L8 Valuation of Income Properties and Investment Analysis

L8 Valuation of Income Properties and Investment Analysis -...

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Valuation of Income Properties and Investment Analysis HKU Real Estate Finance K. S. Maurice Tse School of Economics and Finance The University of Hong Kong [email protected]
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Content Hedonic Pricing Approach Cost Approach Sales Comparison Approach Projected NOI Approach Real Estate Investment Performance Assignment
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I. Hedonic Pricing Model for Residential Real Estate Hedonic pricing model: Selling price (V) of a residential property is a function of its environmental variables such as locational factors (L), structural factors (S), and neighborhood factors (N) of the property. V = V ( L , S , N ) V is the property’s selling price as a function of L, S, and N. Problem of hedonic pricing Does not indicate exactly what variables to incorporate into the estimation process. Does not indicate the exact functional form of the valuation process. ad hoc approach. Advantage of hedonic pricing Tell us how each of the different environmental factors may impact the market price of a property.
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Case Study on Hong Kong Island As a case study, MCC (Mok, Chan and Cho) examined the pricing function for properties lying within a captured zone of 300-meter radius from every MTR exit between Central and Chai Wan on Hong Kong Island for the month of August 1990 only . They identified 1,027 transactions for the month of August 1990.
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Case Study Contd MTR Map: Hong Kong Island 1990
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Case Study Contd Properties lying within a captured zone of 300- meter radius from every MTR exit between Central and Chai Wan on Hong Kong Island
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Locational Factors CBD Central, Admiralty, Wan Chai, and Causeway Bay are considered collectively the CBD. Distance from the CBD is measured by the distance between the property and the MTR exit at Causeway Bay. STORY The higher the floor, the higher the market value of the flat. SEAVIEW This variable is set equal to one whenever a flat has at least one window with a harbor view, zero otherwise.
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Structural Factors GFA This variable, the gross floor area, is used as a proxy for indicating the number of bedrooms, living room, dining room, and family room of a unit. AGE This variable serves to capture the physical condition of a property.
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Neighborhood Factors SCHOOL The school zone includes Tin Hau, Fortress Hill, North Point, and Causeway Bay. For property falling in this school zone, the variable is set equal to one, otherwise zero. BGESTAT For properties belonging to an estate with 10 or more towers ( Big Estate ), the variable is set equal to one, zero otherwise. SPORTF For estate with entertainment and/or sport facilities such as swimming pools, tennis/squash courts, sauna, or nearby clubs, the variable is set to one, zero otherwise.
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Hedonic Pricing Function P i is the transaction price for the ith unit and this equation was estimated using λ = 1 for all variables λ = 0 for the dependent variable λ = 0.71 for the dependent variable and λ = 1 for all independent variables λ = 0 for the dependent and all continuous independent variables P i λ - 1 λ = β 0 + β 1 CBD i λ - 1 λ + β 2 S TORY i λ - 1 λ + β 3 S EAVIEW i λ - 1 λ + β 4 GFA i λ - 1 λ + β 5 AGE i λ - 1
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