellists to forecast changes in sales volumes was also undertaken.  The panellists correctly predicted the direction of volume changes in three out of the four quarters.

The paper concludes the expert panellists performed well by correctly predicting the direction of market price movements around 75 percent of the time.  The ability of the panellists to predict movement in sales volumes appears to be better than their ability to predict movements in sale price.  Although these initial results are encouraging, not too much can be read into the results of one year’s worth of data.  Further analysis using a longer time series will need to be undertaken in due course.

Development Processes -Go To Top

Conflict and Disputes in the Development Process: a Transaction Cost Economics Perspective - VIEW PAPER
David J Yates
Department of Real Estate and Construction
University of Hong Kong

Keywords: Transaction Cost Economics, Development Process, Dysfunctional Conflict, Disputes.

In the procurement of their new building projects real estate developers increasingly experience conflict and disputes with contractors and/or consultants, usually resulting in delays to completion and higher costs of the project, accompanied by a degeneration of personal and corporate relationships between the participants.

This paper considers the validity of Transaction Cost Economics theory as a framework for rationalising the nature, causes and management of conflict and disputes in the development process.

“Any issue that arises as or can be posed as a contracting problem can be examined to advantage in comparative contracting terms and because so many problems have this structure, Transaction Cost Economics can be used to illuminate a wide range of economic and noneconomic phenomena” (Oliver E Williamson). Over the last two decades Transaction Cost Economics has become a mainstream theory in the field of organisational science.

The Structural Framework for Landowner Behaviour
Norman Hutchison, David Adams and Alan Disberry
Department of Land Economy, The University of Aberdeen, UK

In institutional theory, structure consists of the organisation of economic and political activity and of prevailing values that frame individual decision making. The exact mix of resources, rules and ideas which constitute the structural framework for landowner behaviour change over time, with consequent impacts on the land market. For example, land and property markets are sensitive to changes in macro and micro economic conditions, fiscal rules, availability of development finance, grants and subsidies, as well as to those in planning law and compulsory purchase legislation.

In addition, the last decade has seen a growing debate over the correct mix between public sector intervention and private property rights. Planning policy changes now positively encourage urban land re-use in preference to expansion on green belt land. Key issues such as sustainability, viability and vitality have become part of the development language, influencing land prices and development feasibility.

This paper will explore the way in which landowners define and pursue their strategies, interests and actions within a structural framework. The paper considers the extent to which structure is established, re-established or replaced as the resources, rules and ideas by which it is constituted are deployed, acknowledged, challenged and potentially transformed by owner behaviour (Healey and Barrett, 1990). Three key questions are addressed in this paper. First, how do structural factors influence the land market? Secondly, how far are the structural factors likely to encourage landowners to move in one direction or another from their current strategies? Finally, how far do owners merely acknowledge and deploy structural factors or how far do they aim to challenge and potentially transform them?

This research, which is funded by the ESRC,  aims to determine how far owners of vacant land and obsolete buildings encourage or impede development, define and classify ownership constraints, analyse how the redevelopment process operates and investigate how innovative policy mechanisms may influence owner strategies and actions. The research is due to be completed in March 1998.

Ethics and Modern Property Development - VIEW PAPER 
Michael Benfield
Centre for Research in European Urban Environments
Department of Town & Country Planning, University of Newcastle upon Tyne, England

Keywords: Ethics, responsibility, integrity, local government, regulation, planning, decision making, economics, sustainability.

Drawing on recent European research, this article confronts the values, choices and conduct seen to be involved in land and resource development. Viewing progressive changes in government, business and social mores as unwittingly encouraging an operating environment of unexpected and unjustified license, it prompts real estate professionals to consider how the emerging imperative of sustainability will affect ethical standards and through them, development practices. Conceiving development processes as driven by ‘accountancy economics’, it argues that these are prone to overlook many other forms of capital. Often masked by the common pursuit of cash profits, ‘jobs’, and monetary wealth, these include social, welfare, community, cultural and various forms of resource capital.

By definition, ‘planning’ is concerned with futures. By default it appears to have become little more than a cipher for short term political goals. Regulatory regimes, designed to protect rights and freedoms, are regularly being overridden and (notional) open local government replaced by covert, elitist decision making practices. Placing ‘democracy’ and due process under threat, a form of ‘municipal entrepreneurialism’ may be emerging. This shows Yiftachel’s (1996) ‘dark side’ of Development Control to facilitate not just social engineering, but private profiteering. With no one to speak for the environment, Agenda 21 sustainability and subsidiarity seem only of interest to cities if they serve the same ends. In the face of this, it is argued, real-estate professionals have a moral obligation to protect land and resources for the benefit of countless future generations. To ignore this duty may prejudice the existence of both. Thus with current ethics in the property industry seen as a ‘sham’, a means to replace or renew them is suggested.

Economic Influences -Go To Top

Some Impacts of Recent Budgetary Policy upon the Property Industry in Australia - VIEW PAPER
Dr Mervyn Fiedler
Faculty of Design, Architecture and Building,
University of Technology, Sydney

Key Words: Australian Economy, Fiscal Policy, Property Industry, Property Taxation, Superannuation, Macroeconomics.

Following its election in March 1996, the Howard-led Liberal-National Parties Coalition Government has introduced two Federal Budgets, the hallmark of each being fiscal stringency. This paper examines the global and domestic economic forecasts and projections presented by the Government with each Budget, and against which the respective Budgets were framed, and notes that the economic settings have generally been too optimistic, especially in relation to growth and employment. Several measures introduced in the Budgets, particularly superannuation contributions surtax and adjustments to the cost base of assets for certain tax deductible expenses (for capital gains tax purposes) are examined. It is concluded that the effects of these measures are negative in the main, although the superannuation contribution surtax may lead to a switch away from discretionary superannuation investment to negatively geared property investment. But the greatest impact is the influence of the Government’s perceived tighter fiscal approach on both long and short-term interest rates. The paper notes that both levels of interest rates have fallen by around 2.5 per cent since the Howard Government came to office with positive flow-ons to improved investor confidence and affordability. The paper concludes with a tabulation of risk factors which may intrude to upset this otherwise positive outlook for the Australian property industry.

Education -Go To Top

The Internet as a Resource for Property Educators
John Flaherty and Ric Lombardo
Department of Marketing, Logistics and Property, Royal Melbourne Institute of Technology

The Internet has established itself as a powerful communications medium influencing all aspects of our lives. While it has not yet become an all pervasive medium this is merely a temporary phenomenon. Most institutions and organisations have a presence on the internet and are gearing up to ride this massive wave of change that will come crashing down as we enter the new century. The technology exists, connectivity is enabled, content is building and, as the next step, users interact.

The paper looks at existing resources on the internet that may be used by educators, how this medium could benefit educators in their teaching and a brief review of some of the tools available for creating subject content.

Valuation Video One - Practical Issues all Taped Up!
“What do you teach your students - they can’t even measure a house?”
Erica Walker
Department of Property Studies,
Curtin University of Technology

In teaching valuation units, there can be a perception of conflict between the “theory” and “practice” of the subject. Professors and lecturers are certainly keen for students to fully appreciate the necessary theoretical bases of valuation, and have a sound working knowledge of all the different techniques now available to the valuer, including computer based models. Practising valuers, on the other hand, whilst frequently acknowledging the need for theoretical background knowledge, decry the lack of so called “practical knowledge” of today’s students.

It appears to be a fruitless exercise engaging in a dialogue over whether or not technical skills are being taught or should be taught at a university level. If we perceive valuation as a process, which requires both theoretical background and practical skills, then clearly a trainee valuer needs both. Students can certainly benefit in their learning of the theory of valuation if they have the practical skills at their disposal in order to complete valuation assignments.

Curtin Department of Property Studies is planning a number of video presentations of various issues, to enable students to learn and relearn as often as the individual requires, some of the basic practical skills of use to the valuer, with minimal use of valuable teaching contact hours.

This paper looks at the benefits of video as a teaching tool, the potential range of topics, and introduces the first draft of the first video, on measuring a house.

Keeping in Touch with Industry Requirements - VIEW PAPER
Judith Callanan and Iona McCarthy
Finance and Property Studies Department
Massey University, Palmerston North, New Zealand

Keywords: Curriculum review, New Zealand, Property Industry, Survey.

This paper reports on the findings of three separate surveys carried out over a period of three years. Final year BBS (Valuation and Property Management) students at Massey University were surveyed to gather information on their perceptions of the property professions and their preferred area of employment. Recent graduates were surveyed to determine how the BBS (Valuation and Property Management) degree prepared them for a career in the property industry. Finally industry employers were surveyed to assess theoretical and practical knowledge of recent graduates. Research revealed that graduates felt they needed more practical field work to be included in their degree. Whereas the Employers feel that graduates were lacking in written communication skills.

Suggestions to industry groups to improve student perception of industry are made. Recommendations for changes to the BBS (Valuation and Property Management) curriculum are summarised.

Feasibility Methodology -Go To Top

Why the Hypothetical Development Method is Flawed  - VIEW PAPER
Emeritus Professor R T M (Tom) Whipple
Curtin University of Technology

The method of hypothetical subdivision has been favourably viewed by the courts and is evidently endorsed by the relevant professional body.

There are several variants of the method which need to be carefully defined in order to assess reliability.

