Environmental Issues in Real Estate Valuation

Environmental Issues in Valuation
Study Material
on
INSTITUTION OF
ESTATE MANAGERS AND
APPRAISERS, KOLKATA
www.iesma.net
1
Dissertation
Subject: Environmental Issues in Valuation

Course Structure
Module I
Part-1
Market value of real estate general note
Most important influencing factors on value of real estate-4/5 Forces theory-analysis &
evaluation of physical and environmental forces
Environmental Impact Assessments and Strategic Environmental Assessments
Water
Contaminated Land and Environmental Liability
Pollution-Polluting & toxic substances
Asbestos and Other hazardous Substances
Bio-diversity and Conservation
Part-2
Health and Safety
Energy
Indirect Valuation Methods
Standard on the Valuation of Properties Affected by Environmental Contamination
Stigma & Cost of Cure
Module II
Public Awareness and Perception--Govt regulations including EPA

Surface & ground water quality-waste disposal facilities
Influence of natural calamities on real estate-climate change and environmental risks
Case study on housing risks under vagaries of environmental conditions-Economics of
climate change
Increasing Role of the Valuer-cost-benefit analysis-pricing methods and different variables
Valuation Techniques for Environmental Assessment of Landscape/orchard/agriculture
farm/garden/private forests/ Forest Projects
Module III
Green Construction
Rule of Green Building
Goals of green building
Compressed Stabilized Earth Block Technology (CSEB)
Modern Technology
Soil Suitability and Stabilization for CSEB
Cost Effectiveness
Certification of Green Buildings :: LEED
Valuation of a Green Construction
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Module I
[Part -1]
Chapter- 1
Market Value of Real Estate a General Note
1.1. Market
Market is the most pivotal factor and creates valuation problem in case of any property,
goods or any commodity especially in any sort of transaction or dealing with the same. The
market prices of any commodity or property serves as most acceptable always to all the
stakeholders involved in the dealing. The knowledge about the factors responsible for
market value determination is rarely available directly from the market and even if answers
are available they attract further questions for clarification. The property characteristics
themselves pose sometimes a problem to fix its value especially when knowledge of prices
is difficult to obtain in the property market because of the nature of transaction and also in
case of physical influences. The market context is full of extreme heterogeneity of the
property to deal with, as an economic commodity makes valuation more tough &
complicated.
There are a large number of physical or environmental characteristics which should be
considered essentially by the valuer as a number of properties of same category differ from
each other. But as there is no standardized mathematical expression of those physical or
environmental virtues still now they are not included directly in valuation of the property. In
other words there are so many internal and external aspects that a straightforward solution
of valuation problem guided by the available comparables is almost impossible (Dutta,
2004), where standardization is urgently required.
The valuers thus have to develop knowledge in addition to the property market,
heterogeneity of real property, supply demand in the market, financial aspects (Macro-
economy), also a special kind of knowledge of physical characteristics of a property in order
to achieve the actual value of any property.
1.2. Value & valuation of a property

The regard that something is held to deserve; the importance or preciousness of something:
Estimate the monetary worth of (something), say an estate. It can also be defined as a fair
return or equivalent in goods, services, or money for something exchanged. Mathematically
it is defined as a numerical quantity that is assigned or is determined by calculation or
measurement.
Against todays complex economic structure any product or property is an embodiment of
three factors inputs viz., land, labour and capital. Value considering the above fact may be
circumscribed as the amount of money that people are able and willing to pay for the
commodity to be transferred from one hand to other. Value of a commodity or property is
not intrinsic or objective. It is determined not by the owner but by the buyer. If the buyer
wants to pay more the value of the commodity rises, therefore the owner can get better
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sale value without further investment. Problems arise when an appraiser is asked to value
the real estate interests at the time of their purchase by the buyer who frequently procures
more than an interest in real estate. Problems also arise when the owner sells his property
because of some inherent essential difficulty in separating the value from the aggregate
value of the property.
Wholesale value
The value of the interests in real estate at the time of acquisition by the general partner
sometimes may be referred to as wholesale value
Aggregate/ retail value
The aggregate value of the individual limited partnership interests sold by the general
partnership is sometimes referred to as aggregate market value or retail value. If used by a
valuer, these terms must be defined clearly and precisely so that the anticipated users are
not misled or confused.
Valuation problems also often relate to non-real estate items or conditions involved in the
transaction such as special financing and guarantees of occupancy or income. These items
are difficult to isolate and evaluate even when all the facts are known. The problem of
analyzing comparable sales becomes more difficult than usual due to the difficulty in
obtaining all the relevant data.
Valuation
Valuation should be defined as a carefully considered or calculated estimate of worth of
any landed property. He can judge the ability and willingness of a person from the past
transactions by examining the subject matter of valuation, the macro-economic aspects
during the transactions and other circumstances of the person paying for it.
The valuer draws comparison of the property and draw comparison between the properties
or for the same property under different times and against different circumstances to put
down to a value at a given point of time to any property.
Valuation must be prepared very professionally with the property appraised and all the
available evidences should be considered, so that the result can be sustained under
different challenges.
A valuer needs liaise with the advisors of the client in order to protect necessary as well as
relevant information. Where the valuation is required for inclusion in financial statements, it
will be important to liaise closely with the auditors to ensure that the work undertaken is
what is required, and ensuring consistency and the use of appropriate bases of value.
Purpose of valuation
Different purposes of valuation result into more differences in valuation. The methods of
valuation do also differ according to the purpose of valuation.
Factor affecting valuation

