Victorian Planning System Ministerial Advisory Committee - Assignment Example

Question1 1a. The recent Victorian state wide Planning Changes from the Minister, are starting to be implemented across Local Government Authorities - Describe the three new broad categories The initial report of the Victorian Planning System Ministerial Advisory Committee was released by the minister in June 2012. The committee made certain recommendations on exploring flexibility for local variations in structure of zones. Farming zone review was also carried out since in Victorian areas, which are large and wide, it has wider application. Such recommendations were made so that planning system is brought under proposals that are able to achieve greater clarity. Clarity is desirable particularly in the wake of bringing about a balance between growth that takes place in future and its impact on neighbourhoods. The local character, remarked the recommendations, have to be protected. The report released facts sheets pertaining to each new zone along with a draft for each zone. The report deals with three new categories, which are residential zones, commercial zones, and 12 other zones that need amendments. The subcategories of the residential zones include neighbourhood residential, general residential and residential growth zone. Two subcategories of commercial zones include commercial 1 zone, and commercial 2 zones. The former are to replace business 1, 2 and 5 zones; and the latter are to replace business 3 and 4 zones. twelve other zones needing amendments as and when proposed include township zone, mixed use zone, and low density residential zone from the residential zone category; Rural Living Zone; Green Wedge Zone; Green Wedge A Zone; Rural Conservation Zone; Farming Zone; Rural Activity Zone from the rural zones; and industrial zones 1 to 3 (Allens.com.au, 2012). - How do these apply to the broad asset classes? There have been mixed reactions to this report. Some have termed the move as one that will protect the character of neighbourhood, while some have expressed concern that such implementation will create such demographic changes within the Melbourne areas which will impact affordability and turn the doors on diversity. The people opposing the report say that lower socio-economic groups will find these areas inaccessible on account of the stringent regulations that will pervade them. This is because the new report is being equated with 2008 residential zoning reforms which were proposed by Justin Madden, former Labour government Planning Minister. Those proposed changes had been dubbed as no-go, slow-go, and go-go, slangs that stood for limited change, incremental change, and significant change respectively. In that proposal purposes for each zone had been defined along with parameters specifying permits required for various activities on different z=sizes of plots. New use controls had also been specified like 'office use prohibited', 'drink premises not 'as of right', and 'permit required' etc clauses. - What happens to existing use properties requiring redevelopment? How will they be affected? It will impact both commercial and rural properties differently. In commercial context, existing zone controls will be amalgamated with proposed new commercial zones. That means it will result in broader range of uses on land that has been business zoned. This will impact the retail hierarchy. In case of Business 1 to 5 zoned areas, except 3 and 4, retail use will no longer be required to seek a planning permit. This, however, does not apply to bookshops selling adult sex material. Similarly no permit will be required for any accommodation use in Commercial 1 zone. This, however, does not apply to cases of 'corrective institution'. Commercial 2 zones will also be affected. These will no longer require permits for food, cinema and drink premises. This means they will fall in the category of 'as of right' use. Furthermore, in Commercial 2 Zone, Business 3 and 4 Zones would not exist, and the same will allow 500 sqm and above dimension of shops on 'as of right' basis. However, establishments above 2000 sqm will need planning approval, since they fall in the category of small-scale shops or premises to be used for supermarket purposes. There is no prohibition on them. Rural zones, six in all at the moment, will be amended, particularly where no rural zones exist right now. According to the proposal the amendment will be such that they result in more flexibility to farmers, support their agricultural activities and create tourism-related uses too. Certain key changes have been suggested in order to accomplish this. These include: Most rural zones will allow 'as of right' agricultural use. The important impact will be felt in Green Wedge Zone. Here permits were required previously. 