Construction Question

User Generated

Gnerxi525

Engineering

Msc Quantity Surveying

Leeds Beckett University

Description

some clarification about the exam:

1. recommended number of words for each question: 500-800;

2. do not extensively copy materials from internet, academic integrity rules still apply, if you don't use exact wordings of others, then reference requirement is minimum;

3. The point is to critically understanding the questions. e.g. the below question:

The cost models developed by the design side Quantity Surveyor bear no resemblance to the way in which costs and prices are developed in tendering and incurred on site. Critically analyse this statement and the conflicts that affect the design of tender documentation and suggest how these might be merged to provide a more accurate and efficient cost forecasting and cost planning service.

Firstly you have to explain the cost models developed by the design side Quantity Surveyor; and how costs and prices are developed in tendering and incurred on site;

Then critically explain their differences, and comment on whether "no resemblance" is fair;

Then suggestion on whether & how they can be merged and whether the merged version is more accurate and efficient.

If you can’t even find the differences between the two methods, no matter how many number of words you produce, you won’t get a good mark.

The exam will be on Monday 6th January 2025 @ 10:00-13:00 UK Time, so I will need to be available online also at this time

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Answer questions Question 1 - Critically examine the methods used for valuation of residential and commercial properties, and discuss how the low interest rates in earlier years and high interest rates in recent years may affect the yields and rents and therefore the prices of these properties. (25 Marks) Question 2 - Critically examine the methods used for valuation of residential and commercial properties, and discuss whether the quantitative easing monetary policies may have affected prices of these properties in the past 10 years. (25 Marks) Question 3 - Using a single storey warehouse and a 10-storey hotel building as examples, explain how the function of a building impacts on both the design and cost of the project. (25 Marks) Question 4 - Using a single storey warehouse and a 3-storey office building as examples, explain how the function of a building impacts on both the design and cost of the project. (25 Marks) Question 5 The cost models developed by the design side (consultant) Quantity Surveyor bear no resemblance to the way in which costs and prices are developed in tendering and incurred on site. Critically analyse this statement and the conflicts that affect the design of tender documentation and suggest how these might be merged to provide a more accurate and efficient cost forecasting and cost planning service. (25 Marks) Question 6 The way in which we gather and analyse cost data for the prediction of the future capital costs of construction is flawed in that BCIS data is based upon market tender price data as opposed to actual costs of construction. Critically analyse this statement, using your own work experiences where you can. (25 marks) Question 7 - Critically analyse the statement ‘As a result of the recent pandemic, the substantial increase in the practice of remote working will have a significant adverse impact on the commercial viability of cities and the construction/property sector as a whole.’ OR - Critically analyse the statement ‘As a result of the recent pandemic, the shift in working practices will have a significant adverse impact on the commercial viability of cities and the construction/property sector as a whole.’ (25 marks) Question 8 - Referring to design economics, land and construction costs, explain the logic why apartments, rather than houses, are more commonly found in areas closer to city centres. (25 marks) Question 9 - Referring to design economics, land and construction costs, explain the logic of constructing high rise buildings in city centres, but not in suburbs. (25 Marks)
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Explanation & Answer

Attached.

1

Question 1: Critically examine the methods used for valuation of residential and
commercial properties, and discuss how the low interest rates in earlier years and high
interest rates in recent years may affect the yields and rents and therefore the prices of
these properties
Managing residential and commercial properties needs unique strategies because these
property types are different and respond differently to investors’ demands. For residential
properties, most of the adopted approaches to valuation involve the comparative market analysis,
where a property is compared to similar properties sold within the last thirty days within the
immediate locality. This approach is, however, straightforward and efficient in terms of
capturing market trends for average housing. The income approach, although less often used
regarding owner-occupied residences, is crucial for rental properties, as it estimates the incomeproducing capability of the property based on net operating income divided by the capitalization
rate. The cost approach, sometimes applied where the subject property is new or of a type that is
not often valued, looks at the cost of land, construction, and physical deterioration. For
commercial properties, the income approach is most favored and widely used, especially with
direct capitalization and DCF techniques. The former determines value based on a single NOI
next year divided by capitalization rate, and the latter bases value on the present value of
forecasted cash flows. Further, the cost and comparative methods may well support valuation but
are not used as frequently when it comes to commercial properties because such assets have
specific income characteristics.