It is a well known fact that value or price of a property is determined by the market which
again is dependent on demand & supply. In short, when supply in the market is more than
the demand price of the property falls. The skilled valuer only tries to foresee or appreciate
the price of the property through a suitable method considering several complex and simple
factors.
In general following circumstances are considered affecting the demand or fixation prices of
a landed property:
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1. Movement of population
Increase in population usually puts greater pressure on land and shelter and on the other
hand, on jobs and investment. All four of them are fundamental activities of social humans.
As a result per capita income as well as availability of space enhances the urban growth in
population and reduction of space. Property price rises.
2. Economic activities
Industrial growth, infrastructure development indicates growth. General income of the
people rises and demand for health, education facilities, recreation, home ownership etc.
also increases.
3. Improved accessibility
Communication facility, transport routes, vicinity of petrol pump, shopping mall are now felt
as advantageous. The property price becomes more where these facilities are more while if
these accessibilities are less demand for trade, commerce and service centres are more and
property values are less.
4. Inflation
Inflation draws investment demand. Any purchase of real property is an investment which
shows a steady rate of appreciation.
5. Social circumstances
Change in social circumstances may trigger new sets of demands for a particular type of real
property. Occupation ( say for residential purpose/ factory i.e. producing a commodity/
shops for sale of products/ office for providing service to human kind or sale promotion, etc)
or investment.
The supply side is also affected by several factors thus influencing on the value. The factors
include:
i. Dependence on availability of finance
ii. Unfavourable legislation may discourage purchaser from buying it.
iii. Fixed land area limits availability of property; price may be increased but not the
supply
iv. Outline of a proper plan that allocates different extent of land to different uses.
In addition, there are so many other factors which can be classed as environmental factors
that also influence property valuation.
Environment or the condition of the surroundings always influences on valuation of
property. But as there is no market price set for them, the same cannot be explained. In the
absence of definite price the market fails to point out scarcity or limits of environmental
issues. As environmental goods have no indicative price, there is little restriction against its
unsustainable use and pollution hike starts. Environmental factors can also influence on
value of commodities:
i. Externalities
ii. Unpriced not have any direct price
iii. Transactional costs
iv. Property rights
v. Ignorance & uncertainty
vi. Lack of vision
Even though market fails and environmental goods do not help directly in price formation
the purpose of incorporation of environmental factors are well felt especially in cost benefit
analysis of any development projects especially in pricing of real estate. The impact of
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landed property project on human environment has assumed very important dimension
today. If the damage done to the environment or resource depletion are not evaluated
properly and entered into the project cost then the budget or economic aspect of the
project would be interpreted wrongly.
Examples of environmental factors are: loss of soil fertility, overgrazing of pasture, air
pollution, quality of air & water, drinking water quality, tropical forest depletion,
biodiversity loss, loss of wet lands and conversion of wet lands into concrete jungle, etc. the
prioritised environmental problems include water contamination, sewage problem,
pollution of automobiles, solid urban wastes disposal are common problems in a developing
country. 1st world i.e. developed countries may have environmental problems like solid
waste disposal, impact of agro-chemicals on wild life, soil erosion, land erosion, conversion
of agriculture land to residential complexes, preservation of good landscape, biodiversity
loss, green house gas emission, global warming, ozone layer depletion and so on.
Environment has an indirect effect on property valuation through HEAP (health, existence,
Amenity & Productivity). E.g. denudation of forests disfigures landscape, biodiversity, wild
life, etc.; soil erosion affects agricultural productivity; flood as natural calamity destroys
property while increases soil fertility. In depth research is required in this regard.
MOST IMPORTANT VALUE INFLUENCING FACTORS OF REAL ESTATE

Demographic structure Environmental influences
Increasing population Topography
Neighbourhood Urban greening
Life style & interest Contaminations
Natural calamities
Form & size of property
Purchasing costs & living costs, earnings Conveyance facility
Society
Land use
Legal affairs Development status
Socio-political Issues Bank rate of interest
Market demand & supply
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Chapter- 2
Most Important Influencing Factors on Value of Real Estate
The following four forces that impact property/real estate value:

A. Social forces
B. Economic forces
C. Governmental/Legal
D. Physical/Environmental
Identification may be confusing and overlapping sometimes, but all influences on property
values can be classified into one or more of these four forces.
2.A. Social forces: Socio-cultural trend in any country/state or region influences value of the
property. Sometimes these forces are imagined and in most of the times they are based on
actual facts and figures. Some of the social forces influencing property valuation are
discussed below:
2.A.1. Population Growth and Decline

According to many people ever increasing populations is always positively correlated with
increasing demand for real estate. For cities and townships this may be true but in many
rural areas, however, population is actually declining as modernization of the agricultural
industry has lessened the demand for farm labour and at the same time growing children
are less interested in continuing with their traditional livelihood agriculture. Also, an
individual neighbourhood may be losing population even though the housing stock remains
the same because children are growing up and leaving the households. The out migration in
search of a job results decreasing population in Indian villages.
2.A.2. Family Composition