'As of right' uses include activities like rural store, rural industry and primary produce sales. Certain prohibitions in the Farming Zone will stand as removed. These include uses like that for school, place of assembly, accommodation and medical centres. Subject to permit, these uses are permissible now. However, in Green Wedge Zone 'accommodation' uses will stay as prohibited as before. Prohibitions on the following things will stand as removed: trade supplies, landscape garden supplies, industry and warehouse. But permit will still be required in all. Changes will also be applicable in what was known as 'default' position. That means if some use was not listed, it was to be deemed as default category for non-use. Such position can now be considered after proper permission is sought. Other important changes the rural zones will have include change in their sizes to 2 hectares from current limit of 8 hectares. Similarly industrial zones will get impacted too. Earlier maximum floor space limit was maximum of 500 sqm, which will no longer be applicable. The Council will decide what will be the maximum. The 'shops' in Industrial 3 Zone will now be governed by 'as of right' use. However, it should not exceed 500 sqm and does not lay side-by-side a supermarket or is not on the same land. Similarly supermarket should not exceed 2000 sqm; if it doesn't then it can be governed by 'as of right' rule. This means, with rules as this, smaller supermarkets can come up in Industrial 3 Zone. Previously these were not allowed there. However, retail uses cannot be allowed if floor space limits are not met. Similar changes will also be allowed in Commercial 2 Zone and the immediate impact they will exert will be on retail hierarchy since small-scale retail activities will get boosted in these zones. The report assumes that there is a demand for such development in these x=zones from the market. - Given your expertise, do you believe Land Price will go up, down or stable, given these changes? Zoning proponents claim that land values are protected by zoning, though zoning decision-makers are of the opinion that land values are maximised by zoning. There are, however, two parameters that determine land prices after zoning. Primarily, the new land prices are determined by the type of zoning that takes place. Two types have generally been indentified, and these are externality zoning and fiscal zoning. Both types can either lower or raise aggregate land values. Land use is regulated by external zoning. Furthermore, both industrial class of land users and residential class of land users would be affected by the externality that is 'zoned' on them (Ohls and Weisberg, 1974). There is evidence that suggests that restrictive land use increases land prices. This, however, is determined the quantity of available land space. If retailers are located in areas that are sufficiently large, the prices would not change much. But if otherwise, they will. It is a matter of supply and demand. Greater the supply, lesser will be the demand, and hence lower or stable prices (Pc.gov.au, nd). If previous examples are anything to go by, then it can be said that these zoning attempts would increase the land prices. Australia has seen sharp price escalations since mid-1990s, which have doubled asa against the growth in GDP (Onselen, 2013) Source: http://www.macrobusiness.com.au/2013/06/the-history-of-australian-land-prices/ 1b. You have been asked to put in a bid for larger mixed use development site. You are the Development Director. - Using your experience, what would be your Table of Contents that you will need to focus on within the Bid Presentation. It should contain the following elements: Cover sheet, which must contain: Company name Company address City, State, Zip code TIN details Contact details Print name Signature Then bid details, which should include Base bid price Scope of work Breakdown of case General conditions, which should include what all can be expected from the bidder - In the bid, list 3 things that will differentiate you from your competition Bids have been dubbed as 'dark art' of writing. It is because a good bid can make one person part with his money and another all the way laughing to the bank. Three things that can differentiate this bid from that of a competition would be as below: 1. It will be clear, concise and highly persuasive. 2. It will contain details how this developer will deliver the project which is radically different n from the competition. This will include keeping language in tune with Victorian government's plans of development. This will generate trust. 3. Refer to developer's past experiences, with testimonials, on positive deliverables that have been made previously. - Describe how will you sell it to your Executive? I would prefer to utilize the power of effective persuasion than command-and-control management model. This is because command-and-control model does not work any longer, primarily since people have little tolerance for unquestioned authority. Polite persuasion is the key (Conger, 1998). - How would you evaluate whether you should bid or not bid, if you had a day?  