Property development activities: value creation or distraction for REITs?

PurposeThis paper examines the evolution and impact of property development activities on REIT performance. The paper provides insights on whether REITs should venture into property development in addition to their core-business of holding income producing properties.Design/methodology/approachThis paper charts and highlights the evolution of development activities of US REITs from 1992 to 2020. The Tobin's Q of property developing REITs and non-property developing REITs are compared using univariate analysis.FindingsDevelopment activities of US REITs grew dramatically during the run up to global financial crisis (GFC) in 2008. The level of development activities has dropped since the GFC and it has not return to its pre-crisis peak. In comparison, development activities of listed property investment companies and homebuilders are less volatile over the same period. The data reveals that property developing REITs enjoy significantly higher Tobin's Q as compared to their non-developing counterparts.Practical implicationsOur graphical evidence from a market without development restriction suggests that development restriction in other REIT regimes has it value in limit REITs' excessive risk-taking tendency during a booming property market. The positive relationship between Tobin's Q and the existence of property development activity support the value creation of this business activity to REITs.Originality/valueThis paper raises overbuilding as a potential cause of the underperformance of the REIT sector during the GFC.

Approach to Prioritizing the Commercial Real Estate Development Risk

After 30 years of war in Sri Lanka, the demand for real estate has increased tremendously across the nation. Similarly, numerous real estate sub-sectors have avidly participated in the worldwide boom. However, with failures and poor functioning of many investment projects, the industry's risk management reputation has been put in jeopardy, followed by the coronavirus (COVID-19). Though it is less popular among Sri Lankan property developers, risk management strategies in development projects have become a pressing requirement. This paper's goal is to look at commercial property development risk elements from the perspective of a real estate developer in relation to Social, Economic, Environmental, Technological, Political, and Pandemic Risks. The research first evaluates risk variables using a super decision software model based on the Analytic Hierarchy Process (AHP), then prioritizes the most important risk factors, and lastly examines effective risk management measures for successful real estate developments. The data collection has been carried out using interviews through telephone conversations with the help of a structured questionnaire. Accordingly, 35 risk factors have been assessed altogether. For the three projects, the synthesized values were 1.0000, 0.510763, and 0.604037, respectively. Based on the analysis of superMatrix calculation, project A is regarded as the best alternative project in such circumstances. Pandemic Risk, Economic Risk, and Political Risk have all had a significant impact on the primary risk criteria. Therefore, COVID-19 Pandemic Risk Emergence, Workforce Availability, Duration, Delays in Council Approval/License Approval Process and Natural Disaster Impact were identified as the highest influenced sub-risk factors. Identifying the risk factors on this avenue will also help in making better investment decisions while increasing the unpredictable nature of the real estate field and future satisfaction of loan team investment goals within the country.

Timber and Multi-Storey Buildings: Industry Perceptions of Adoption in Australia

The use of Engineered Wood Systems (EWS) as structural alternatives or complements of traditional materials, such as steel and concrete, is of growing interest and acceptance in the architecture, engineering, and construction industries. Gathering evidence from the Australian context, this paper proposes a roadmap for the adoption of EWS as the primary structural materials of medium-rise buildings, with the scope of increasing levels of public awareness about the potential and current shortcomings of these building technologies. A nation-wide survey with stakeholders at the forefront of adoption in structural design, construction, and property development, indicates that the demand for timber in multi-storey projects has promising prospects of growth, but faces circumstantial industry-wide hurdles in the short to medium term. Awareness of benefits and inclination towards more use of timber among designers are positive factors that provide a promising base for further adoption. The translation of positive front-end design attitudes into adoption, however, requires holistic long-term investment efforts with industry-wide education. The pathway to innovation for timber in multi-storey projects needs to grow beyond mere promotional strategies of its benefits, seeking to expand technical knowledge through education and reaching out beyond a group of already committed and knowledgeable stakeholders at the forefront of adoption.

Risk management processes used in determining project feasibility in the property development process early stages by Australia/New Zealand property developers

PurposeThe purpose is to examine the risk management processes and methods used in determining project feasibility in the early stages of the property development process by Australia/New Zealand property developers, including Monte Carlo simulation, Bayesian models and real option theory embedded in long-term property development and investment decision-making as instruments for providing flexibility and managing risk, uncertainty and change.Design/methodology/approachA questionnaire survey of 225 Australian and New Zealand trader developers, development managers, investors, valuers, fund managers and government/charities/other relating to Australia/New Zealand property development companies' decision-making processes in the early stages of the development process prior to site acquisition or project commencement – the methods used and confidence in their organisations' ability to both identify and manage the risks involved.FindingsFew of the organisations sampled use sophisticated methods; those organisations that are more likely to use such methods for conducting risk analysis include development organisations that undertake large projects, use more risk analysis methods and have more layers in their project approval process. Decision-makers have a high level of confidence in their organisation's ability to both identify and manage the risks involved, although this is not mirrored in their actual risk management processes. Although the majority of property developers have a risk management plan, less than half have implemented it, and a third need improvement.Practical implicationsProperty development organisations should incorporate more modern and sophisticated models of risk analysis to determine the uncertainty of, and risk in, a change of input variables in their financial viability appraisals. Practical application includes using such multiple techniques as what-if scenarios and probability analysis into feasibility processes and utilise these specific techniques in the pre-acquisition stages of the property development process and, specifically, in the site acquisition process to support decision-making, including a live risk register and catalogue of risks, including identification of and plans for mitigation of project risks, as a form of risk management.Originality/valueFirst study to examine the extent of the decision-making methods used by property developers in the pre-acquisition stage of the development process.