Every Indian would agree that the traditional view of the modern Indian household and its
composition both are undergoing through series of changes. Today the rarest sight is the
traditional household with joint family i.e. working father, homemaker mother, and well-
adjusted children, who can? Rather in many suburban neighbourhoods have now become
unit family of 3-4 heads with working husband and wife and one or two student children.
Even in many advanced condition single-parent households, households with empty nesters
and double-income without any kids are all on the increase. These redefined households
demand a different housing type than that customarily viewed as proper for the traditional
Indian household. Rather than the detached, single-family dwelling on a subdivision street,
these changing households have created demand for apartments, town/homes, cluster-type
residences, and other housing alternatives.
2.A.3. Aging Population

The aging of population in India and several countries has created the need for more
retirement homes, assisted care living facilities, senior apartment communities, nursing
homes, hospitals, medical offices, and so on. Empty nesters (mature couples whose children
have left home or do not stay along with parents) usually desire less spacious homes, but
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homes that are high quality on small, easy-to-maintain lots with retirement amenities such
as golf courses, lakes, tennis facilities, nature trails, etc.
2.A.4. Evolution of Home Offices

The high-tech age in which we are living has allowed many individuals to work partially in
offior totally at home. Fax machines, computer networks, and advanced communications
have led to reduced demand for office space in many metropolitan areas as well as a trend
toward less office space per worker than ever before.
2.A.5. Environmental and safety Consciousness

Homes today are more environmentally friendly than ever with increased awareness of
builders and homebuyers alike in the construction of homes. Examples include efficient
mechanical systems, extra insulation, and low-consumption water devices.
2.A.6. Security Consciousness

The perception of an ever-increasing crime rate has drastically affected consciousness of
security. Homes today are often prewired for security systems and fire protection. Many
communities emphasize the security aspect through guard gates, surveillance equipment,
etc.
2.A.7. Leisure Time

With the focus on leisure time since the 1960s, unprecedented demand is expected for
second homes such as vacation retreats, weekend rentals, and homes and/or lots on lakes,
beaches, and mountains.
2.A.8. The Family and Functional Utility

New homes are now built with more functional living areas such as the bed rooms, drawing
cum dining room, TV room (also called keeping rooms), study, or work while other members
prepare meals. Another evolution has been the media room with its home entertainment
system with TV, VCR, DVD, and stereo equipment. Home designs of been modified into a
different look with various facilities.
2.B. Economic Forces

Economic forces relate to the fact that land has value because of its productivity. Land may
be used to grow crops, support single-family residential subdivisions, or support multi-
storied office buildings. Virtually all land has some use and therefore requires some
desirability. Because of this desirability, land has value. Because different sites have
different desirability, values differ from site to site and from period to period. For this
reason, an appraisal must be site specific as of a specific date. Economic influences also
relate to consumers ability to purchase and use real estate. Economic forces are always
present on national, regional, and local market levels. Presented in the following paragraphs
are some examples of economic forces.
2. B.1. Income Levels

Regardless of how much someone wants to purchase or rent an item, service, or parcel of
real state, the desire does not translate into market activity until there is adequate
purchasing power. Personal income levels are vital in the valuation of real estate.
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2. B.2. Employment
The nature of employment is a critical economic factor which should always be considered
in an appraisal. Unemployment rates should of course be noted, but the stability of
employment should also be addressed. Most communities strive for employment diversity
with no major dependence on a single industry. The economic base of an area can be a
stabilizing one such as a governmental centre. Conversely, the economic base of a
community can be an unstable one such as tourism.
2. B.3. Housing Construction Costs

The construction cost of housing directly and indirectly influences real estate prices. The
costs for items such as wood, concrete, and steel are obvious influences. Less obvious ones
are financing costs, land costs, and indirect costs (building permit fees, sewer tap fees, or re-
zoning costs). Sometimes, stringent governmental regulations and impact fees increase the
cost associated with residential as well as commercial and industrial construction, perhaps
restricting the growth and development of a particular location.
2. B.4. Credit Availability & Rate of Interest

The availability of debt money also influences real estate. When credit is plentiful, loans are
easy to obtain, and the availability of money results in an active market. When credit is
scarce, illiquidity occurs, and prices often decline because only a few people can pay cash or
qualify to borrow or find a bank to loan them money. In the early 2000s, when interest rates
declined drastically, this trend expanded the borrowing power of many people. The
unstable economy also prevalent during this time period served to dampen purchasing, a
mitigating factor.
Trends in interest rates affect housing affordability and thus demand for new and resale
properties. A person making INR 25,000 per year may qualify to buy a INR 70,000 home if
the interest rate on the borrowed funds is available at 7 percent. If the interest rate
increases the same home may not be affordable. This lack of affordability drastically impacts
new housing construction and resale activity. A less obvious influence is the interest rate a
builder must pay on borrowed funds during the construction period (indirect costs).
2. B.5. Utility Costs