First and foremost check on similar cases that have taken place in the place. I will check everything with respect to zoning and how the bidders bid and what did was the final outcome. It is important to understand the mathematical part of it and assess the feasibility of bidding and then also feasibility of executing the project if the bid is won. 1c. You are evaluating a Development Decision. The Land Price that the Vendor is requiring is higher than what you have worked out in the first ‘pass’ within your feasibility. The Land Price the vendor wants is $900,000 Your Feasibility suggests that The Land Price in the Feasibility is $800,000 The IRR is 23% The Discount Rate used is 18% The NPV is + 90,000 - What are three ways to bridge the gap between the vendor expectations within your feasibility? In any contracting process, vendor is a critical component. The NPV in the above case does not provide exact idea on the loss or gain of executing the project. However, the price quoted by the vendor is critical in this case and possible methods have to be worked out to negotiate the same. Certain basic rules apply, like: 1. This land for which the vendor is $900,000 must be inspected thoroughly and notice all aspects of the land including accessibility, electricity (if applicable) and water facility. There is a cost attached to all, and if they still seem to be distant, vendor can be told about how much money that would involve and thus how much should the price be depreciated. 2. Obtain all relevant restrictions and other regulations applicable on the land and review the appraisal. 3. Communicate to the vendor how you would like the land to be and what will be all costs of bringing this land up to that standard, which would be an indirect hint to how escalated price the vendor is quoting 1d. Explain which gives you a better return on your money (Return on Equity): Residential Development or a Residential Investment. It primarily depends on what is the investment value. Residential development needs huge sums of money and returns are expected. But if that is not the case, then residential investment is a better option since investors can again access to tenants who would be ready to hire the properties. Bigger the property better is the return (Pratt, 2013). 1e. - What do you think are the drivers behind purchasers buying Retail Assets at below 3% Yields? It is because retail purchases are confronted with changes that are unprecedented. The speed with which retail assets are advancing is far more than how retail buyers are found ready to react towards them. The returns are phenomenal, even as these assets might have been bought at fixed yields. The fluctuation in yields, driven by certain market conditions and triggered by new industries making foray into the existing ones, is so huge that at the end 3 percent yield remains just a figure to count. - Explain why you would do this when you can put your money in the bank for 6%p.a. It is because bank offers a fixed return, which is not affected by market-driven conditions as positively as investments in retail assets. 1f. How do you put a value on Brand in the feasibility? Give examples and 5 reasons? Value of a brand is its connection with the symbol of the brand. Each brand has it s own value, and that value needs to be counted when feasibility is to be worked out. Sattler (2000) has defined the financial brand value as this: "The financial value of the discounted future brand specific earnings." So when this value is to be included in feasibility, then brand specific earnings will have to be first isolated, future brand earnings assessed, and thus necessary discounting calculated. Question 2 2a. The following article appeared in the Financial Review. Explain, using your expert knowledge, what is happening to net absorption within the market, in the context of this article? In context of a commercial property, change in occupied stock from one period to another is defined as net absorption. When the rental prices fall, the current net absorption is affected. The article portrays a different scenario since occupancy rate this year is lesser than what it was the previous year. This is why net absorption will increase. The article has mentioned the decrease in apartment supply market in 2011 as compared to 2010. There is a decrease of 7000 apartments. The assumption that it will increase is still not showing signs. The current net absorption would be around -7,000 if this is worked out on an assumption that all 8,000 apartments are occupied. This means the existing net absorption is negative. Question 3 3a. How do you price risk? Use your experience in the assignment, class discussions and illustrations Price risk is the risk which is associated with a security when it falls. Common factors in price risk include bad management, pricing changes and unexpected financial performance. This can be demonstrated by an example of a share price. Presume a share is priced at $5 when the compnay is doing well. If market circumstances are favourable, it will either stay the same or increase. But if otherwise, it will fall; so the company that has invested in the share holding the price risk associated with it. 3b. If there are 2 parcels of land in the same street for sale, but have different development risk characteristics, would the discount rates used be similar or different? Explain using an example These would be different because the risk characteristics for both parcels of land are different. For example, we can say Parcel X of land is on the side of the street which has had already unprecedented commercial development in the last few years, but Parcel Y is at the far end of the street which is adjacent to a ridge. The developmental rules and regulations to the developed area would not be as stringent as the one adjoin the ridge, which is a protected area. The risks, thus, would be different and so would be the discount rates. 