One variant is frequently encountered in the valuation of CBD sites. Another in the valuation of regional shopping centre sites. Both instances are similar in kind, although they exhibit technical differences.

Another poses the subdivision of land, the addition of improvements thereon and the sale of the improved lots as the starting point in assessing the value of the undeveloped land. This process is different in kind from that cited in the previous paragraph.

A third variant is the familiar approach to estimating the value of raw or accommodation land. Here the land is developed into individual lots which are sold for development by the final user.

All three variants are flawed to varying degrees. Two flaws are common to all: first, the use of magnitudes that are comparable only if the real rate of return is zero; second, the importation of cost estimates produced in markets only tenuously related to the real estate market. Use of such estimates can scarcely be expected to predict the selling price of real property. Cost estimation falls beyond the scope of the formal object of valuation.

The variant that specifies the erection of income earning buildings on the subdivided land introduces unnecessary complications, magnifies the possibility of serious error and fails the test of Occam’s razor. Furthermore, its use assumes the margin for risk in both land subdivision and building operations is known. As this is frequently not the case, serious distortion results – even if the previously noted objections are without force.

Concomitantly, use of these methods to analyse a margin for risk from sales of in globo land that has subsequently been developed and sold will produce a result that is difficult, if not impossible, to interpret. This is so for all variants.

Optimal Residential Property Development and Linear Programming VIEW PAPER
Connie Susilawati
Petra Christian University
Surabaya, Indonesia

Key words:  optimisation, residential development, property development, linear programming.

Since the main objective of property developers is to optimise the return from their investment by allocating their scarce resources, linear programming for optimisation is a useful tool to help them to make a sound decision.  However, many property developers are not familiar with the linear programming approach.

Linear programming can be used as a decision making tool to solve allocation problems which is demonstrated herein using a residential development in Surabaya as a case study.  Implementing the recommendation which is produced by linear programming will achieve a higher net present value than the actual decisions that have been made using the traditional decision processes.

Beside solving developers’ problems, linear programming can be extended to accommodate the conflict of interests among developers, the government and consumers.  It not only produces a comprehensive decision but also satisfies all participants’ objectives.

Fiscaltopia and Local Governments: are we paying enough local taxes? - VIEW PRESENTATION
Professor Dominique Achour
Department of Property Studies,
Curtin University of Technology

The principle of market efficiency can be extended to the political and financial aspects of Local Governance. The paper will review the local consequences of fiscal federalism and the financial implications for Local Governments. An optimal financing scheme will be compared with existing situation in Australia in general and Western Australia in particular. A case for the generalisation of full market value property taxation will be made and the practical consequences will be discussed.

Heritage Properties -Go To Top

Statutory Heritage Protection in NSW: Challenges for the Property Profession
Colin Dominy
School of Land Economy,
University of Western Sydney, Hawkesbury

Keywords: Statutory heritage protection provisions, Local Government heritage studies, assessment of heritage significance, Burra Charter, NSW Heritage System Review 1992, Financial incentives for heritage preservation, compensation for heritage affectation.

A statutory system of heritage protection has existed in New South Wales since 1977. Over the ensuing 20 years, the system has evolved from one characterised initially by its ad-hoc emergency nature into one characterised by more systematic, forward-looking mechanisms.

Firstly, this Paper briefly examines the social, economic and political climate which originally gave rise to a system of statutory heritage protection in New South Wales. This is deemed to be particularly significant in light of the legacies which continue to exist in the NSW heritage system, some 20 years after its inception.

Secondly, the Paper analyses the evolution of the NSW statutory heritage protection system since its inception in the late 1970s. A series of problems and difficulties quickly emerged in the implementation of the system during the 1980s. The nature of these problems, and the attempts made to rectify them, are examined.

Thirdly, this Paper concludes with a critical evaluation of the NSW heritage system in its existing format, and the implications of the system for the property professions. The chief implications for the property professions rotate around matters concerning the cost of meeting statutory heritage requirements in the name of the ‘public good’, compared to the financial incentives and mechanisms for recompense which now exist. This Paper identifies four areas of concern which represent the chief issues for heritage debate amongst the property professions: the quality and consistency of value judgements exercised in the assessment of  ‘heritage significance’; the quality and consistency of heritage management by local government agencies; the need for more adequate financial compensation and incentives; and the need for more clearly defined use-parameters for heritage affected properties. This Paper finds that problems associated with these issues are as yet unresolved, and that solutions satisfactory to all affected parties will not be easily nor readily obtained in the short term.

The Building Act 1991 – A Ticking Time Bomb?
P. Brent Nahkies
Department of Accounting, Finance and Property Studies,
Lincoln University, Canterbury, New Zealand

Keywords: Heritage buildings, Building Act 1991, earthquake prone buildings, strengthening costs, Central Business District.

Currently Section 66 of the Building Act 1991 is being reviewed by the Building Industry Authority. This section deals with earthquake prone buildings as defined in the Act and gives wide ranging powers and obligations to local authorities to require such buildings to be earthquake strengthened. The implementation of this section of the Act has largely been by way of a passive approach whereby earthquake strengthening has been triggered by either a change in use of the building or by building alterations. Significant changes being considered at present include a rewriting of the definition of what constitutes an earthquake prone building, and the compilation and publishing of a grading system of earthquake strength for each building to increase market awareness of structural strength. Also being considered is a change to an active approach of implementation of Section 66 which would mean that earthquake prone buildings would be identified and their strengthening required by the local authority. The outcome of these potential changes to Section 66 would be a significant drop in values of earthquake prone buildings accompanied by widespread demolition of earthquake prone buildings. This has significant implications for heritage buildings in particular and in a wider sense for traditional Central Business Districts (CBD) and Main Street areas. This paper discusses the potential changes proposed to Section 66 of the Building Act and the resultant impact on CBD properties in general and heritage buildings in particular.

Industrial Markets -Go To Top

Supply and Demand Analysis for the Industrial Rental and Land Values
Dr Jinu Kim
Faculty of the Built Environment,
University of New South Wales

Keywords: Industrial property market, rental and land values, demand, supply.

The theoretical framework of the study predicts that the way in which the values of typical industrial properties perform is a function of economics and location factors. Using a least-square regression analysis, the Industrial Rental Value Model (IRVM) and the Industrial Land Value Model (ILVM) were developed in order to analyse the rental and land values of typical industrial properties in the Sydney industrial property market. The dependent variables of the regression analyses are the rental and land values of the typical industrial properties. Within the framework of the study, the independent variables are divided into two categories such as economic factors and location factors. The economic factors are sub-divided into the demand side of the economy and the supply side of the economy in terms of the neo-classical economic theory. The urban bid-rent theory can be applied to location factors within the industrial property market. The formulation of the Industrial Rental Value Model (IRVM) and Industrial Land Value Model (ILVM) supports the argument that the performances of rental and land values of typical industrial properties are a function of the demand, supply, and location factors. The conclusions of the study are that the demand side of the economy can predict the performance of the rental values more than the supply side can, while the performance of the land values can be predicted by the demand and supply sides of the economy.

Industrial Property Characteristics and Preferences for Small Business
Valerie Kupke and John Pearce
School of Economics, Finance and Property
University of South Australia

Keywords: Industrial Land, Small Business, Planning Policy, Rezoning.

This paper is based on a survey of 85 small to medium industrial land users which was undertaken in June 1997 to examine industrial property use and preferences within the Adelaide Statistical Division (ASD).  The study was undertaken in response to a perceived mismatch by operators within the market between demand for and supply of industrial zoned land in Adelaide in terms of location, quality and site characteristics.  The survey was undertaken across a broad cross section of industrial land users in terms of location, tenancy and business type at a time when significant areas of industrial land in Adelaide have been rezoned for residential and recreational purposes.  Small business continues to be a major contributor to the SA economy but may be impeded in its development by uninformed planning decisions.  This paper provides a focus on current characteristics and preferences of industrial property users in an attempt to better anticipate future demand for industrial space.  The implications of the survey for decision making with respect to management of land at Local and State government level are explored and suggestions for further work are covered.

Institutional Property Performance -Go To Top

The Performance of Property Securities Funds: 1991-96 - VIEW PAPER
Graeme Newell and Phillip Pearce
School of Land Economy,
University of Western Sydney

Keywords: Property Trusts, property securities funds, risk-adjusted performance analysis.

Listed property trusts have been a highly successful indirect property vehicle in Australia over the last 10 years. This has seen property trusts having over $18 billion in assets at December 1996, having increased significantly from only $2.6 billion in 1986.

While investors can invest in individual property trusts, property securities funds are also available as an investment option. These managed investment funds are unlisted vehicles that invest in a portfolio of listed property trusts. The advantages of property securities funds are the opportunity to invest in professionally managed funds and the ability to achieve significant spread or diversification across the spectrum of property trusts.

Currently thirteen (13) property securities funds are available in Australia from a wide range of institutional investors including ANZ, Armstrong Jones, BT, HSBC, MLC, Paladin and Westpac.

The objectives of this research are:

i. to examine the strategic investment role of property securities funds;
ii. to examine the performance of property securities funds over 1991-96;
iii. to compare the performance of property securities funds against property trusts, direct property, shares, bonds and cash over 1991-96.
 