A QUALITATIVE CONTENT ANALYSIS OF THE DEVELOPERS’ PERSPECTIVES ON DEVELOPMENT CHARGES

The conversion of land, increment of plot ratios or density that increases the land value often comes with a development charge. While the local governments view the development charge as one of their income sources for providing utilities to the society, property developers’ communities still contend that the charge surges development uncertainty. Moreover, the existing empirical studies of the implementation of development charges in Malaysia are limited since lack of developers’ views regarding this matter. Through semi structured interviews among the property developers, this paper had explored the property developers’ perspectives on the implementation of development charges in Malaysia. Data from the interviews were analysed using content analysis techniques. Findings from the analysis revealed that the effect it has on property developers seems to have increased the developers’ uncertainties, especially on the cost of property development. This paper provides new insights for future research in the study of relevant approaches to improve the efficiency of the development charge and the effect it has on the developer’s uncertainty.

Peningkatan Kemampuan Pelaporan dan Analisis Laporan Keuangan pada PT Jaya Persada Indonesia

This Community Service activity is being carried out in collaboration with PT Jaya Perdasa Indonesia (PT JPI), a property development and agency company. Despite the fact that it has been in operation since 2014, partners continue to do traditional financial statement (not yet using an integrated system). Furthermore, financial statement analysis is a critical component that cannot be separated from the business. This is because; financial statement analysis is used to describe a company's health as well as a foundation for making strategic business decisions. The implementation of Community Service activities is divided into three stages: preparation, online implementation, and activity evaluation. This training increases participants' understanding and knowledge of the importance of producing good financial reports using an integrated system, resulting in more comprehensive financial reports. Furthermore, this training improves participants' skills and expertise in reporting, analyzing, and interpreting the results of the company's financial statement analysis. Abstrak Kegiatan Pengabdian Masyarat ini bermitra dengan PT Jaya Perdasa Indonesia (PT JPI) yang bergerak dalam bidang pengembangan dan keagenan properti. Walapun sudah beroperasi sejak tahun 2014, mitra masih melakukan pembukuan laporan keuangan dengan cara yang konvensional (belum menggunakan suatu sistem yang terintegrasi). Selanjutnya analisis laporan keuangan merupakan elemen penting yang tidak bisa dipisahkan dari perusahaan. Hal ini disebabkan karena selain digunakan untuk mengetahui gambaran terhadap sehat-tidaknya suatu perusahaan, analisis laporan keuangan juga menjadi salah satu dasar untuk mengambil keputusan strategis pada bisnis. Pelaksanan kegiatan Pengabdian Masyarat dilakukan melalui tiga tahap yang meliputi tahap persiapan, pelaksanaan secara daring, dan tahap evaluasi kegiatan. Pelatihan ini menambah wawasan dan pengetahuan peserta terhadap pentingnya membuat laporan keuangan yang baik dengan suatu sistem yang sudah terintegrasi, sehingga laporan keuangan yang dibuat menjadi lebih komprehensif. Selain itu, pelatihan ini juga menambah keterampilan dan keahlian peserta dalam pelaporan, menganalisis dan menginterprestasi hasil analisis laporan keuangan perusahaan.

Institutional aspects of economic development in the works of I.V. Vernadsky

The article is devoted to the study and coverage of the institutional environment formation in the scientific achievements of the famous scientist-economist of the XIX century Ivan Vernadsky. The purpose of the study is the historical and economic generalization of I. Vernadsky's views on the institutional aspects of economic activity and development. The scientist had a deep understanding of the important role that social institutions play in economic reality and the importance of their study for the completeness of economic analysis. He highly valued the work of other economists who used institutional approaches, and paid considerable attention in his work to the influence of the institutional environment and its individual components on the results of economic activity. The main attention of the article is devoted to the historical-theoretical analysis of I. Vernadsky's views on the concept of property and possession as key categories of economy and law, their economic significance and relationship with other categories of political economy, such as wealth, value, income. The author analyzes I. Vernadsky's views on the most important institutional factors of economic development, in particular economic freedom, free private property, development of knowledge, education and science, education of such moral qualities as conscience, honesty, thrift, etc., as well as the influence of national mentality on economic policy. The conclusion is that the original concept of property and possession developed by I. Vernadsky can be assessed as a significant achievement of contemporary economics, as it contains not only the postulates of classical political economy, but also elements of the subsequent institutional theory of property rights, in particular the institutional nature of ownership and property as factors that determine the borders of economic activity.