THE ROLE OF DEVELOPMENT APPRAISAL IN PUBLIC DEVELOPMENT PROJECTS
CHAPTER ONE
1.0 Introduction
This chapter focuses on the background of the study, the statement of problem and the aims and objectives of the study. It also deals with the research questions, scope, justification, significance and limitation of the study.
1.1 Background of the Study
Real property Investment involves the giving up of a capital sum for real property development in anticipation of benefits to be derived in the future (Udoudoh, 2016). Property is constantly being destroyed and recreated under the inevitable process of development and redevelopment, which is required to meet the changing demands of society (Kuye, 2009). Therefore, Development appraisal which is basically a pre-investment analytic evaluation of a proposed project is fundamental. The major idea is to enable investors accept projects that create value for money sunk into the project and reject those that will not enhance the existence and growth of the project.
According to Udoudoh (2016), an appraisal of property development requires the careful estimation of all the factors or components that add value to the envisaged project. The primary aim is to answer the question, “can the project be carried out?” (Feasibility) and if this is in the positive direction, it creates room for yet another question, “should the project be embarked upon?” (Viability). Feasibility and Viabity are clearly distinguished from each other by Umeh, (1977) as cited in Lawal, (2000). Umeh stated that Feasibilty appraisal is concerned with the fundamental question of the practicability or possibility of the subject matter of a proposed decision, be it development scheme, investment project, grant of a loan, coming up with an answer for the question – can it be done? On the other hand, viability is of the question – is the project capable of being done?
However, Udoudoh, (2016) further explained that thereliability of a project appraisal depends on the experience, competence and integrity of the investment analyst. A good appraisal requires the appraiser carryout his services professionally, commencing with a reconnaissance survey of the neighbourhoodwherethe development is to be sited, noting the effective date of the appraisal, determining the effective location of the project, verifying the title documents, noting the purpose of the appraisal and types of development desired as instructed by the client.
Appraisal is an important aspect of real estate investment. Therefore for an Estate Surveyor and Valuer to give proper advice on real estate investment, amidst competitions with other investment analysts, he must be conversant with the trend in the property investment industry and market, legal instrument framework and property environment. Unlike other forms of business transactions, investments in landed property require heavy capital outlay which is often hard to come by. Investors thus resort to credit facilities, despite the harsh and stringent conditions attached to it. The huge financial requirements results from the many and complex stages involved in property development and transactions. Conducting Development Appraisals seeks to underscore to the investor, the potentials of the proposed project, the independence of the project, the continuity/sustainability of the project and the social benefits accruable from the project Again, the stated objectives can only be achieved where the right procedure is followed at the right time and place with the right professional, such as the Estate Surveyors and Valuer, who is trained to carryout pre-investment appraisals, using various methods, one of which is the Residual Appraisal Technique.
The Residual Appraisal Technique estimates the maximum purchase price of the site by deducting the expected total cost of development, including allowances to cover risks and profits from the expected sale of the completed project. The method works on the premise that the price which a purchaser can pay for a property is the surplus after all the proceeds has been met out from the sale of the finished development, cost of construction, cost of purchase and sale, the cost of finance and an allowance for profit required to carry out the project (Udoudoh, 2016).This study therefore had been designed to examine the role of pre-investment appraisals on public development projects, which in most cases are developed for social benefits and as such non-remunerative but must at least be cost efficient.
1.2 Statement of the Problem
A hostel accommodation is needed in the university to enhance effective and efficient learning. However, the suspicion (speculation) that most public development projects, especially the university hostel accommodation developments are implemented/executed without development appraisal is on the increase and as such, delay in the implementation/execution of the projects becomes feasible as well as result in the high request for variation in the project construction cost which in addition increases the total cost of the project hence, the need to examine or underscore the important role development appraisal will play in public development projects. This study therefore seeks to examine the role of development appraisal in public development of hostel accommodation for a university.
Real Property development involves the expending of some huge sums of money for benefits expected to be derived from it, such as social benefit, but private developers rarely invest for it as an objective. However, social organizations and government agencies in Nigeria significantly embark on public developments with the social benefit objectives. It is worthy to note that in spite of the fact that government agencies works as commissions and their funding made by government through government’s direct allocations and subventions for project implementation,care is rarely taken to consult or patronize appropriate consultants such as the Estate Surveyor and Valuer whose professional inputs through the preparation of development appraisal could result to timely delivery of projects. This step, if taken is aimed at reducing or completely avoidingunnecessaryreviews of contract values that would culminate into delays in execution and in most cases abandonment of public development projects.Many public development projects have become unsuccessful with an attendant waste of public funds.
For efficient implementation of development projects therefore, pre-investment appraisal report is always required to determine the cost and time required to complete the project. Consequently, this study will be designed to examine the roles of Development Appraisal in Public Development Projects, using students hostel development project in Delta State, South-South Nigeria, hence the following research question will be pursued in the study.