The Relative Importance of Sectors versus Regions in Determining Property Returns - VIEW PAPER
Stephen L. Lee
Department of Land Management,
University of Reading, UK

A number of studies have investigated the benefits of sector versus regional diversification within a real estate portfolio without explicitly quantifying the relative benefits of one against the other.  This paper corrects this omission by adopting the approach of Heston and Rouwenhorst (1994) and Beckers, Connor and Curds (1996) on a sample of 187 property data points using annual data over the period 1981-1995.

The general conclusion of which is that the sector diversification explains on average 22% of the variability of property returns compared with 8% for administratively defined regions.  A result in line with previous work.  Implying that sector diversification should be the first level of analysis in constructing and managing the real estate portfolio.  However, unlike previous work functionally defined regions provide less of an explanation of regional diversification than administrative regions. Which may be down to the weak definition of economic regions employed in this study.

Analysis of Property Trust Performance Issues - VIEW PAPER
Graeme Newell and Rohit Kishore
School of Land Economy,
University of Western Sydney

Keywords: Listed property trusts, trading anomalies, linkages, sector-specific property trusts, interest rates.

Listed property trusts have been the most successful indirect property vehicle in Australia over the last 10 years. This has seen property trusts having over $18 billion in assets at December 1996, having increased significantly from only $2.6 billion in 1986.

Property trusts have taken on increased significance in the last few years, currently accounting for 40% of institutional property exposure compared to only 20% in the late 1980’s. The current institutional strategy is to utilise property trusts to balance or fine-tune property portfolios, thus enabling responsive institutional portfolio adjustments for strategic asset allocation.

The equivalent investment vehicles in the USA are Real Estate Investment Trusts (REITs), with REITs having received considerable empirical research interest in recent years. The only substantive published empirical research on property trusts in Australia are Newell and MacFarlane (1996), and Wilson and Okunev (1996). As such, an excellent opportunity exists to build upon the available USA REIT research to examine key strategic investment issues concerning property trusts in Australia.

The objectives of this research are:
i. to examine the potential investment opportunities resulting from property trusts trading anomalies over 1991-96; including wealth effects and specific month effects.
ii. to examine the linkages between property trusts, direct property and sector-specific stock market performance over 1991-96 for the office, retail and industrial market sectors
iii. to examine the effect of interest rate movements on property trust performance.

International Reviews -Go To Top

On the Policy Orientation for the Real Estate Industry Development in China
Professor Chen Guang-Yan
Shenzhen Construction Engineeering Costs Management Department, PR China
Mr S M Ma, SPACE, The University of Hong Kong

Keywords: Effective supply, effective demand, commercial house, macro-adjusting, welfare type of house, real estate industry, “ninth five year plan”.

In only a few years, the real estate market in China experienced the starting, climax, getting out of control, adjusting, digesting and developing phases. Up until now, the development of real estate in China faces three striking contradictions obviously:

1. The contradiction between the optimism in medium and long term prospect of real estate industry and hardship in immediate term development.
2. The contradiction between the great potential market demand and the unsatisfied effective demand.
3. The contradiction between the large increases of commercial houses left unused and the households with housing problems.

In my opinion, the real estate policy orientation and measure should focus on and try to realise the following aspects:

1. Try various devices to enliven the existing real estate stock.
2. Effective measures must be taken to increase effective supply.
3. Try every possible way to foster and stimulate the effective demand.
4. Strictly rationalise and cover the commercial houses
5. Systematically study and reform the existing real estate tax system.
6. Speed up the reform of the welfare type of housing mechanics
7. Promote the modernisation process of house construction by means of science and technology progress.
8. Continue the macro-adjusting on real estate and strengthen management of market
9. There must be correct public opinion guide
10. We must be confident, try to progress by steady development and continue to digest.

Preliminary study of the Greek Property Market - VIEW PAPER
Angelo Karantonis
Faculty of Design, Architecture and Building,
University of Technology, Sydney

The aim of this paper is to analyse the factors determining the Greek property market and the corresponding cycle. In particular the paper will examine the Athens property market which, with nearly 30% of the inhabitants, is Greece’s main market.

Greece has an open policy toward foreign investment in its property market. However, foreign investment in Greek property is mainly in the holiday home sector and coming from the northern Europeans who take advantage of Greece’s natural island resorts. Commercial property is mainly restricted to derived demand from foreign commercial operators.

The paper is only a preliminary paper as official statistics regarding the Greek property market are difficult to obtain. In addition, land title searches are restricted to solicitors and therefore limit the possibility of analysing a particular area. Therefore, the analysis in the paper is restricted and comments are based on interviews with researchers and the economic statistics which are available. The paper concludes with remarks regarding the likely impact of the European monetary union on the Greek property market.

Urban Renewal in a Socialist Market Economy
Keith G. McKinnell and E. M. (Bobby) Hastings
Department of Real Estate and Construction
University of Hong Kong, Hong Kong

Keywords: Shamian, Guangzhou, socialist market economy, government policies, urban renewal, urban regeneration.

The rejection of private ownership of capital and of the means of production, including land has long been a central tenet of Marxist ideology. This ideology led to the suppression of land markets in socialist countries which in turn has had long-term effects on location and land use. Under the administrative-command economy, the absence of land prices basically eliminated the main incentive to redevelop built-up areas by removing site value considerations from investment decisions. Without price signals to reveal the opportunity cost of land in alternative uses it was administratively simpler to respond to current land demand pressure by developing at the periphery than to redevelop well-located areas with obsolete land uses. While the city expanded outward there was very little recycling of land. Even where cities are now slowly emerging from beneath this ideological cloud to embrace the tenets of capitalism and the market place the “socialist city” is burdened with the legacy of its Marxist ideologies that mark it different at this current stage of economic development from its market counterpart.

At a basic level this paper examines the fossilisation that occurs when public ownership and public allocation of land is chosen as the means to solve the perceived problems of the capture of publicly generated land rents by private owners. At another level it examines the legacy of this ideological approach even when that ideology is in turn rejected.

The authors describe the situation in the city of Guangzhou in the People’s Republic of China a pre-eminent example of the nouveau “socialist market” city and in particular problems of urban renewal in the old Shamian concession area.

Keynote address -Go To Top
The Costs of Ignoring Institutional Factors in International Property Research
Professor Austin J. Jaffe
Department of Insurance and Real Estate
Pennsylvania State University, U.S.A.

This paper argues that the effects of institutions can no longer be ignored in property research. This proposition seems especially appropriate with the current globalization of the property literature. The usefulness of legal, political, social, cultural, and religious institutions in explaining market behaviour is currently being widely heralded in some academic circles in social science. However, in international property research, it is remains largely unrecognized. This presentation will outline a competing paradigm as an alternative to the generally-accepted approach adapted from neo-classical economics and modern financial analysis, illustrate some of the questions better examined under this approach, and examine some of the research findings using these ideas.

Land Contamination

Government Regulation of Contaminated Land – A Tale of Three Cities: Sydney, NSW, Australia, Auckland, New Zealand, and Cleveland, Ohio, United States
Rodney L. Jefferies
Department of Property, The University of Auckland, New Zealand
and
Nelson Chan
School of Land Economy
University of Western Sydney, Hawkesbury
and
Professor Robert A. Simons
Levin College of Urban Affairs
Cleveland State University, USA

Since the 1960s, people are getting more concerned about the environment.  Numerous environmental contamination disasters, campaigns, petitions and relevant movements have forced governments to face the problems positively.  Legislation is being enacted by governments to monitor, clean-up, control, and prevent recurrence of contamination.
This study examines the regulation of contaminated property in Australia, New Zealand and the USA.  It examines and analyses the relevant environmental regulation at federal or central, state or regional and local levels of these countries.  Readers will gain an appreciation of the relative strengths and weaknesses of the land contamination regulation in these three countries.

The focus of the study limits its specific inquiry into the current status of environmental controls in one city in each of these countries: Sydney in NSW, Australia; Auckland in New Zealand; and Cleveland in Ohio, USA.  The regulatory frameworks are discussed in detail, then contrasted with each other.

 The paper concludes with an indication of the mutual lessons that can be drawn from the different systems and recommendations for policy in the regulation of contaminated land.

Lenders’ and Investors’ Attitudes and Policies Toward Property Contamination
S.G. (Sandy) Bond
Department of Property Studies, Massey University,
Palmerston North, New Zealand
and
Emeritus Professor Willliam N.  Kinnard
University of Connecticut, USA
and
Dr Elaine M. Worzala
Department of Finance & Real Estate, Colorado State University, USA

Keywords: Contaminated property, loan financing, institutional lenders, equity investors, environmental risks.

With the increasing legislative formalisation of environmental protection controls it has become increasingly difficult to finance property with  on-site contamination, or ones located nearby such sites, and this has had an adverse effect on property values.

While numerous studies have been carried out in the United States (US), although, none in New Zealand, to determine the character and scope of the effects of contaminated, threatened or “stigmatised” properties on the terms and availability of debt financing (Adams & Mundy (1993), Mundy (1988), (1989), Healy & Healy (1992)), little appears in the published literature dealing with the attitudes, policies and requirements of equity investors and institutional lenders who represent the market players.  In order to value such property it is necessary to analyse the market and part of this process includes determining just how the market participants behave toward property contamination.  Their attitudes  strongly influence sale prices.