The cost for utilities can also influence the supply and demand and pricing of real estate,
particularly for industrial and commercial customers whose utility bills may be in the
hundreds of thousands of dollars per year.
2. C. Governmental/Legal Forces
Whether on a national, state, or local level, governmental forces on real estate values can
be significant. The very essence of our private real property ownership system relates to
historical governmental evolution. Even subtle changes in monetary policy can have far-
reaching implications on values. Governmental forces on real estate may include:
2. C.1 Taxes: Higher city and/or state income taxes result in less disposable income for real
estate purchases. Although high income taxes are not good for homebuilders, apartment
landlords may fare quite well because their tenants cannot afford to buy homes.
Freeport (no taxes on inventory) status, allowable depreciation schedules for capital write-
offs, and capital gains tax treatment are other tax-related government factors.
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2. C.2. Fiscal Policy

Although interest on borrowed funds and savings is usually considered to be an economic
influence, the central government can definitely affect the level of interest rates.
The central government generally seeks to maintain a proper balance between economic
growth and inflation and tends to manipulate monetary policy to this end. By changing the
discount rate for funds furnished to member banks. In recent years, the federal monetary
policy has been impacted by worldwide monetary phenomenon in that funds are now
competing in a world market.
2. C.3. Real Estate Taxes and Assessments

Local real estate taxes affect the supply and demand of homes and land in a certain area as
well as commercial properties and industrial projects.
2. C.4. Labour Issues

Labour issues can have a major influence on a businesss choice especially during building or
relocating a facility. A company may decide for (or against) a certain location because of
certain labour laws and regulations, including whether or not labour unions are prevalent.
2. C.5. Service Quality

Similar to schools, a governments quality of services can be an influence. These include
such items as police and fire protection, the availability of health care facilities, and
municipal recreational facilities
2. D. Environmental/Physical Forces
Physical/environmental forces on real estate values are easy to identify. Location wise
variances, topographical features, climate, forests, agriculture field, contamination and
other similar factors are easily observable by even the casual buyer or seller.
Certain physical factors may be desirable or undesirable, depending upon the property use
type.
For example, a site with excellent visibility and substantial frontage along a major
commercial highway may be advantageous for a retail outlet but very disadvantageous for a
residential use. Level, street grade, topography, may be very desirable for a fast-food
restaurant, whereas rolling topography may bring a premium in a residential community.
Some examples of environmental forces on real estate include:
2. D.1. Location
Every particular parcel of real estate is uniquely different in that it occupies a geographically
defined location on the earths surface. In practicality, many properties share the same
major location related influences. It may be on the slope, may be within the paddy field or
near a small rivulet. It may be far from the madding crowd may be near the bus terminus or
shopping mall. Wherever it is It does illustrate the importance of location in the real estate
industry. Essentially duplicate houses can have vastly different prices if located in different
neighbourhoods.
2. D.2. Transportation
In our mobile society, the primary linkages are highways. In selecting a house, most
purchasers look initially for a good neighbourhood but also for one with easy access to
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shopping, employment, recreation, and other points that are visited on a regular basis. The
development of the interstate highway system has had a major impact on national, regional,
and local economies in that long distances can be travelled in a relatively short period of
time.
Public transportation is also important to some cities. In recent years, many cities have
developed rapid rail systems which are frequently augmented by bus networks.
Other transportation alternatives relate directly to other land uses. Industrial facilities often
locate along rail lines or interstate highways. The relocation of a corporate headquarters to
a certain city may well be dependent upon that citys air transportation facilities.
2. D.3. Topography
The topography is important not only to the development of the land, but also to the
desirability of the land. Rolling, wooded topography may be highly desirable for residential
usage, but the grading costs required to produce a level site may preclude utilization of the
land for commercial or industrial development. A propertys drainage is important, as well
as its soil and subsoil conditions. Extreme topographical problems may in fact preclude any
development, rendering the property useful only for aesthetic purposes.
Topography also relates directly to farmland. Gently rolling to level land may be well suited
for cropland, whereas more severely rolling contours may limit the agricultural use to
pasture.
2. D.4. Climate/Weather
The climate/weather of an area can have a direct influence on nature of the development
pattern. Dehra Doon has become a vacation and retirement centre because of its pleasant
sub-tropical weather, coupled with its abundance of hills surrounding it. Utkamand has
become a major tourist attraction for its unique climate.
Following environmental issues are felt critical in property valuation:
Air emissions to atmosphere
Water usage and discharges to surface water groundwater and sewers
Land contamination caused by spillages, etc.
The production, re-use, recycling and disposal of controlled and special wastes
The storage and management of materials
Activities upon local ecology of operations, sites and premises
The visual impact of sites and buildings
Environmental noise
Energy use and management
Use of transport and vehicles
Materials used
Organisation & site information
Legal issues and other requirements
Existing environmental management
Raw materials
Packaging
Office activities
Landscaping and infrastructure
Other relevant issues such as odours, particulates, lighting & pests
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Chapter-3
Environmental Impact Assessments and Strategic Environmental
Assessments: Valuations and Environmental Issues
The professional valuation of a property indicates the actual market as it exists on the
valuation date against its balance of supply and demand, strength, weakness, threat &
opportunity and the information the market thinks relevant reduced to a single figure.
Legislation and policy relevant to the property is part of that matrix of circumstance but
cannot necessarily drive it. Valuations cannot get ahead of the market.
Environmental regulation can impose large costs on property and business owners and
users making it important to understand the potential for its impact in any particular
situation and so its consequence for property values. These concerns will be shared by
lenders. They need to be considered in lettings. The environmental issues cover water issues
inclusive of pollution, storage facility, any risk associated with the same. The environmental
issues also encompass climate, biodiversity, landscape, air pollution, wet lands,
contaminants, and so many things.
3.1. Water
Most water issues naturally fall into three categories:
Quality of water pollution in various forms
Water scarcity shortage
Quantity of water flooding risk
Govt. policy should generally focus on water quality, touch on scarcity and should have
action plan on flooding risk management considering significant constraints on
development.
Water quality as per directives of the public health engineering department should be
maintained. PHE uses the term Refuge to indicate the rejected substances-
Such as
i. Sewage- the liquid waste from the community that includes sullage, discharge from
latrines, urinals, industrial wastes and storm water
ii. Storm water-Rain water from the locality
iii. Subsoil water-Ground water which finds its entry through leaks
iv. Sullage- waste water accumulated from kitchen & bathrooms
The collection system is called water carriage system.
Water pollution issues can be divided into point source ones (as with a specific sewage pipe,
factory outlet or local incident) and diffuse pollution arising from the background
environment. General pollution legislation can be effective in limiting the potential for point
source pollution and penalising incidents. The Water Framework Directive should be formed
to tackle the much harder problems of diffuse pollution from a background of contaminants
which may be anything from soil, fertilisers, sprays for weeds or pests, animal wastes and
urban run-off to naturally occurring chemicals and bacteria.
There should be one Dangerous Substances Directives (it is already there in European
Valuation Standard) to control prescribed substances from entering sewers and has been
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reinforced by later directives on discharges into sewers. The terms of licences to discharge
may add or limit the value of affected premises (European Valuation Standard, 2012).
Measures to prevent the pollution of groundwater by a wide range of substances whose
discharge is either to be prevented or controlled, subject to their toxicity.
Water quality prevention aims at:
Prevention of further deterioration of waters, and to protect and enhance aquatic eco-
systems;
Promotion of sustainable water use based upon long-term protection of available water
resources;
Reduction of discharges, emissions and losses of priority substances, and to cease or
phase out discharges, emissions and losses of priority hazardous substances into aquatic
environment.
Standard on the Valuation of Properties may be affected by Environmental Contamination
regard to the prevention and remedying of environmental damage will be relevant to
property transactions where there is pollution or contamination that affects land,
designated conservation sites and groundwater. Govt directives should also instruct the
measures to prevent or remedy damage to land, groundwater, surface water, coastal
waters, and protected species and natural habitats.
3.1.2 Surface Water and Groundwater Quality Requirements

