postprintThe 15th Annual Conference of the Pacific Rim Real Estate Society (PRRES 2009), Sydney, Australia, 18-21 January 2009

Ho, DCW

Yau, SY

HKU Scholars Hub

Title Value enhancement effects of building management practices: apreliminary study in Hong KongAuthor(s) Yau, SY; Ho, DCWCitation The 15th Annual Conference of the Pacific Rim Real EstateSociety (PRRES 2009), Sydney, Australia, 18-21 January 2009.Issued Date 2009URL http://hdl.handle.net/10722/135723Rights Creative Commons: Attribution 3.0 Hong Kong License1Value Enhancement Effects of Building Management Practices:A Preliminary Study in Hong KongSimon Y. YAUDepartment of Public and Social AdministrationCity University of Hong KongDaniel Chi Wing HODepartment of Real Estate and ConstructionThe University of Hong Kong15th Pacific Rim Real Estate Society ConferenceSydney, Australia18 - 21 January 20092Part ABackground of the Study23Background of the Study “We give shape to our buildings; thereafter they shape us.”(Winston Churchill’s speech to the House of Commons in 1943) Inter-linkage between human beings                                   and built environment Building design is important but building                      management and maintenance should                                  not be ignored building care culture to be fostered After the outbreak of SARS in 2003 two public consultations on building                                management and maintenance in Hong Kong4Extent of Building Dilapidation in Hong Kong 35Extent of Building Dilapidation in Hong Kong (cont’d)40,22125,68320813,999331200532,06921,12314610,407303200433,76424,870488,665181200327,98721,844525,956135200219,65412,764416,671178200118,52213,911714,280260200022,47316,9991304,730614199916,73112,577533,851250199816,91512,4271303,658350199712,7369,913912,5671651996Total Number of ReportsUnauthorized Building WorksDangerous HillsidesDangerous BuildingsDangerous Advertising SignsYearSource: Buildings Department (various years) Increased by 216% !6Aim of the Study Given that: proper building management being conducive to better-performing built environment better-performing built environment attracting higher price  Lack of empirical study on this linkage Aim is to investigate the relationship between building management practices and property price47Review of Relevant Literature Lau (2005) studying two residential developments in Hong Kong  hedonic price analysis properties in the development with PMA accredited with the ISO9001 and ISO14001 sold with price premium Hastings, Wong & Walters (2006) studying 15 residential developments in Hong Kong  hedonic price analysis properties in buildings with PMA or statutory owners’ association sold at higher price Building management treated as dichotomous variables in exploratory models8Part BAnalytical Model and Methodology59Analytical Model Founded on Rosen’s (1974) seminal work: price of a property treated as aggregate of the implicit prices of its property attributes, such as: property age floor area floor level (i.e. vertical location in a building) scale of development proximity to the mass transit system district management practices adopted … etc.location10Hedonic Price ModelsssssssssssssssssssssssssssssssstDRILLFIREDRILLFIRESURVEYRESPLANEMERFUNDSINKINCIDENTPARTPLPLANFSBSPGBPTIMEMTRMTRNPTHTSTJDYMTMKPETKTUNITUNITSIZESIZEFLOORFLOORAGEAGEPRICEεβββββββββββφααααααααααααααααααα+++++++++++++++++++++++++++++++=21110987654321218171615141312111092872652432210______ln611a dummy variable which equal 1 if property s is located in Prince Edward, and zero if otherwisePEsa dummy variable which equal 1 if property s is located in Tai KokTsui, and zero if otherwiseTKTsthe total number of domestic units in the residential development comprising property sUNITsthe gross floor area of property s (measured in square feet)SIZEsthe floor level of property sFLOORsthe age of property s at time t, which equals the difference between the date of the issue of the occupation permit and the date of the transaction (measured in years)AGEstthe transaction price of property s at time t (in HK$ million)PRICEstDescriptionVariableDescriptions of the Variables12a dummy variable which equal 1 if property s is located in Mong Kok, and zero if otherwiseMKsthe distance between property s and the nearest Mass Transit Railway station (measured in metres)MTRsa dummy variable which equal 1 if property s is located in North Point, and zero if otherwiseNPsa dummy variable which equal 1 if property s is located in Tin Hau, and zero if otherwiseTHsa dummy variable which equal 1 if property s is located in Tsim Sha Tsui, and zero if otherwiseTSTsa dummy variable which equal 1 if property s is located in Jordan, and zero if otherwiseJDsa dummy variable which equal 1 if property s is located in Yau Ma Tei, and zero if otherwiseYMTsDescriptionVariable713a dummy variable which equals 1 if a set of architectural drawings of the subject building has been kept by the building management body for record, and zero if otherwiseGBPsa dummy variable which equals 1 if property-all-risk insurancehas been taken out for the common parts of the subject buildingPARsa dummy variable which equals 1 if third-party liability insurance has been taken out for the common parts of the subject building, and zero if otherwiseTPLsa dummy variable which equals 1 if a fire safety plan has been provided to the residents of the subject building, and zero if otherwiseFS_PLANsa dummy variable which equals 1 if a set of building service plans of the