Land and Property

Development Process

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Outline
• The previous lecture
• Approaches in Land Development Theory
• Neo-Classical Approach
• Marxist Approach
• Institutional and Behavioral Approach
• Models of Development Process
• Equilibrium models
• Event-sequence models
• Agency models
• Structure models
• Land Development Process
• Summary

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Previous lecture
• What is real property market
• Definition
• The nature of real property market
• The nature of value
• Price, Cost, Value
• Factors of value
• Demand and supply
• Highest and best use

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Approaches in Land Development
Theory
• Classification of the approaches
• Carter (1990) : Ecological, Economic, and Activities System
• Haila (1990): General Neo-classical, Variety of Institutional and Marxist
• Monk et all (1991): Comparative Static and Behavioural
• Neo-classical approach
• … the most fertile land is the first put to use, and less favoured land is put to use as the demand for
agricultural product increase. The rent on the most productive land is based on its advantage over the least
productive, the competition among farmers insuring that the full advantage goes to the landlord in the form
of rent. This advantage is equal to the value of the difference in the productivity of land” (Ricardo, as
explained by Alonso, 1964:3)
• Based on agricultural land (somehow different with urban land)
• For urban land
• “……As a city grows, more remote and hence inferior land must be utilised, and the difference in desirability
between the two grades produce economic rent in locations of the first grades , but not in those of second.
As land of a still more remote and inferior grade comes into use, ground rent is forced still higher in land of
the first grade, rises in land of the second grade, but not in land of the third grade, and so on. Any utility may
compete for any location within a city and all land goes to the highest bidder” (Hurd as quoted by Alonso,
1964:5)

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• Market Mechanism
• It views that individual’s decision are made within a market
framework
• Development is a response to demand
• This would achieve a maximum benefit if supply can produce
development at the right time and the right place and the right price
• Basically a supply-demand mechanism
• Critics to the approach
• Ideal market will never occur
• Base on too many assumption
• There will always restriction in land supply i.e., Planning system,
landowner are not willing to sell, Environment consideration

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 •Marxist Approach
• Use value and exchange value
• Rent

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 •Institutional and Behavioral Approach
• Institutional
• Behavioral

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Models of Development Process

• Equilibrium models
• Based on the neoclassical approach

• Event-sequence models
• Reflecting an estate management preoccupation with managing the
development process

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• Agency models
• Behavioural or Istitutional perspective, concentrate on actors and their
relationship

• Structure models
• Based on urban political economy, identifying forces that determine
relationships in, ad drive the dynamic of, the developmet process

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 CENTRA L AN D LOCAL
GOVERNMENT:
SOC IAL AND ECON OMIC
POLICY

Surplus Land Imp ossible CESSATION

OF USE
DEMOLITION/ Un suitab le USE
STO CK OF VA CA NCY CLEARANCE
REDUNDANT Un desirab le
LAND AND
BUILDINGS SHOR T TERM U SES
Partial, residu al, temp orary
Pending Development

DISPOSAL TO OTHER AGENCY

ECONOMIC VACANCY FINANCE
GROWTH
POLICY DISPOSAL • interest rate
• Long Term • includes
• Short Term POLITICAL CONTEXT
surplus

IMPLEMENTATION
Statues and • Central and local
interpertations • form ulation and interpretation
POLICY

STATUTORY • adm inistration ar rangem ents

CONSTRUCTION CONSTRUCTON
FUNCTIONS
PUBLIC • includes demolition INDUSTRY
AND
FINANCE • includes reclamation
LO NG TE RM OBLIG ATIONS
• Tim e a nd
r es tric tions
TRE ND
• Popu lation
• In dustry DEVELOPMENT FEASIBILITY
• Hou sing Self financing AVAILABLE
FUNDING Other external sources

Appeals
PUBLIC PROCEDURES Planning permission deemed, granted consultations OBTAINED
AGENCY
PLANS
LAND
AND PROJECT PREPARATION Development agency, time scale Tender co-ordination COMPLETE
REQIUREMENTS
PROGRAMMES
Scheme
SITE PREPARATION Infrastructure needs and programming design SERVICED

How land
OWNERSHIP Compulsory agreement Blight notice ASSEMBLED
held

PRI VATE LA ND D ISP OSA L

MA RKE T • te rms
• Sec tor
• includes redundant land
, buildings

An event-based model of the public-sector development process (source: Gore & Nicholson 1985)

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 Overseas FINANCE INDUSTRY Overseas
savin gs in vestment
Fo r existing
ho uses
Lo ans for h ouse pu rch ase

3 Bu ilding So cieties
Overseas
con stru ctio n
Co mmod ities
curren cy,
etc
10
1 4 Pension fu nd
Savin gs, Speculative Fo r
The House Building
etc new
Public Savin gs Life insu ran ce
(i.e. 5 ho uses
market ho use Co nstruction fin ance
Those
with Perso nal Investment
6 Co nstruction and investment
funds agen ts In vesment
to market fin ance
save 7 Ban kin g system
Man ufactu ring O
in du stry 11
Property
Developing
New
commercial
develop ment U
for
14
General Plant
in vestment
General Pub lic secto r
Ekon omic hire and /o r sale
manag ement
con tro l fun ding (PSB RI) T