Most property uses require availability of adequate water supplies. This is true for optimum
use of residential property, where tests showing contamination may become location wise
factors and may influence property value.
Water quality is also important in agricultural uses, where crops or livestock cannot
otherwise be maintained, and production-the income-producing capability of the land can
be affected. Water quality can be affected by several factors as diverse as industrial point
source contamination, faraway ground water contamination, excessive rainfall resulting in
flooding or siltation, runoff from land to which agricultural chemicals and fertilizers have
been applied, and infiltration of salt water in coastal areas. The effect on present and future
productivity of the land must be determined.
If problems can be cured, income-producing capacity may be restored, and the present
value of this future worth can be computed. Water quality problems are similar to other
problems related to agricultural land, such as slope, water availability, and erosion. These
problems may alter the income-producing capability of the land, thus changing its value.
Environmental contamination problems must be differentiated from management problems
in determining value.
One critical problem associated with groundwater contamination relates to spreading
groundwater contamination. Provided the property in question did not contribute to the
contamination, current EPA rules do not hold this property liable for cleanup costs. Lenders
may still be reluctant, however, to provide financing and unfavourable financing may affect
value. In addition, there is some conflict between federal statutes and EPA rules, and
assessors should be alert for new developments in this volatile area. Local regulations or
statutes may also lead to liability. Residential property is less subject to liability, but
financing considerations and stigma may still affect value.
If groundwater contamination does not directly influence the water supply of the subject
property, it is not appropriate to adjust value to reflect complete cleanup. The utility of the
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property should be the primary concern and will rarely be affected if adequate clean water
can be assured.
3.2. Contaminated Land and Environmental Liability

There is environmental damage is equally applicable to land also:
land when there is a significant risk of human health being affected by contamination due
to the introduction of substances, preparations, organisms or micro-organisms. The
operator who damaged the land must remove that significant risk;
Water if there is a significant adverse effect on the ecological, chemical or quantitative
status of water or its ecological potential;
Protected species or natural habitats if there is significant adverse effect on reaching or
maintaining a favourable conservation status. For both water and protected species or
habitats the operator who caused the damage is liable for:
Primary remediation, restoring the subject to its condition before being damaged;
Complementary remediation where this is not possible; and
Compensatory remediation by providing other improvements to compensate for interim
losses between the damage and its restoration
3.3 Waste - Land contamination issues will also interact with the regimes governing waste,
intended to drive both the reduction of waste and an increase in recycling. Waste
management should exclude:
Land (in situ) including unexcavated contaminated soil and buildings permanently
connected with land and
Uncontaminated soil and other naturally occurring material excavated in the course of
construction activities where it is certain that the material will be used for the purposes of
construction in its natural state on the site from which it was excavated *Article 2 (1)(c)].
Otherwise, waste is to be recovered or disposed of without endangering human health,
without using processes or methods which would harm the environment and particularly
without:
Risk to water, air, soil, plants or animals;
Causing nuisance though noise and odours;
Adversely affecting the countryside or places of special interest.
3.4. Pollution
The Govt. Directive for this subject is the Integrated Pollution Prevention and Control
Directive applying to operations with significant potential for pollution.
Compliance with standards will be important for such businesses and so a major factor in
their approach to property.
The water legislation reviewed above considered both point source and diffuse pollution of
water.
Several directives bear directly on air pollution and so on emissions from various classes of
industrial and other plants, all requiring member states to set controls on the air pollution
from individual plants. These mean that a valuer addressing such a property needs to
understand how far it is compliant and the practical consequences of any shortcomings as
they may affect a valuation.
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3.4.1 Contamination including Asbestos