Without current research, the extent of opposition from both institutional lenders and equity investors toward contaminated property  is still uncertain. This paper summarises the results of a postal survey undertaken within New Zealand (NZ), building on the work done in the US by Kinnard and Worzala (1996), to answer the question of how those who lend on, and invest in, property affected by contamination perceive the risks associated with this type of investment and evaluate its effects.  Of particular interest are the perceived effects of on-site contamination on property investment and its financing which can be used to help develop specific industry guidelines (in addition to the more general NZ Institute of Valuers’ Guidance Note 3 - Overview and Bibliography(1995)) on the procedures and methods  to adopt when valuing such property.

The Impact of Environmental Planning on the Value of Contaminated Land - VIEW PAPER
Nelson Chan
School of Land Economy,
University of Western Sydney, Hawkesbury

Keywords:   Environmental planning, contaminated land, land value, strengths and weaknesses.

In recent years, more and more contaminated sites in Australia are redeveloped for alternative uses. In Sydney, well-located former industrial sites, especially those with waterfront, are sought after for redevelopment.  For example, the former Shell depot at Pulpit Point has been redeveloped for up market residential use.  The former Cabarita ICI Dulux paint factory site at Concord is being cleaned up for similar redevelopment. Other notable redevelopment of contaminated land includes the former sites of the Ammunition Depot, the State Abattoir and the State Brickworks, which have been cleaned up and used for the venue of Olympic Games 2000. No doubt environmental planning has a significant impact on the recycling of those sites. Since environmental planning control is one of the factors that determines the highest and best use of land, it has significant impact on the value of property, including contaminated land.

In this paper, the evolution of environmental planning in Australia, its impact on the value of contaminated land, and its adequacy, strengths and weaknesses for controlling the use and development of contaminated sites are studied. It is intended to give readers an appreciation of the impact of environmental planning control on contaminated land value. Contaminated land is regarded as a special class of real estate, its value is looked at from a market value point of view. Environmental issues other than contaminated land are outside the scope of this study.  The Commonwealth, New South Wales, Victoria and Queensland environmental planning laws are cited where necessary.

Land Management -Go To Top

Seeing the Unforeseeable - VIEW PAPER
Risk Management aspects of Due Diligence in Environmental Management Systems
John Keogh
Barrister at Law and
Faculty of Management, University of Western Sydney

Keywords: Corporate liability, environmental negligence, the mitigating effects of due diligence foreseeability of harm, “Stigma” property damages, ground water contamination, environmental degradation through mining, risk management strategies, recognition avoidance and reduction of risk, environmental audits.

Property and environmental degradation is more often than not the result of an “unavoidable” corporate accident which could have been avoided through the application of due care and operational resources. Expecting the unexpected is a precautionary strategy within a wider approach to corporate environmental management but a necessary factor to be considered in the overall risk management plan. This paper examines the incidence of corporate environmental negligence and highlights the advantages of establishing an effective environmental due diligence programme in the early stages of corporate operations. In the process the paper examines three classic examples where corporations have been exposed to environmental liability through their failure to fully appreciate the future environmental consequences of their activities. Risk management strategies are identified within the context of an environmental management system and the importance of the environmental audit is recognised as an instrument which can  effectively reduce a corporation’s exposure to liability.

A Strategy for the Integration of Customary and Western Land Interests in Australia
Ric Small,
Faculty of Design, Architecture and Building,
University of Technology, Sydney

Resolution of Australian customary title debate appears to be deadlocked over the notion of ownership. The theory of ownership, and the associated issues of control and contingent income, forms the basis of all economics and is especially well developed with respect to land. This study examines the meaning and origin of land ownership as it applies to the Australian land question and uses this to develop a strategy for integrating the needs of both customary and Western interests in land. The outcome is a tenure, control, income and taxation system that would suit both pastoral leasehold land and perhaps have applications for other lands as well. The model is analogous to a hierarchical leasehold system which includes a customary land tax paid to the state and inserts a degree of indigenous control over planning decisions. The implications of the various components are examined and their policy and financial impacts evaluated.

Methodology -Go To Top

Conceptual Frameworks in Property Investment Appraisal: An evolved model for regional shopping centres.
Spike Boydell
Department of Hospitality, Tourism & Property Management
University of Queensland (Gatton College)

Keywords: Qualitative and Quantitative, Appraisal, Shopping Centres, Depreciation, Grounded Theory, Conceptual Frameworks.

Regional shopping centres are familiar to all in the western world, but what sets them apart from the other mainstream prime property investment classes of office and industrial, is that they are evolving assets.  They evolve over time and are a source for continued institutional investment, unlike offices, which are fully mature assets on the first day they open.  This is a critical aspect that sets this research apart from previous work, particularly in the area of depreciation of office buildings.

A qualitative analysis is undertaken in what is traditionally perceived as a quantitative process. The related literature identifies the gap in knowledge whilst painting an essential backdrop.  What is important is not to be constrained by having to adhere to a previously developed theory that may or may not apply to the investment appraisal of enclosed shopping centres and, as will evolve, the relevance or otherwise of depreciation as the "gap".  This paper investigates the use of the literature review to develop a conceptual framework that is subsequently refined and evolved through detailed qualitative analysis.  The outcome is a model that lends itself to use in due diligence processes within investment appraisal practice.
 

The Challenges and Myths of Lessor and Lessee Interest Valuations - VIEW PAPER
Professor T. P. (Terry) Boyd
Department of Accounting, Finance & Property Studies
Lincoln University, Canterbury, New Zealand

Keywords: Market value, ground leases, discount rates, utility, rent rates, options, perpetually renewable leases, rent reviews, indigenous people.

This paper proposes that the valuation of partial interests in leases, particularly long-term ground leases, are extremely complex and that a simplistic approach to the valuation of lessors’ and lessees’ interests is incorrect.

Case studies of ground lease tenure and transfer pricing of lessors’ and lessees’ interests in New Zealand are used to demonstrate the hypotheses that:

1. the summation of lessor’s and lessee’s interest frequently does not equate to market value;
2. distinctive values can be placed on various rights within a lease;
3. lessees’ rights contain non-pecuniary interests which form part of the value; and
4. the value of partial interests are viewed differently by the parties to a lease.

The concept that the sum of lessor’s and lessee’s interests equals market value was embodied in certain statutes in New Zealand and, traditionally, this concept has received a degree of acceptance by the industry. The basis for establishing the interest of both parties is discussed and methodology to value the interest is outlined in this paper.

Conclusions on the four hypotheses are drawn and the factors affecting the perception of value of lessors and lessees, such as capital appreciation, call and put options, freeholding rights, security of tenure, rent escalations and asset depreciation are described. The implication of rights of indigenous people is included because many long term ground leases in New Zealand involve actual or potential rights of indigenous people. A comparison is also made with the rights of indigenous people in leasehold situations in Australia.

Escaping from Newtonian Mechanics: a Philosophy for Applied Real Estate Research - VIEW PAPER
Max Kummerow
Department of Property Studies
Curtin University of Technology

Keywords:  Philosophy of science,  research paradigm, econometrics, history of science.

Historically, the social sciences, including real estate economics, sought to mimic successful physical science methods.  But it is impossible to use experimental methods - the epistemological mainstay of physical science - in most social science research. This makes it far more difficult to demonstrate causation or to establish theory.  Indeed, the notion of simple, parsimonious models of deterministic causation may be flawed.  The econometric quantitative research paradigm dominant in real estate studies for the past 30 years tended to ignore basic issues like reflexivity, time variance of data generating processes, and complexity, and to confuse correlation with causation.  Since 1970, various “critiques” of econometrics provide caveats which improve the validity and versatility of quantitative models, while demonstrating the limitations of econometrics.  Errors and omissions in the received paradigm mean most so-called quantitative research results are likely to be materially wrong, spurious, irrelevant, over-generalised, or mis-applied.  The illusion of quantitative precision created by precise numerical coefficients, estimates and confidence intervals in published papers would be subject to large unknown errors and are often invalid outside the sample due to data generating process change over time and other problems.  Recent work in the philosophy of science and research methods sends one towards more diverse methods: qualitative research paradigms, dynamic econometrics, institutional economics, system dynamics.  More humble quantitative work which acknowledges complexity, change, and uncertainty inherent in data generating processes and is informed by a wider, multi-disciplinary perspective can complete the transition from alchemy to science in real estate economics. Research methods, roles of academic researchers, and uses of research need changing and diversification.  Human behaviour will always involve elements of moral choice and so cannot ever be as simple as the physical science problems involving inanimate subject matter.  It is not enough to observe.  We also have to design, invent, evaluate, and choose.

Modelling Markets -Go To Top

Estimating the price elasticity of supply for commercial property in the UK
Craig Watkins, Nanda Nanthakumaran, and Allison Orr
Centre for Property Research, Department of Land Economy,
University of Aberdeen, UK

It is well known that because of constraints on new construction arising from the land-use planning system, and skilled labour shortages, the price-elasticity of supply of commercial property in the UK is low even in the long run. In this paper, we provide empirical estimates of the long run elasticity of supply for commercial property.

The model presented is adapted from Poterba’s two equation asset-market approach to modelling the housing market (Poterba, 1984). The first equation is an arbitrage relationship for the property market, where the return on property is made up of rent determined in the user market for property services and capital gain which is dependent on the return on alternative assets. The second equation represents ‘flow’ supply which is determined by real capital values and is inversely related to the size of the stock (adjusted for depreciation).