3c. What is the preferred investment criteria when evaluating projects for development? Is it ROE, ROI or IRR. Why? Evaluation of projects is a subjective matter as no two people use the same evaluative criteria. It depends on which criteria favours home. Some use IRR, some ROI and some ROE. Each method has its own positives and negatives. Also, it can be determined by the specificity of a project. ROE method may be a preferred choice with a developer who calculates profits earned the equity of a shareholder. Developer relying on period-based profit of a project will prefer IRR. It is a developer's choice to prefer one of the three methods. 3d. A property consultant is advising me on a deal to develop 12 apartments in St Kilda. She said to me that I can improve my ROE. How can I do this? Explain with regards to Profit, ROE and Risk Improvement on ROE is determined by certain principles. These include the following: 1. On a long-term basis, current dividend yields with dividend growth rate equals total market equity returns 2. A close watch has to be kept on economy as dividends do not grow faster than that. 3. Historical context in this regard has to be remembered, and that is longer the lag in dividend growth, lag can be experienced in economy. 4. The risk-free rate is to be subtracted to calculate the equity risk premium. 3e. A Project has a negative NPV but has a good IRR. Give 3 examples when this project would go ahead? NPV is a tool for verification, so far widely accepted, to check financial viability of an investment that is planned. A company's value is increased if a project has positive NPV. But negative NPV-value projects are normally avoided since they decline the value of a business. But that is not the case always. There are three cases in which negative NPV-value projects can maximise shareholder value. Such a case can arise when the following take place: i) shareholder's perception of risk, ii) tax on dividend, and iii) temporary market inefficiency (Mielcarz and Paszczyk, 2010). Question 4 4a. For a potential Site Acquisition, choose 5 strategic parameters, explain them in summary and provide a recommendation which one is the most important and why Five strategic parameters for potential site acquisition are: 1. Selected site should be viable for the purpose it is intended for; 2. Unexpected difficulties should be checked, cross-checked and risks involved with the same assessed; 3. Participant expectations should be managed from the very beginning; 4. Creativity and innovation must be used in the selection and best practices from the industry incorporated; 5. Advantages of a site likely to be acquired should be weighed against other sites check in the process. Number two is important because if these difficulties crop up after the site has been acquired, the investment made on acquiring the site will be put at a great risk. 4b. The Site shown in picture, was developed into a hip Deli in Windsor. The Developers encountered various planning challenges. Using your wealth of experience and knowledge, explain 5 of these the elements within Cl54/55, and which of these apply would have been the most problematic to this site. Both these clauses specify objectives that have to be followed. A permit cannot be granted unless all objectives are met by the developers. Each objective specifies a given standard. Both these buildings are lined by roads on at least two sides, so setback (Standard A3 and B6) is important since it provides the neighbourhood a character. Street's character has to be maintained. Other important standards that must have been most problematic for the site include: 1. Building height as referred to in Standard A4 and B7 2. Parking provision as referred to by Standard A9 and B16 3. Walls of boundaries as referred to by Standard A1 and B18 4. Overshadowing open space as referred to by Standard A13 and B20 References Allens.com.au. (2012). Environment & Planning. Available http://www.allens.com.au/pubs/env/foenv19jul12.htm. Accessed 04 November, 2013. Conger, JA. (1998). The Necessary Art of Persuasion. Available http://hbr.org/1998/05/the-necessary-art-of-persuasion/ar/1. Accessed 04 November, 2013. Mielcarz, P and Paszczyk, P. (2010). Increasing Shareholders Value Through NPV-Negative Projects. Contemporary Economics, Vol. 4, Issue 3, pp. 119-130. Ohlis, JC and Weisberg, RC. (1974). The Effect of Zoning on Land Value. Journal of Urban Economics 1, 428-444. Onselen, LV. (2013). The history of Australian land prices. Available http://www.macrobusiness.com.au/2013/06/the-history-of-australian-land-prices/. Accessed 04 November, 2013. Pc.gov.au, (nd). Planning and zoning regulation. Available http://www.pc.gov.au/__data/assets/pdf_file/0004/113773/11-retail-industry-chapter8.pdf. Accessed 05 November, 2013. Pratt, M. (2013). Why investors should consider alternatives to residential property. Available http://www.moneymanagement.com.au/analysis/investment/2013/why-investors-alternatives-to-residential-property. Accessed 04 November, 2014. Sattler, H. (2000). Eine Simulationsanalyse zur Beurteilung von Markeninvestitionen. OR Spektrum - Quantitative Approaches in Management, Vol. 22, No. 1, S. 173-196. Read More