Vo tes P
8 Funding
15 12
Savin gs Materials General
Fiscal po licy supply contracting
New bu ilding U
Cen tral
ren ovation s
Govern- Econ omic p olicy
and civil
ment Partn ersh ips as freeh olders
2 In fo r m a l eng in eering
Informal P re ss u re Co nstruction con tract works T.
pressure
groups
and
networks Funding
central control,etc 13
Public
Vo tes New Bu ilding
8 Funding authority
and
direct
Lo cal works ren ovation
Partn ersh ips as freeh olders
Savin gs Govern- for p ub lic
ment Co nstruction con tract auth orities
In fo r m a l Plan ning co nsents
P re ss u re

THE STATE CONSTRUCTION INDUSTRY

UK
con stru ctio n
Pro vision o f new/ren ewed b uilt environ ment - U K

The development system in the UK ( source : Ambrose 1986).

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Land Development Process
• The Development process
• Analysing market condition
• Selecting an appropriate location
• Determining whether government regulation will
prevent development or make costs prohibitive
• Analysing the selected tract and developing preliminary
plans and design
• Securing approval of government authorities as required

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 • Purchasing and financing the selected tract
• Layout and design of the area
• Establishing restrictions and methods for regulating land
use
• Arranging protections against risks by means of
insurance and bonds
• Construction of the various improvements necessary for
development
• Marketing and development

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• Development process in Indonesia
• Concept and Initial Motivation
• Land Searching
• Lobbying for Development Proposal
• Site Planning and Design
• Contract and Construction
• Funding Management, Marketing and Disposal
• Asset and Estate Management

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 Figure 7.1:
Formal Land Development Process in Indonesia

CAPITAL HOUSING PRODUCTION/SUPPLY HOUSING CONSUMPTION/DEMAND

Land Market Housing Market
primary market secondary market

loans for house purchase

Overseas Overseas
Landowner
Investor Loan
sell Housing sell End Buyer
KPR-BTN sell Speculator
sell
Bank PS
sell loan
Public Saving s for
Other Banks loan Land mar
hou
Speculator ket
se
sell
purc
Capital sell Developer End Buyer
invest market hase
Market
loan
market Estate Agent
capital improvement sell
capitalisation
loans for house purchase
Finance Industry
Housing Industry

Saving out of profit

Central Government

Financial Regulation Bank Indonesia Fiscal Policy

BAPPENAS
MOHA/MOPW Planning Policy and Standard
NLA Land Policy
MOPH Housing Policy
ICB
Local Government Investment Policy
Governor/Bupati Permits Issuance (environmental, nuisance, occupation, etc.)
BAPPEDA I/II Spatial Planning
Off. Of NLA Location Permit

Note: BAPPENAS: National Development Planning Board; MOHA: Ministry of Home Affairs; MOPW: Ministry of Public Works; NLA: National Land Agency: MOPH:
Ministry of Public Housing; ICB: Investment Co-ordinating Board; BAPPEDA: Regional Planning Board.
Source:
week 4 Inspired by Ambrose (1977) PL 5221 Land housing Development 18
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Actors in Development Process
• The occupiers
• They are basically concerned with the use value and act accordingly. Owner-occupier
may be concerned with exchange value at two points- A the time of purchase and
when major repairs force them to look at their budget constraint and when the
contemplate a move.
• Realtors
• They are concerned with the exchange value as they try to maximise profit through
buying and selling or through charging transaction cost for their services as
intermediaries
• Landlords
• They mostly deal with the exchange value. They regards houses as commodities that
can be exchanged for money. Owner-occupiers who rent out a portion of their house
may have dual objectives, as occupier of part of the house they are concerned with
the use value, but renting out part of the house certainly concerned with the
exchange value of the house

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• Developers and the housing construction industry
• They are involved in land development process by creating new use value for others
in order to realise exchange value for themselves.
• Financial institutions
• These institutions play an important role in land development process particularly
because they provide financial resources for other actors. Fundamentally, the
financial institutions are interested in gaining exchange values through financing
opportunities for the creation or procurement of use value.
• Government institutions
• Traditionally the existence of these institutions is aimed at production of use values
available to the consumer of housing

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 Completion of Redevelopment Projects in 2000s
Proposed in the ‘Bubble Economy Age’

Roppongi Hills

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 RELATIONSHIP BETWEEN PRINCIPAL PARTICIPANTS
IN MARKET GOVERNED LAND DEVELOPMENT

LAND OWNER
Pre-development
owner of land

CLIENT DEVELOPER
Eventual owner/ Assembles sites,
renter of completed organises finance
development and marketing
ADVISORS
Surveyors,
Architects,
Lawyers, etc.
PUBLIC SECTOR
Regulates FINANCER
development Provides funding for
provides the development
infrastructure

BUILDER
Carries out
construction work Philip Kivell, 1993,
Land and the City
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Points for discussion

• What are the critical points in land development?

• Why are there booms and busts in land development business?
• Who is the most important actor in land development?
• Where is the position of land development in Indonesian spatial
planning context?

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Summary

• Approaches in Land Development Theory

• Neo-Classical Approach
• Marxist Approach
• Institutional and Behavioral Approach
• Models of Development Process
• Equilibrium models
• Event-sequence models
• Agency models
• Structure models
• Land Development Process

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