The long run solution to our empirical generalisation of the Poterba model allows us to interpret the first equation as a ‘stock’ demand function and to interpret the coefficient on the capital value variable in the flow supply equation as an estimate of the long run supply elasticity. The two equations help enhance our understanding of the way in which supply side changes feedback to the demand side and act as an ‘automatic stabiliser’ to changes in property values. It is argued that although increases in demand drive up real capital values, new development is also initiated, and the increase in supply will in turn dampen down the growth of property values. This effect is estimated empirically in our stock demand equation. Our estimate of supply elasticity from the second equation forms the second part of the adjustment process. In our conclusion, a comparison of the responsiveness of the supply side in the office and industrial sectors confirms a priori expectations about the relative size of the supply elasticities and other key parameters.

Modelling the Take up of Vacant Industrial Land - VIEW PAPER
Val Kupke and Rob Kooymans
Centre for Land Economic and Real Estate Research
School of Economics, Finance and Property, University of South Australia

Keywords: Industrial land, Land demand factors, Land demand forecasting.

The study describes the moderately successful development of a practical model using readily available statistical data to directly forecast the demand of vacant, industrially zoned land within the Adelaide Statistical Division. The construction of such a model was in response to perceived constraints in Adelaide’s land management which might adversely affect the state’s long term economic future: namely that the long term provision of adequate and appropriate vacant land suitable for future industrial use was at risk because of over simplified notions of manufacturing decline, exaggerated claims of over supply in the states industrial land stocks and considerable levels of rezoning to residential land use. The model is constructed in light of perceived influences on business activity within the South Australia economy and takes the form of a simplified accelerator model with the use of multi variates. The limitations of the model are canvassed and the need for further refinement is discussed.

Examination of the Practical Difference between Industrial Land Sales and Industrial Take-up - VIEW PAPER
Paul Kershaw and Peter Rossini
Centre for Land Economics and Real Estate Research
University of South Australia

Keywords: Industrial land, Take-up rates, industrial trends.

This paper outlines a deficiency in estimation of Industrial land take-up rates through the analysis of the volume of vacant industrial land sales. Government planning agencies frequently use sales volume figures to estimate demand for vacant industrial land for inclusion in supply-demand projections. Using the Adelaide Metropolitan Area as a case study, the numbers, volume and prices of land are examined on a quarterly basis for the period 1986-1996. A subset of these sales (1991 to 1995) are then further examined to determine if the land was actually improved or “taken-up” by the end of the 1996 financial year. Those properties that are improved are then classified by land use, improvements and re-zoning.

Office market studies -Go To Top

Corporate Real Estate: Changing Office Occupier Needs A Case Study
Peter Dent
School of Real Estate Management, Oxford Brookes University, UK
and
Alan White,
School of Land and Property Management, University of the West of England, Bristol, UK

Keywords: Future office needs, new technologies, location, design criteria.

The intention of this paper is to examine the perceptions of existing office occupiers in an effort to determine whether current property provision is meeting need and also to aid understanding of potential future requirements. The data which supports the paper was gathered as part of a comprehensive study of the Birmingham office market undertaken by the authors. The objective of that study was to gain a better understanding and appreciation of occupier needs and preferences in terms of the type and location of commercial office accommodation. The study also included an analysis of occupiers’ responses to determine future demands and trends for such accommodation.

Office Market Cycles: An Institutional Solution? - VIEW PAPER
Max Kummerow
Department of Property Studies, Curtin University of Technology

Keywords:  Office cycles,  system dynamics,  office oversupply, office markets, institutions.

Office oversupply has been, once again, revealed as a serious macroeconomic problem through its contribution to the insolvency of lenders and investors and subsequent liquidity crises in the Asian tiger economies.  Office oversupply cycles in many countries - USA, Australia, South Africa, UK, Sweden, Singapore, Thailand, Malaysia, Japan, China and elsewhere - and in some cases over several macroeconomic cycles - 1920s, 1970s, 1980s and  1990s - have cost hundreds of billions of dollars directly through lost rents on vacant space, rent declines throughout the market, and project negative net present values.  Non-performing commercial property assets contribute to financial intermediary insolvency and net worth write-offs and therefore to recessions as lenders are forced to reduce lending to maintain capital adequacy ratios.  This paper presents a system dynamics model of an office market which allows experimentation with information feedbacks and decision policies controlling office supply responses.  Model results lead to suggestions for system redesign to reduce the severity of office oversupply cycles.  Reducing supply response delays through demand forecasting and shorter planning lags, and spreading project completions over time, would smooth cycles and reduce allocative inefficiency.   Solving  principal/agent conflicts and prisoners' dilemma game strategic behaviour problems through changes in contractual allocation of risks and a coordinated project commencements system respectively would also improve returns to capital invested in office projects.

Alternative Officing – a Study of its Acceptance in a Branch Office Market - VIEW PAPER
Rob Kooymans
School of Economics, Finance and Property
University of South Australia

Keywords: Alternative officing; remote working, office building stock, information technology, workplace technology.

Alternative officing Techniques, particularly those relying on improved information and workplace technology including variants of Remote Working, are described. The results of a survey of 80 firms with offices in the Adelaide Metropolitan Area are compared with results of surveys conducted by the International Society of Facilities Executives and International Development Research Council in the United States of America. The picture that emerges is that of respondent organisations in Adelaide being reasonably well-informed about new technologies and new officing techniques that are being enthusiastically embraced elsewhere. The study reveals a high frequency of use of techniques that rely on information technology, but a low take-up of those officing techniques that rely on new building designs and technologies. The hypothesis is advanced that the inertia of existing building stock and design/building skills is largely responsible for this.
 
Property Law -Go To Top

Real Estate Agents and the Law: A new net goes fishing. - VIEW PAPER
Graham Crews
Department of Finance and Property Studies, Massey University
Palmerston North, New Zealand

Keywords: Real estate agency, real estate agency practice, agency law.

Historically the role of the real estate agent has been to act as agent for the principal, usually the vendor, in the sale or lease of property.  The agent has earned a commission on the sale by inducing a third party, usually the purchaser, to enter into a binding contract with the principal.   Real estate agents are now increasingly finding themselves on the horns of a dilemma in balancing the requirements of their fiduciary relationship with their principal against the third party’s (purchaser's) right to protection under consumer law.  The dilemma grows as Western countries, including New Zealand, move toward strengthening consumer rights through statutory law.  Courts have repeatedly confirmed the very special nature of the agency relationship, and the protection afforded the principal under the doctrine of ‘utmost good faith’.  However, a number of recent landmark decisions confirm the legal responsibility that agents now have under consumer law toward third parties.  Whilst agents have always owed a  ‘duty of care’ as an ‘expert’ toward third parties recent court decisions appear to place an expectation on the agent to act as steward of the property transaction to ensure the best interests of parties on both sides are met.  This trend would seem to imply that the agent is a ‘middleman’ in the process, a role which would appear to be in direct conflict with the traditional/legal relationship of agent acting for and on behalf of one party.  This paper will discuss the legislative changes which have occurred and examine some of the recent court decisions which have created the dilemma.  The paper will also explore the challenge facing real estate agents in managing their client/customer relationships within an environment of burgeoning legal accountability.

Non-solicitor Conveyancers in South Australia - VIEW PAPER
Trevor Mills
School of Economics, Finance and Property,
University of South Australia

Key words : non-solicitor conveyancers, characteristics, profile, conveyancing practices, income.

Non-solicitor Conveyancers, until recently known in South Australia as Land Brokers, have over the last 10 years dramatically increased in number around Australia.
Some of the reasons given for the increase include a perception that the job, which has some status in the real estate industry, is one of the easier options for mature aged people wanting a career change. To many it is an opportunity to be relatively quickly qualified and self employed in a profession that could be quite profitable.

The advent of mutual recognition and competency standards policies in Australia seem to have given the profession a lift in as much as a few conveyancers have already begun to practice in other than their home State.

The profession, which began in South Australia because of the opposition to the introduction of the Torrens title system by the solicitors of the day, has now spread to WA, Northern Territory, NSW and in a limited form to Victoria. Queensland has vigorously opposed the introduction of non solicitor conveyancers and to a lesser degree so too has New Zealand. ACT and Tasmania are still to act.

Most people outside the real estate industry have only a vague knowledge of what a conveyancer is, or does, while many people in the real estate industry are not much better informed and seem to look upon conveyancers as being  an extension , and thus under the influence, of the Agent.

In order to raise people’s awareness of conveyancers and to forge the industry into a truly professional group the Australian Institute of Conveyancers was formed some years ago. The result of that has been an increased level of cooperation, communication and agreement between States regarding such issues as education, practices, legislation , mutual recognition and national competency standards.

Notwithstanding the progress made to date to upgrade the profession, the ethics and the practices no-one until now has tried to create a profile of the practitioner based on primary information, much less tried to get meaningful comments on relevant issues to help plan the future of the industry. There has always been a variety of suggestions and comments, some factual and some emotional, circulating amongst practitioners regarding issues that effect each continuously or momentarily.

This paper brings together the information supplied by the people most qualified to give it and creates a profile of the conveyancers in South Australia while giving their background information and thoughts about their industry.

Taken from the only such survey of all registered conveyancers in South Australia the results help to confirm some of the commonly held beliefs, while dispelling others, about these practitioners and their industry.

This paper establishes the average conveyancers characteristics but shows that there are also many exceptions to this profile. Practitioners from other States should be easily able to empathise with the results.