In assessment usage, contamination is any recognized physical or nonphysical
environmental influence that must be considered to determine value. Contamination may
take various forms including physical, aesthetic, and perceptual. Contamination is
recognized through mental contamination. Contaminants not recognized by the various
regulatory agencies (such as light pollution) may produce locational influences on value.
3.4.1.1 Physical Contaminants

Physical contaminants are substances present in, on, or near a subject property in
measurable quantities and identified as having a harmful environmental impact. Some
substances are deemed hazardous because they are ignitable, corrosive, toxic, or reactive.
Substances not accepted by the regulatory community as harmful should not be considered
physical contaminants. The market may still respond to these substances and value may
change. However, because the change would result from only a perception, the
contaminant would not be defined as physical.
3.4.1.2 Nonphysical Contaminants

Contaminants, such as intrusive light, noise, UV light etc. that have no tangible, physical
substance are considered nonphysical. These take many forms and must be considered as
real as environmental contaminants because they may affect property value. For example,
proximity to noise sources diminishes utility and therefore property value. Another example
is electromagnetic radiation originating from nearby power lines or radio wave transmission
devices.
3.5. Asbestos hazards

There should be a Control of Asbestos Directive in India also as referred in European (EU)
Valuation Standard (2012) has a significant impact on the management of many buildings
constructed in the twentieth century when asbestos was a cheap and effective building
material used in roofing sheets, as panels and in other ways. The Directive followed the
association of some forms of asbestos with cancer and:
requires a survey of the asbestos present in any building; and
imposes standards for its removal and disposal.
This can add substantially to the costs of building work on a property or the remediation
and development of a site and so may affect its value.
Assessment will require specialist knowledge. It is normal for valuation reports to contain
exclusions regarding asbestos, recommend the commissioning of a specialist report and
otherwise assume that asbestos is present.
3.6. Other contaminants

Lists and characteristics of substances that are hazardous, as well as amounts of substances
considered harmful, change frequently as new information becomes available. Information
on specific hazardous waste is often available from state or local environmental agencies.
The International Association of Assessing Officers (IAAO) maintains a searchable online
bibliography that includes materials relating to pollution and property value. Table 1 shows
list of contaminants.
15
3.7. Lead Paint and Products

Lead is a heavy metal that is found in paint, especially in older structures, and in pipes and
some solder used to join lead or copper pipes. Dust or chips of lead paint may contaminate
living areas. Where lead is in contact with drinking water, contamination will result. Lead
paint usually requires a replacement with less toxic paint; piping may also need replacement
with polyvinyl chloride (PVC) or copper with non-lead solder connections. Because public
awareness of lead contamination is high, property value is affected by clean-up costs and
the stigma associated with lead. There is probably less of a stigma associated with lead than
with other, more exotic forms of contamination.
Table 1
Acid rain
Air contaminants
Airborne substances, indoors
Airport noise
Asbestos
Carbon black
Chlorine and related compounds
Diminished quality of drinking water
Dioxin
Dry-cleaning fluids and solvents
Empty containers of hazardous materials
Fertilizer
Floodwater
Fluorine and related compounds
Formaldehyde
Heavy metals like lead and mercury, etc.
Industrial by products
Intrusive light
Lead paint
Mining by products
Nitrates
Noise
Noxious odours
Nuclear material and industry
Oil refinery
Organic and inorganic compounds
PCP
Agro chemicals like pesticides,
herbicides, etc.
Power lines and micro-wave sources
Radon
Underground storage tanks
Suspect industries
Pipelines
3.8. Radon
Radon is a naturally occurring radioactive gas released during decay of radioactive elements
generally found in granitic rock. In recent years, public awareness of this substance and
16
associated risks has grown. Because the substance is denser than air, it may accumulate in
basements and lower portions of structures. Often, ventilation or air exchange systems can
be constructed to remove the gas and cure the problem. Energy efficient structures,
especially underground homes, are particularly susceptible because underground
construction often restricts exchange of indoor and outdoor air. In some localities,
favourable radon test results may increase market value.
It is reported that Radon is common in certain, typically mountainous, areas of the United
States and uncommon in most other areas. If detected in trivial concentrations, foundations
or crawl space sealants or improved ventilation will usually eliminate the problem, adding
only minor costs. The effects of stigma are not usually present. At least twenty-one states
require disclosure of radon to prospective purchasers.
3.9. Arsenic & Fluorides