2

The existence of interaction with property yields, rents, and prices is important. During
the low interest rate regime, such as after the financial crisis of 2008, purchasing a mortgage also
became cheaper, and the cost of handling it reduced significantly. This notable uplift in demand
for residential and commercial properties is due to both buyers and investors locking in lower
financing costs. Consequently, there was an increase in demand for property prices, particularly
in urban areas without titles. This stance resulted in a squeeze on yields, or the income return on
investment, as property prices rose but rental incomes did not. Some places saw a small rise in
the affordability of housing loans, and more people wanting to buy high-yield assets caused more
transactions to happen, which pushed down capitalization rates for commercial investors.
Instead, the story changed with the recent high interest rates craze. Due to increased cost of
funds, the financing available to the buyers also reduced, hence lowering demand and causing
adjustments in some markets. For leveraged buyers, this change meant less purchasing power
and, thus, changes in strategies with regard to using commercial properties. Yields potentially
increased while property prices were decreasing while rents were either remaining stable or
slightly increasing.
More importantly, the effects of interest rate changes are complex and vary depending on
market factors and investor responses. For example, in residential markets, low rates have
reduced affordability, yet people have resorted to securing the highest possible rates to afford a
house. On the other hand, high rates have both positive and negative effects; they have led to
overvaluation and asset bubbles in areas where demand is high (Morri & Benedetto, 2019).
Furthermore, high rates can shift investor concentration toward more vigorous growth markets.

3

Question 2: Critically examine the methods used for valuation of residential and
commercial properties, and discuss whether the quantitative easing monetary policies may
have affected prices of these properties in the past 10 years
Assessment techniques for residential and/or business properties are important in
establishing market value since they’re unique and varied according to the type of property. The
simplest approach among all types of properties, especially those used for residential purposes, is
the Comparative Market Analysis (CMA) that draws references from the other similar sales
within a given area. This approach provides simple values with excellent accuracy; however, it
comes with market data shortcomings or a lack of multiple properties to compare with. The
income approach is most commonly used with regard to rental properties, calculating the value
of the asset based on potential income, most frequently NOI, and the capitalization rate.
However, the cost approach calculates value by adding the costs of land and building and then
multiplying the total by a depreciation factor to get a useful measure for specialized or recently
constructed properties. However, when it comes to commercial properties, particularly in the
context of the income approach, two methods are most popular and frequently used: direct
capitalization and the combination of direct capitalization with discounted cash flow (DCF)
analysis. The DCF technique is one of the most important ways to evaluate commercial
properties because it uses estimated earnings, discount rates, and values in terms of net present
worth, which can help you decide if an investment is worth making. We also use the comparative
and cost approaches, but they receive less attention due to the primarily income-based nature of
commercial properties.

4

Monetary policy has played an important role, especially this measure known as
quantitative easing (QE), where central bank assets purchase has a direct impact on property
prices in the last decade. A supply of liquid assets in an economy and a low interest rate
promoted by QE proved to be a suitable environment for property investment. The housing and
other residential property submarkets were characterized by rising prices because more
affordable financing suppressed demand. Furthermore, the involvement of institutional investors
in residential markets, who were seeking safe haven returns as alternative investments due to the
low yields offered by traditional assets, led to an increase in demand and a subsequent rise in
prices. Analyzing the effects of QE in commercial markets, we found that it increased investor
confidence, leading to more acquisitions and development. The high interest rate had the effect
of elevating financing expenses, whereas slashing interest rates boosted returns and induced high
risk involving buy-to-let investments, especially in the prime trading areas. areas (Morri &
Benedetto, 2019a).
QE benefited property markets but imposed difficulties at the same time. In residential
markets, price levels increased and failed to match average income growth for first-home buyers
and those of low income. This distortion persisted and led to social stratification, further
enhancing the dependence on rental housing sectors. Booming liquidity in the global commercial
markets caused by QE inflated asset values through pressure on capitalization rates over an
overly short period. Overestimation of demand in certain segments, such as office spaces and
retail, led to the probability of asset bubbles. However, the withdrawal of QE policies and an
increase in interest rates have begun to normalize these unrealistic values, posing a threat to the
markets.

5

The general effects of QE on property markets fully explain the connection between
monetary policy and asset prices. However, QE was useful in initiating economic revival after
financial crises; more so, its long-term impact on property markets should be approached with
care. Economic policymakers have to manage economic growth while, at the same time,
avoiding market distortions. Market participants should be interested in QE approaches and their
effects, primarily because they have the potential to impact the application of valuation methods
in various ways. Because of this, the last ten years have shown that current property valuation
methods need to be matched with the way the economy is growing in order to set reasonable and
fair standards for housing and busine...