The duty to act with equity and good conscience... - VIEW PAPER
An exploration of the judicial decision making process in property related tribunals
John Keogh
Barrister at Law, and
Faculty of Management,
University of Western Sydney, Hawkesbury

Keywords: Statutory duties of tribunals, act with equity and good conscience, substantial merits of the case procedural fairness, natural justice, right fair and honest, conscientious observance of rules of fair play, judicial approach to decision making.

Adjudication of applications before the New South Wales Residential Tenancies Tribunal and the Strata Titles Board proceed in accordance with the powers expressly given under the Residential Tenancies Act 1987 and the Strata Titles Management Act 1996. In determining applications, Tribunal and Board members are required to act according to “equity, good conscience and the substantial merits of the case without regard to technicalities or legal forms.”  The direction to Tribunal or Board members is not a dispensation from scrupulously observing the principles of natural justice nor can the Tribunal or Board arbitrarily give to a provision of a statute a meaning other than that which a court of law would place upon it. How wide then are the powers of our property Tribunals and Boards? What can they do and not do in their limited jurisdictions? This paper looks at the development of adjudicative bodies with express powers, duties and functions and explores their ability to deliver justice which accords with contemporary ideas of equity and good conscience.

Property Management -Go To Top

An Investor Driven Information Revolution within Property Management
Dr Stellan Lundström
Real Estate and Construction Management,
The Royal Institute of Technology, Stockholm, Sweden

The ongoing integration of the real estate market into the capital market has a huge impact on the demand for real estate related information. Traditionally real estate performance has been evaluated on return basis with little reference to risk. A more finance oriented view on real estate put emphasis on risk and risk in relation to other investment media. With a financial perspective the real estate firm is more a set of contracts with customers and entrepreneurs than a set of buildings. Return and risk profiles on real estate investment emerge from leases, mortgage contracts and contracts for property management. The ongoing securitisation of real estate and the nationwide creation of real estate indices reflect the need for a new kind of information and transparency.

The process of increased transparency in the real estate market, is mainly driven by investors, and will have a huge impact on organisational structure and information systems within the real estate sector. Traditional functional oriented real estate holding companies go more process oriented to decrease transaction cost and increase performance. Within this process traditional management information systems have to be remodelled to serve both internal and external demand for information.

The paper is about: 1) The organisational change that is under way when building oriented information is regarded as secondary in comparison with information related to customers and contracts, and 2) a structure for valuation of customer oriented information which to a high degree is subjective.

The Search for Quality in Property Management
Peter Wills
School of Land Economy,
University of Western Sydney

Keywords: Property management, Total quality management, Quality control systems,
 Reporting systems, Tenant communication, Tenant retention, Rental arrears, Measuring quality, Auditing.

This paper will investigate the search for quality in property management.
The objectives are:

The difficulty in quantifying the quality of property management will be reviewed as well as what constitutes Total Quality Management in the property scenario. To understand this we must first define what TQM is. The role of the various stakeholders will be defined, together with the communication/interconnnectivity networks that evolve. The process of benchmarking must also be reviewed, as well as its impact on property management performance. The clients’ (this includes owners, asset managers, tenants, the public at large) perception of quality management and ,more importantly, what constitutes poor management will be researched. The problem area of measuring quality in property management will be reviewed. As property management has become more complex, the role of the property manager has followed, so an adequate reward system must be put in place. To ensure that the task is being carried out properly a system of auditing should be introduced, or available, so that a constant check on management performance can be undertaken (auditing for quality). From this it is concluded that property management firms must have in place quality control systems to meet increasing demands from their clients. Firms must become pro-active with these quality concepts.

Property management firms that are adequate today will be unacceptable in five years time, unless they make a commitment to training, technology and quality management.

Property Transactions -Go To Top

Testing for Agency Costs in Property Transactions
Patrick Rowland
Department of Property Studies, Curtin University of Technology

Keywords: Agency costs, property management, real estate brokerage, lease covenants.

Agency costs may be incurred when a manager, agent or other representative makes decisions about a property on behalf of someone holding an interest in that property. Although many property contracts have the potential for abuse of agency powers, it is only in recent years that there have been attempts to establish the extent to which these agency costs may influence transactions.

This paper describes several common ways in which agency or quasi-agency relationships arise in real estate activities, such as funds management, property management, real estate brokerage and granting leases. The paper explains how monitoring and bonding costs, as well as increased uncertainty, in agency-like arrangements may distort property transactions and how changing the basis of the contract may lower the costs for both parties.

Several approaches to testing for agency costs are distinguished and the inadequacies of each approach are pointed out, illustrating how difficult it is to confirm the agency effects on property transactions. The paper reviews published empirical studies of the effects of agency costs upon the decisions to buy, sell or lease properties. Agency issues imply lack of trust and even dishonesty amongst those entering contracts. It is therefore not surprising that it is difficult to prove and quantify the agency costs. The paper concludes with some suggested tests of agency costs in property transactions, particularly in leasing.

Defective and Dangerous - VIEW PAPER
The impact of Northern Sandblasting Pty Ltd v Harris (High Court of Australia) on a Landlord’s duty of care
John Keogh, Barrister at Law and
Faculty of Management, University of Western Sydney

Keywords: Landlord and tenant, residential tenancy legislation, negligence, duty of care, condition of leased premises prior to occupation, safe for habitation, defects which pose special dangers, assumption of responsibility, electrical faults, injury to child of tenants.

The recent High Court case of Northern Sandblasting Pty Ltd v Harris [1997] 71 ALJR 1428 has expanded the common law duty of care owed by landlords to tenants and their families. This paper examines the reasons behind the High Court decision and focuses upon the landlord’s duty where defects in rented premises pose special dangers which are discoverable on inspection only by persons exercising special care and expertise. The paper also examines a landlord’s legal duty to provide rental premises safe for habitation as reasonable skill and care can make them and distinguishes the duty imposed by contract law on occupiers with the duty imposed by the law of negligence. Circumstances which may give rise to a claim for negligence through the actions of a landlord’s contractor are postulated for discussion. The implications for landlords and their agents are summarised. Comparisons are made between the relevant provisions in the Residential Tenancies Act 1975 (Queensland) and its New South Wales counterpart to highlight the scope of the High Court’s decision in other jurisdictions.

Property Valuation Variation and the Margin of Error
Professor Neil Crosby
Department of Land Management and Development,
University of Reading, UK
and
Professor Anthony Lavers
School of Real Estate Management,
Oxforde Brooks University, UK
and
John Murdoch
Department of Law,
University of Reading, UK

The overall aim of the paper is to examine the “margin of error” or “bracket” concept, which is used by the courts in professional negligence cases involving property valuation, against the background of the empirical work undertaken in the commercial and industrial property market on valuation variance.

The objectives are to:
 

 
 In order to achieve these aims and objectives, the research team will review the existing empirical data and re-examine it in the light of an analysis of UK and Australasian property valuation negligence cases where the “margin of error” has been an issue. This work has already been accomplished for the UK and was presented at the RICS Cutting Edge conference in Dublin in September 1997.
 
 The UK experience reveals: The paper seeks to extend this review and analysis to the Australian and New Zealand experiences, in order to determine any differences in attitude towards the margin of error concept and its application. The underlying similarities between these three common law jurisdictions, and their reciprocal acceptance of decided cases as precedents, enhances the relevance of this comparison and could provide assistance to both judges and professional advisers in all three countries.

In the UK there is an increasing body of literature providing evidence of the ability of valuers to value within various margins or brackets.  The variation and accuracy literature includes analyses by Adair et al (1996), Brown (1985; 1992), Drivers Jonas/IPD (1988 and updates), Matysiak and Wang (1995) and Brown, Matysiak and Shepherd (1996), and commentaries by Lizieri and Venmore-Rowland (1991) and Crosby, French and Ward (1993).  Much of this work in the UK stemmed from an anecdotal survey by Hager and Lord (1985) suggesting that a number of valuers would give a wide variation of answers to the valuation of the same property.  Some of these analyses have adopted criteria such as percentage variation from the mean valuation or sale price as criteria for assessing accuracy and, in a few cases, have adopted 10% either side of an ‘average’ in the belief that it has some legal foundation. This belief stems from early cases involving valuation negligence following the recession in the UK property market in the early to mid 1970s.  The margin of error issue emerged most strongly in the case of Singer and Friedlander v John D Wood (1977) 243 EG 212 and the research will trace the history of this issue from that date forward.

Real Estate in China and Korea -Go To Top

Tapping Property Information in China - VIEW PAPER
Nelson Chan
School of Land Economy
University of Western Sydney, Hawkesbury

Keywords: China, Property market, information, World Wide Web.

Since China adopted an “Open Door” policy in 1979, the country’s economy has been growing at tremendous speed. The property market also benefits from the rapid growth of the economy. The property market was revitalised in the late 1980s. Since then researchers inside and outside China are interested in development of this new industry.

One of the key factors for any property research is the availability of data and reference materials. In the early years of the recovery of the property market, there was a vacuum in the arena of property data and reference materials. Accordingly it was almost impossible to carry out any meaningful research. Over the years the sources of property data and reference materials have been increasing. The number of press reports, trade magazines and professional journals increases with time. What is more important is that some information is now available on the World Wide Web.

Researchers outside China have long been complaining about the difficulty to get property information in China. The recent information release on the Internet will surely ease the tension. This paper intends to inform readers what are available on the web and how to get them. Since the Web only provides limited information, this paper also tells readers the available published information and where to get them.