A major chunk of area in West Bengal and adjacent area is detected as arsenic belt. Arsenic
is a major hazardous element in subsoil layers and its presence is found in various places
especially in the ground water. It produces a number of diseases in human beings. Real
estate properties are being developed areas without considering the presence of Arsenic.
Even the Govt. Reports are flouted.
Fluorides are also dangerous compound from health point of view and several districts of
North Bengal are affected.
3.10. Nuclear aspects

Nuclear facilities use, store, or dispose of radioactive material. These facilities include power
plants, private and governmental research sites, hospitals, and disposal sites, as well as
equipment used to transport radioactive material. Proximity of property to nuclear power
plants and other nuclear facilities is likely to produce negative value effects. Aside from the
obvious risks of nuclear accidents, additional risks are associated with decommissioning,
waste disposal, and contaminated areas. To some extent, the problems are no different
from those associated with proximity to conventional heavy industry. However, because
radioactive waste often remains toxic for a very long time and tends to be more difficult to
dispose of, a greater stigma may result.
The current radioactivity research indicates more risk from less exposure than was
previously believed. Nuclear facilities with little current effect on value may someday be
considered heavily contaminated, and values may decline.
Although proximity to a nuclear power plant may reduce the value of adjoining properties
through the stigma alone, this concern does not reduce the value of the plant itself. Most
regulatory bodies require public utilities to provide buffer zones around nuclear power
plants. If the cost of the buffer zone property is included in the rate base, the capitalized
earnings indicator reflects the value of the buffer zone. No deduction or discount should be
made in the cost approach because of the buffer zone requirement. If there is actual
contamination of the buffer zone, this would affect land values inside the zone. Also,
because the total amount of land is fixed, less land will be available outside the zones for
other purposes, which may raise land costs elsewhere.
Regulatory bodies generally require public utilities to make annual payments into dedicated
nuclear plant decommissioning trust funds. When these payments are deducted as
expenses, the capitalized earnings indicator reflects the impact of the present value of the
decommissioning costs on the unitary value (when the plant is part of the unit and a unit
17
value is estimated). No further adjustments are necessary. Whatever influence the stigma
may have on plant value is reflected in the unitary value of the operating utility.
Groundwater or surface water dispersal from seepage of radioactive material is common
and may affect value far from the original contamination site.
Regardless of potential or actual contamination, an operating nuclear power plant
represents a valuable property, and future cleanup costs are mandated and should be
reflected in the income stream used to determine value.
Enterprises not normally associated with the nuclear industry may use radioactive materials
in significant quantities. As awareness of this use increases, values may be affected. For
example, the most common user of radioactive (and other toxic) material close to
residential areas is often a hospital. Proximity may affect value through the stigma or real
contamination.
3.11. Noise Pollution

Noise pollution includes unwanted sound generated by airport, road traffic, and heavy
industry. Effects should be considered similar to other location and neighbourhood
desirability influences and may be incurable economic obsolescence. However, data on the
market effects are essential before any conclusions can be drawn.
3.12. Bio-diversity and Conservation

Nature conservation should be one of the prioritized significant areas of activity in
environmental policy in any state or country and India is not the exception. But the law
enforcement here should be more stringent, sometimes superimposed on earlier national
provisions. It has now generated a structure to designate many sites to protect them for
their value in this regard by stating what is not permitted on them. It can therefore impose
significant hurdles for the development or change of use of property affected by
conservation interests. However, there may be opportunities for grants or annual payments
under management agreements, subject to state aid rules. As the conservation interests are
generally site specific they will have a bearing on the value of the site. In addition to
international and national schemes for designating sites, the Directive on the Conservation
of Natural Habitats and of Wild Flora and Fauna (the Habitats Directive) requires member
states to designate Special Areas of Conservation to maintain or restore natural habitats and
species of wild flora and fauna of Community interest.
For imperative reasons of public interest, including those of a social or economic nature:
recreating a habitat on a new or enlarged site to be incorporated;
improving a habitat on part of the site proportional to the loss due to the project;
proposing a new site;
As many ideal sites involve wetland, this can be a particular constraint on the development
of, for example, coastal sites as may be desired by ports or power stations.
The requirement for compensatory measures for lost tidal flats was a significant feature of
the development of any site.
Several hundred species of animal and plants are to be protected from being extinct.
Equivalent protection for bird species should be provided under the Wild Birds Directives.
This protection is frequently relevant to the potential development of property as it requires
that the impact on these species be assessed which can take time and be expensive. Where
18
that impact is significant, it that may be taken into account in decisions about whether
consent for development should be granted and, if so, on what conditions. The presence of
protected species can also influence the management of property.
3.13. Toxic Substances in the Home