subject building has been kept by the building management body for recordBSPsDescriptionVariable14a dummy variable which equals 1 if incident records have been kept by the building management body, and zero if otherwiseINCIDENTsa dummy variable which equals 1 if there is remaining sinking fund available in the subject building, and zero if otherwiseSINK_FUNDsa dummy variable which equals 1 if a emergency plan is in place for the subject building, and zero if otherwiseEMER_PLANsa monthly dummy variable that equals 1 when property s was transacted at time t, and zero if otherwise;TIMEstthe number of fire drills conducted every month in the subject buildingFIRE_DRILLsa dummy variable which equals 1 if regular resident surveyson the safety and hygienic conditions of the building are conducted, and zero if otherwiseRES_SURVEYsDescriptionVariable815Part CData Descriptions and Analysis Results16Sources of Data Building data from two projects funded by the Research Grants Council and the University of Hong Kong Building Health and Hygiene Index project Building Safety and Conditions Index project 189 apartment buildings in Yau Tsim Mong and Eastern Districts assessed in 2004 and 2005, respectively Attributes collected included architectural design; building service provisions; external environment; operations and maintenance; and management arrangements 3,057 transactions in the 189 buildings (Jan 02 – Dec 05) Transaction data extracted from Economic Property Research Centre (EPRC)917Descriptive Statistics of the Continuous Variables0.3600.171.00FIRE_DRILL (number of times per month)270.3713.32310.111,136.52MTR (in metres)1,660.443.00518.1512,896.00UNIT193.96227.14562.381,921.00SIZE (in square feet)6.911.0010.9240.00FLOOR9.653.0025.2147.00AGE (in years)0.795.00 x 10-31.209.18PRICE (in HK$ million)Standard DeviationMinimumMeanMaximumContinuous Variable183,057Number of observations0.0000Prob(F-statistic)0.3514Akaike info criterion115.5240F-statistics2.0202Durbin-Watson statistic0.7401Adjusted R-squared*1.66240.2718FIRE_DRILL2***4.61920.1553TST*-1.8531-0.3054FIRE_DRILL***-3.2671-0.1197JD-1.4860-0.0226RES_SURVEY**-2.6083-0.0773YMT*1.68440.0212EMER_PLAN***-2.9625-0.1246MK0.36950.0052SINK_FUND***-4.7288-0.1461PE***4.40950.0752INCIDENT***-4.1675-0.2489TKT***2.85340.0360PAR***-7.3572-7.65 × 10-9UNIT20.65590.0124TPL***8.80570.0001UNIT-1.2503-0.0148FS_PLAN***-7.0708-8.89 × 10-7SIZE2***-3.3192-0.0502BSP***17.42000.0030SIZE***4.61120.1286GBP**-2.0824-0.0002FLOOR2***-2.6273-2.64 × 10-7MTR2***6.10650.0137FLOOR***3.19700.0003MTR***-7.8908-0.0006AGE2-0.2693-0.0070NP**2.37460.0087AGE**2.55520.0650TH***-19.2481-1.5659Constantt-statisticCoefficientIndependent Variablet-statisticCoefficientIndependent VariableDependent Variable: ln(PRICE)1019Part DImplications of the Analysis Results and Discussions20Implications of the Analysis Results Some (and not all) of the management practices attract higher property price Insights for market players: knowledge about which management practices are valuable property management companies formulating better business strategies Fostering a building care culture by market forces: value enhancement effects publicized with a view to adding premium to property value homeowners more concerned and willing to practice building management in their buildings1121Implications of the Analysis Results (cont’d) Insights for public administrators: certain management practices considered essential by the government but not priced by the marketGap between government’s aspirations and market’s valuation: more resources directed to education and promotion about the importance of these ‘undervalued’ practices alternatively, making these practices mandatory or subsidizing them 22Caveats and Agenda for Further Research Possible problem of sample selection bias not all buildings assessed under BHHI and BSCI projects used only those buildings with transactions included limited generalizability of research findings Dimensions or levels of management practices ignored most explanatory factors taken as dichotomous variables e.g. instead of simply considering whether insurance policies have been taken out, value of insurance coverage to be looked into More management practices can be covered  e.g. implementation of planned maintenance and cleansing of public areas, etc.1223Concluding Remarks Relationship between building management practices and property price empirically studied 6 out of 10 practices with significant and positiveenhancement effects Insights for market players, property management practitioners and public administrators into: which management practices are valued most by the market gaps between government’s aspirations and market preference A starting point for research on property management performance measurement of property management services quality of property management services vs. property price 24Thank You !For comments and questions,please e-mail me at danielho@hku.hkACKNOWLEDGEMENTSThe study was partially supported by a grant from City University of Hong Kong (Project No. 7200123). The authors also gratefully acknowledge the financial supports provided by the Research Grants Council of Hong Kong (HKU 7107/04E and 7131/05E) and the University of Hong Kong.

Value enhancement effects of building management practices: a preliminary study in Hong Kong

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Value enhancement effects of building management practices: a preliminary study in Hong Kong

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