The Development of Joint Venture Projects in the People’s Republic of China - VIEW PAPER
Professor Anthony Walker
Department of Real Estate and Construction,
University of Hong Kong

Keywords: Development, China, joint ventures, land, design, construction.

China has been in the process of modernising its economy for almost 20 years. A feature of this process has been the attraction of foreign investment. Whilst such investment takes many forms, a significant amount is channelled into real estate. Such projects may be for end-user joint venture companies but many others are for leasing in the market.

This paper examines the process of development with the objective of identifying the idiosyncrasies of the system relative to those commonly found in developed countries, within the context of the emerging market in China.

The process of realising the development is described including obtaining land, design and construction, including selection of designers, the requirements to work with a PRC design institute, and the methods available for appointing the contractor.

Prospects for improvement of the effectiveness of the process are discussed.

Political Economy of Government Policy on Real Estate in Korea: Torn between de-regulation and anti-speculation. - VIEW PAPER
Chung-Ho Kim
Free Enterprise Institute of Korea
and
Professor Kyung-Hwan Kim,
Sogang University, Seoul, Korea

This paper investigates the conflict facing the Korean Government in real estate policy decision making. The top priority area in real estate policy in Korea is to stabilise the prices of urban housing and land. Many Koreans, ranging from government officials to the media and scholars, believe that speculators are responsible for high and rapidly rising real estate prices. Therefore, Government is committed to putting down speculation in real estate to make housing and land more affordable to the average household and business firm. On the one hand, Government now accepts the reality that the supply system should be made more responsive to market forces in order to reduce shortages in housing and urban land, and that this requires relaxing regulations.

However, government officials are hesitant to implement a fundamental reform towards de-regulation because they are afraid that de-regulation will cause a wave of speculation and hence lead to higher real estate prices. Such lukewarm and piecemeal approach to reform in real estate policy is undesirable in a few important ways. Obviously, it slows down the reform process and makes it difficult to fully realise expected social gains from reform. Equally important negative effect is that it creates an impression that de-regulation causes price hikes. When regulation is relaxed on a small scale, the prices of only those plots directly affected by it rise substantially while the impact on the overall land prices is quite small. Such an outcome will weaken public support to de-regulation. Finally, the lukewarm approach often leads to a search for a politically acceptable solution which is inconsistent with other public policy objectives. For example, by keeping land inside green belt undeveloped and instead developing land beyond the belt, the society must bear larger social costs in terms of longer commute and more serious air pollution.

This paper analyses the mechanics of policy decision-making, building on a couple of cases. The best example is the case of the price control on new apartments produced by private developers. Another example is the relaxation of land use control governing the conversion of non-urban land into urban use. We describe and evaluate the cases from efficiency and equity points of view, and then explain how such an inefficient and inequitable system has been sustained. The short explanation lies in the (unfounded) belief that overall housing prices will rise if price control or land use control is lifted. We disprove this conjecture and suggest what needs to be done to maximise the impact of de-control.

Residential Properties -Go To Top

Modelling Buyer Search Behaviour for Residential House Purchasers in Adelaide - VIEW PAPER
Peter Rossini
School of Economics, Finance and Property,
University of South Australia

Keywords:  Buyer Behaviour, Search Patterns, Purchaser Characteristics, Residential Property.

This paper presents the preliminary results of a survey of house purchasers in Adelaide and regional South Australia.  The paper seeks to establish the basic behaviour of house purchasers in terms of search and discovery patterns, purchaser preferences and purchaser characteristics.  The basis of this research is a survey of some 2000 house purchasers who purchased detached houses in Adelaide over the period January 1995 to  March 1997.

Expectations and Housing Price Dynamics Following Deregulations
Chung-Ho Kim
Free Enterprise Institute of Korea
and
Kyung-Hwan Kim
Sogang University, Seoul, Korea

This paper examines the dynamics of housing prices and how it is affected by expectations by the market participants. The context of the paper is the deregulation over the price of newly produced apartments in Korea. The government of Korea has been controlling the price of new apartments  for the past 20 years in the name of making housing affordable. Despite all the negative consequences of the price control on efficiency and equity aspects, the policy has been sustained by political considerations. (This issue is explored in our separate paper.) The most important opposition to deregulation has been the fear that decontrol will lead to overall increases in housing prices. The alleged logic is that some of would-be buyers of new apartments will opt to purchase existing houses, since two types of houses are substitutes, and thereby raising the prices of the latter. We challenge this reasoning and conclude that it is a fallacy.

The main result of this paper is that expectations of economic agents about housing prices do affect the actual path of housing prices following deregulation. Based on numerical simulation using a simple dynamic model of the housing market, we demonstrate that under the assumption of perfect foresight or adaptive expectations, deregulation will lead to decreasing housing prices. We further show that housing prices can rise in the short term following decontrol only if housing market participants will believe so. This is an example of self-fulfilling expectations. It is shown, however, that the rise of housing prices under this peculiar expectations scheme can last only for a short period of time, whose actual duration depends on the responsiveness of housing supply.

Improving the Results of Artificial Neural Network Models for Residential Valuation - VIEW PAPER
Peter Rossini
School of Economics, Finance & Property
University of South Australia

Keywords: Artificial neural networks, artificial intelligence, valuation methodology, residential valuation.

This paper extends work on the application of Artificial Neural Networks (ANN) to residential property valuation which was presented at the 1997 PRRES Conference. The results of ANN is compared to multiple regression analysis (MRA). Attempts are made to improve the results from ANN through the use of more sophisticated methods (including Genetic Optimization) to derive the appropriate ANN structure. Initial models are created for multiple locations and property types using data supplied by the Department of Environment and Natural Resources in South Australia. Experiments are conducted to see if the inclusion of additional qualitative variables significantly improve the predictive power of the ANN and MRA models.

The development of Artificial Intelligent Systems for the valuation of residential property is occurring rapidly. In South Australia such a system is under development at the University of South Australia. This development has led to several significant questions, some of which are examined in this paper.
In particular

Retail Property Analysis -Go To Top

The Impact of Pedestrian Counts on Property Values  - VIEW PAPER
G. M. (Garry) Dowse
Department of Finance and Property Studies
Massey University, Palmerston North, New Zealand

Keywords: Pedestrian counts, retail customer spending, retail shop rentals.

This paper is the second in a series dealing with the influence of pedestrian foot traffic counts on New Zealand commercial property values.

The first paper in this series summarised the results of research carried out on the influence of pedestrian counts on shop rentals in a traditional strip shopping retail location. The analysis, which incorporated the use of regression and correlation statistical techniques, indicated that pedestrian counts were consistently one of the two most important predictors or variables in accounting for variations in shop premises rental values (total occupancy costs) in the selected case study area.

The data set consisted of total occupancy costs and the physical characteristics of the premises only. An important area identified for future research consideration was an analysis of the relationship of pedestrian traffic flows and retail customer spending. In commercial property valuation, in addition to physical characteristics, shop premises rentals are also perceived to depend upon the rental paying capacity of their tenants. This rental paying capacity is commonly thought to be proportionate to customer patronage or sales volumes, a function of pedestrian flows.

The relationship of pedestrian traffic flows and retail customer spending is addressed in this paper. It discusses the results of research models developed to analyse the relationship between pedestrian counts and retail customer spending and pedestrian counts and retail shop rentals in selected regional shopping malls. The paper further explores long established perceptions that pedestrian count data is valuable information in viewing commercial property or locality growth trends and in helping to determine the relative desirability of one retail location in comparison to another.

Evaluating the “Go Dark” Option in Retail Anchor Tenant Leases - VIEW PAPER
Dr Stephen Thode
Lehigh University, Bethlehem, USA
and
Dr Mark D Griffiths,
The American Graduate School of International Management,
Glendale, USA.

Keywords: Options, shopping centres, retail, leases.

The ‘90’s have given rise to (mainly) suburban and ex-urban speciality retailers known as “category killers” – large, high-volume retailers who specialise in single categories of consumer products such as office supplies, toys, hardware, consumer electronics, or books. These speciality retails have captured large market shares from department stores and smaller retailers who cannot compete on the basis of price.

Shopping centre owners want these “category killers” as anchor tenants as they generate substantial traffic, allowing the shopping centre owner to lease other space to smaller tenants at premium rental rates. However, as attractive as these tenants may be, their presence comes with a price.

Significantly different from the past, these retailers typically do not grow their presence in a particular geographic area by opening additional stores, but rather, by expanding the size of their existing stores, or by moving to nearby locations which accommodate larger stores. This is facilitated by clauses in their leases which permit them to lease additional space in the shopping centre, if available; or alternatively, to sublet their space without the landlord’s permission. This latter clause, commonly known as the “Go Dark” option, is invoked when additional space is not available in the existing shopping centre at a price the tenant is willing to pay; or, a more attractive location is available. The tenant vacates the property, but continues to make lease payments for the duration of the lease. In many cases, the tenant will not attempt to sublet the space, as this may create competition for their new, larger location.

The “Go Dark” option has a potentially devastating effect on a shopping centre and its landlord as its exercise can effectively “kill” the shopping centre (smaller tenants vacate when the anchor vacates). This option has turned risk analysis for shopping centre owners on its head – in the past, a landlord may have been concerned with an anchor’s lack of success; now the landlord must be concerned that an anchor may be too successful.