· Is Development Appraisal necessary in public development projects?
· Who are the professionals in development appraisal preparation and are they usually consulted?
· What are the factors influencing the lack of development appraisal report utilization in public development project?
· What are the levels of impacts of these factors on public development projects?
· What is the level of awareness of the professionals and project owners/executors on the need for development appraisal report?
1.3 Aim and Objectives
The Aim of this study is to examine the roles of development appraisal in the development of public projects, especially hostel accommodation in Delta StateUniversity,Abraka, Delta State, Nigeria.
The objectives for this study shall be as follows:
· To provide literature review on development appraisal and the roles in public development projects.
· To ascertain the professionals for development appraisal and appointment as leader of project team in public development projects and investment level.
· To examine the factors hindering the need and significant implementation of appraisal report for public development projects.
· To investigate the roles of development appraisal on public development projects.
· To examine how project implementation can be affected by lack of development appraisal preparation.
1.4 Scope of Study
The scope of this study is to critically examine the major roles of Development Appraisal in the NDDC’s prototype hostel development in Abraka, Ethiope East Local Government Area of Delta State, South-South Nigeria, which is a public development project. The scope is so designed because the case study is a prototype design that has been constructed in different parts of the Niger Delta region and would therefore create room for reliable data that would be suitable for comparative analysis. It is obvious that the same agency (the NDDC) is the developer of the project, and judging from the time of award and the time they were completed, all have almost gone through similar processes of variation of contract values. It can therefore be necessary to be studied to address the objectives of the study.
1.5 Study Area
Asite in a Publc University shall be chosen from a location in the Niger Delta Region. It shall be the popular Delta State University (DELSU), Abraka in the Ethiope East Local Government Area of Delta State, South-South Nigeria where the NDDC prototype Hostel development has been sited. Abraka is a popular Urhobo settlement in Delta State and it is the site for the famous Delta State University (DELSU) established and run by the Delta State Government. It is in the Ethiope East Local Government Area of Delta State and also accessible by road through the Warri/Sapele/Benin expressway. Ethiope West and Ethiope East are relatively at the cardinal northern position of the state but are separated to form Eastern and Western areas.
Delta State University is a populous university with about thirty two thousand students in three different campuses with a cumulative number of ten faculties. It is one of the schools in Delta State that benefitted from the NDDC prototype student hostel development. The choice of this site is deemed necessary for the study because it is a public development project, handled by an agency of the Federal Government of Nigeria, hence a suitable source of information for the study.Ethiope East Local Government Area of Delta State is Shown in the political map of Delta State below:
1.6 Justification
The Real Development Process involves pre-investment analysis which is the professional duty of the Estate Surveyor and Valuer. Consequently, land is acquired for the development with the Estate Surveyor and Valuer as the developer’s agent. If there is no significant equity fund with the intending developer, the Estate Surveyor and Valueradvises and aids in the sourcing for credit facility which must be protected through the management function of the Estate Surveyor and Valuer. It is therefore imperative for the project to be timely done with a view to securing non-delayed optimal returns so that the fund acquired can be timely amortized.
The professional Estate surveyor and Valuer who have had all these roles even as they are directly derivable from the pre-investment analysis, is always relegated from the planning and monitor of development projects. Unknown to most authorities,this had been the bane for unnecessary variations in contract values and failures in projects amidst good engineering inputs. This forms the basis for this dissertation which shall focus on the roles of development appraisal as a tool for professional practice for the Estate Surveyor and Valuer in public development projects such as the NDDC hostel projects in Delta State, Nigeria. This study shall provide information and possible solution for appropriate use of professional manpower in development projects.
1.7 Significance of the Study
This study strives to ensure the appropriate consultation and designation of professional Estate Surveyors and Valuers, in line with the scope of their professional practice both in private and public engagements. This is seen as an essential contribution to the nationwide struggle of the Nigerian Institution of Estate Surveyors and Valuers over the competition and challenges faced by members of the profession. Despite its versatility and major roles in the development process, the public service has committed several misplaced priorities in the designation of personnel unto positions and departments meant for the Estate Surveyor and Valuer. The roles of pre-investment development appraisal have clearly defined the roles of the professional Estate Surveyor and Valuer, even in project monitoring and supervision. Furthermore, the study shall recommend for adherence to development appraisal to avoid wastage on public projects due to failures and unnecessary variations of contract values.
1.8 Limitation
The site chosen for the research work is the University Campus in Abraka, which was outside the residence of the researcher. This site is the famous Delta State University Campus, Abraka. This makes it difficult due to financial constraint in the field survey by the researcher. The project is the NDDC prototype hostel project development and so vital information relating to project documentations of the award of contract and the attendant review was difficult.