Valuation of the “Go Dark” option is a particularly challenging exercise. Unlike traditional financial options, where there is an equilibrium price mechanism common to buyer and seller, the “Go Dark” option’s value may be substantially different for the landlord and the anchor tenant. This is due to the fact that the tenant may have access to information (in particular, retail demand, and the cost and availability of alternative locations) not readily known to the landlord. Thus, the landlord has imperfect information with respect to the probability that the option will be exercised at any particular point in time.

In this paper, we examine the value of the “Go Dark” option from the perspective of the shopping centre owner (landlord). We model retail demand as a stochastic process with positive drift, and demonstrate that, under certain conditions, the cost of the “Go Dark” option to a landlord may be substantially larger than any anticipated incremental revenue derived from the presence of the anchor tenant. We therefore conclude that there are circumstances in which a landlord is better off not leasing to the anchor tenant in the first place.

Rural Issues -Go To Top

Landcare and the Selling Process
Geoff Page
School of Economics, Finance and Property
University of South Australia

The decade of landcare has resulted in significant expenditures to change land management, to ameliorate land degradation, and to instill a sustainability attitude.

This paper compares the attitudes of rural real estate buyers and selection criteria (as interpreted by salespeople) over the last 4 years.  Results indicate that the visible landcare problems influence the selling process, but the invisible have little effect.  The results of the 1993 and 1997 surveys showed little change.  The Soil Conservation and Landcare Act 1989 is currently being amended to a land management Act.  The changes to the act and their implication of the rural selling process will be commented on.

The objectives of the paper are to:

1. Identify landcare factors that influence rural buyers in selecting potential properties to purchase.

2. Identify landcare factors that affect price and selling times for rural properties.

3. Identify any perceived attitude changes between 1994 and 1997.

4. Comment on potential implications of changes to Soil conservation legislation in South Australia.

The Rural Property Markets: A comparison of Agricultural and Residential Property in Farming Regions
Chris Eves
School of Land Economy,
University of Western Sydney, Hawkesbury

Keywords: Agriculture, valuation, rural land markets, rural residential property markets, rural property returns, residential property returns.

The rural land market does not only comprise land used for agricultural production but also includes the property that services this industry. This service property comprises residential, commercial and industrial premises and in most respects are linked to the agricultural industry of the region. These properties can be located in small villages, larger towns or major regional centres. The common link with all these towns is the reliance, to varying extents, on the performance of the surrounding rural community.

Over the past ten to fifteen years it has been reported that many smaller country towns are experiencing population decline and a loss of business and commercial property activity. In most cases this decline has been offset by an increase in the population and economy of the larger regional centres.

Previous studies have shown that the rural land market is volatile, in comparison to other forms of real estate, resulting in price changes in relation to both the overall rural economy and changes in commodity prices.

This paper will analyse both the rural and town residential property markets for several recognised farming areas of New South Wales in relation to land and house prices. Based on this initial data set the paper aims to determine if the residential markets in these rural areas are driven by the prevailing agricultural economy or respond to separate market forces. A correlation analysis will be carried out between rural land and residential prices and various locations.

As several of the study areas now have substantial mining interests operating within their regions, the impact of these operations on the town economy, through the residential property market, will also be examined.

Valuations for Public Purposes -Go To Top

Land Claims and Restitution in South Africa – The Valuation Perspective - VIEW PAPER
Martin White
Department of Property Development and Construction Economics
University of Natal, South Africa

Keywords: Restitution, basic value, Group Areas Act, skewed values, beneficial occupation.

The subject matter of the paper is a description of the unique valuation research exercise currently being undertaken in South Africa to reopen the issue of compensation paid by the state in its land acquisition/redistribution programme of 30 to 40 years ago and revolves around the effects of the infamous Group Areas Act.

This act and other racially based legislation introduced in South Africa following the end of the second world war, and a change of government in that country, had a profound effect upon the life and economy of its peoples, particularly those of colour. The Group Areas Act and its enforcement resulted in the massive relocation of people and a totally unique property market where specifically demarcated areas of land throughout the country were reserved for the exclusive ownership and occupation by members of a defined racial group.

Following the recent change of government in South Africa and the move to a new political dispensation, constitutional changes have provided for a measure of relief by way of land, or equivalent restitution, to those dispossessed of interests in property in pursuance of the previous government’s racial policies. The provisions for this are embodied in the Restitution of Land Rights Act (22 of 1994).

The implementation of the provisions of this act include the investigation of original compensation paid to land owners and occupants when their interests were acquired from the 1950s onwards. In most cases original records are sketchy or non-existent and restitution will only follow claims.

In the 1960s a large urban area of Durban, mainly owned by members of the Indian community was proclaimed for “white” occupation, resulting in the acquisition of something like 3,000 properties by the state. A panel of property valuers has been appointed to carry out historic research in an attempt to reconstruct the property market in the Durban area at that time and comment on the quantum of the original compensation paid; in particular whether that compensation was “just and equitable” and if not what would be an appropriate method of redress.

This particular research exercise, which is currently in progress, is novel in that it is the first attempt in South Africa to investigate and advise on compensation/restitution in terms of the recent Act and is regarded as a prototype for dealing with claims in other areas throughout the country.

The paper will introduce the historic perspective and describe the methodology adopted by the valuers panel in this research exercise with commentary on the findings and possible restitution measures, if applicable.

The Valuation of Public Land and Property for Private Sector Management with Continued Public Use.
Peter Wills and Chris Eves
School of Land Economy,
University of Western Sydney-Hawkesbury

Key Words: Public land, public assets, valuation, valuation methodology, property management.

The paper addresses a developing area of the property industry with ramifications to both valuation practice and education.

Land ownership in Australia can be classified into two main groups:
i) Public ownership
ii) Private ownership.

Until recently dealings with public property have generally been on a sale or purchase basis. When additional public land was required the Department or Authority would purchase the required property from the public sector or redevelop land already owned. Similarly, surplus property was sold to the public sector, in virtually all cases for redevelopment..

However, despite asset rationalisation of the public sector, there is still both a considerable volume and value of property held by this sector.

Accounting requirements have dictated that these assets be valued regardless of the current use of such property. In situations where the property was of a pure residential, commercial, industrial or rural nature, the valuation exercise was no different to similar market valuations carried out in the private sector.

In the case of specific purpose type properties such as fire stations, universities, schools, swimming pools, council offices, sporting facilities, public utilities and infrastructure the valuation was more difficult and solely based on the cost of the asset. Any valuation based on such parameters may or may not have had direct market correlation to the private sector but this was never an issue as these properties were not offered for sale or lease to the private sector as going concerns. The only times such properties were available for development by the private sector were cases where the property was no longer needed and the subsequent sale would result in an alternate use.

Valuation Accuracy -Go To Top

Valuation Accuracy - An Australian Perspective - VIEW PAPER
Dr David R R Parker
ANZ Funds Management, Melbourne

Keywords: Valuation, valuer.

Following a brief literature review, the traditional qualitative discussion of the general concept of valuation accuracy will be outlined and the more recent, predominantly UK based, quantitative analysis summarised.

The limitations and constraints of such quantitative studies will be considered and their relevance to the Australian property market analysed.

Further, Court precedents concerning valuer’s negligence, from an Australian perspective, will be reviewed and the attitudes of users of valuations considered with the objective of establishing a level of valuation accuracy which may be considered acceptable in the Australian marketplace.

The methodology and findings of an original small sample survey of valuations and corresponding sale prices for commercial, retail and industrial investment property in Australia is then outlined and that level of valuation accuracy exhibited considered in the context of the findings of UK quantitative analyses and the acceptable level of valuation accuracy proposed for the Australian marketplace.

Conclusions are then drawn concerning the relative level of valuation accuracy in Australia and the implications of this considered for valuers, users of valuation services and the local investment property market generally.
 
The Accuracy of Commercial Property Valuations - VIEW PAPER
Graeme Newell and Rohit Kishore
School of Land Economy,
University of Western Sydney

Keywords: Property valuation, property sales, valuation accuracy, CPM.

Property valuations are routinely used as a proxy to assess property performance, as evidenced in the Property Council of Australia, NCREIF and IPD “benchmark” commercial property series for Australia, USA and UK respectively. However, the issue of accuracy and reliability of commercial property valuations as an effective proxy for property sales has received considerable international interest and debate in recent years.
Following the paper by Hager and Lord (1985) and their criticism of the accuracy of UK valuations, a number of papers have appeared in the UK journals over 1985-96 examining various statistical, economic and methodology issues relating to the accuracy of valuations, as well as undertaking empirical analyses. Equivalent USA studies have added to the debate, without effectively resolving this key property investment issue. No equivalent studies have been conducted in Australia.

The recent development of the substantive and internationally competitive Commercial Property Monitor (CPM) database for Australian commercial property provides an excellent opportunity to critically evaluate this key property investment issue in a rigorous and substantive manner.

As such, the purpose of this research is to:

i. use the CPM database to critically evaluate the accuracy of commercial property valuations in Australia over 1985-97 for office, retail and industrial property;
ii. assess the accuracy of property valuations at various stages in the property cycle, reflecting active, stable and depressed property market scenarios.
iii. critically evaluate the integrity and effective use of property valuations as a reliable proxy for property market performance.
 

End of Abstracts

Go To Top    Go To Main  Go To Index   Papers Indexes by  Topic  Author