Many toxic substances are used in the home, including insecticides, mothballs, motor oils,
wood Preservatives, antifreeze, , rust removers, polishes, batteries, deodorizers, degreasers,
weed killers, drain cleaners, disinfectants, pool chemicals, paints, hobby products, bleaches,
nail polish remover, and car wax. In addition, residential construction may involve lead and
other toxic ones or products that break down and release such substances. Particleboard,
carpet glue, and certain insulation may release formaldehyde, for instance. Fortunately,
many of these toxic substances are not structural, but transient, being removed from
property when transfer of ownership occurs. However, residuals may be left behind along
with toxic substances related to construction materials. Ultimately, the market will
determine how much these factors influence value, the presumption being that additional
functional or economic obsolescence may be recognized if buyers pay less for properties
with contamination. Aside from construction-related materials and residual contamination,
however, the presence of transient materials should be ignored. These could be viewed as
management factors, with good home managers keeping fewer toxic materials. Assuming
typical management, it would be unnecessary to investigate the owners practices in
determining value.
3.14. Extent and Nature of Contamination

The property should have clear documentation/history regarding the nature and extent of
environmental contamination. Accurate and detailed maps must be associated as part of
this documentation. Without information, property must be valued as if uncontaminated.
That is confusing also. Some contamination, such as air pollution, may be universal
throughout a jurisdiction. In all other cases, contamination should be viewed as a special
circumstance, particular to a property. The contaminated property must be compared to
typical, tangential property, and differences established. To be granted special
consideration affecting value, the owner must substantiate the contamination through an
independent party (typically, an engineering firm testing for contaminants or a regulatory
agency or environment evaluation team). Evidence and experience are the keys.
3.15. Underground Storage Tanks (USTs)

These are tanks typically used for storage of liquids, usually petroleum products. Although
such tanks are termed underground, it states that a tank will meet this classification if
more than 10 percent of the volume of the tank and associated piping is underground.
Contamination may occur from tank leaks or from spills during the filling of the tank.
Depending on substances involved as well as soil and bedrock characteristics, contamination
may spread to adjoining areas. Wells and other water resources may be contaminated.
Secondary air pollution may result from fumes, released by evaporation of leaking
substances. Additional toxic substances may result from chemical reactions between leaking
substances or between these substances and the environment contacted. In this situation,
cleanup may be more difficult and costly.
19
3.16. Public Awareness and Perception

Public may be aware of certain contaminants but ignorant about others. Residential buyers
would typically give some consideration to asbestos in a house; In the North Bengal people
still use asbestos roof of their houses. They would also probably be concerned if the house
were located near a nuclear power plant (in Bhopal people are still remembering the
nuclear mishap). They may not, however, be particularly aware of Radon gas, or Arsenic in
water especially if they are moving from an area where this substance is rare. They may be
aware of, but not concerned with, the potential effects of electromagnetic radiation from
proximity to overhead power distribution lines because the effect of this pollutant is
currently under debate in the scientific community. The potential exists, however, that
electromagnetic radiation or some other, yet unknown, substance will be found harmful,
and values of various properties could be affected suddenly. Public overreaction may create
a gap between cost to cure and decline in value. The assessor might view this as a form of
functional or economic obsolescence, or perhaps as a negative location specific influence.
However, the initial overreaction may not properly reflect value and usually does not reflect
value after resolution of environmental problems. The assessor, therefore, needs to
compute the present value of residual future value after cleanup and must endeavour to
explain the valuation process and concepts to the taxpayer.
20
[Part II]
Chapter 1
Health & Safety
1.1 Health and Safety
Health and safety at workplaces or in the living apartments may have adverse effects on the
use of a property and so its value. Substantial limitations on use or development potential
can be imposed by the legislation on hazardous activities. Lists and characteristics of
hazardous substances as well as list of substances considered harmful, change frequently as
new information becomes available. Information on specific hazardous waste is often
available from state or local environmental agencies. Sometimes online bibliography that
includes materials relating to pollution and property value (The International Association of
Assessing Officers (IAAO) has such sites). In the European countries or USA such standard
are readily available and imposed by the legislation or any Govt or non govt agencies.
Hazardous Activities it is required to adopt land use planning strategies around sites of
hazardous activity and directives from statutory bodies are essential to have a control of
major accident hazards. Example may site as release of dioxins in an accident at a chemical
plant or a nuclear plant. The objectives of preventing major accidents and limiting the
consequences of such accidents are taken into account in their land-use policies and/or
other relevant policies. The measures which should be taken to achieve these objectives
include controls on new developments in the vicinity of existing hazardous installations and
on the sites of new hazardous installations. Examples can also refer that storage and
processing activities in mining, from pyrotechnic and explosive substances and from the
storage of ammonium nitrate and ammonium nitrate based fertilizers. Similarly land close to
major industrial sites such as chemical plants and oil refineries etc. requires special attention and
restriction should be imposed.
To have an understanding of the effect of environmental contaminants on real property

value, the assessor must have some background knowledge on this subject. In addition to
merely recognizing contaminating substances, the assessor must understand the potential
for changes in lists of substances or conditions currently thought to produce contamination.
The modern standard of detection, monitoring, and cleanup technology must be recognized.
Public awareness is a somewhat intangible factor that nevertheless may affect value. The
state of current and proposed/ local regulations and court decisions can greatly affect the
marketability and value of property. Following list indicates the health hazard producing
items
21
Chapter 2
Energy
Energy is often one of the most significant costs of property and is generally increasing in
recent years. The requirements of heating, lighting, cooking all demand energy and air
conditioning combine with the demands of services, like lifts, refrigerators OTGs, for which
the energy needs of the processes for which the building is used. Potential purchasers and
tenants are usually interested, at least as a matter of practicality, in the availability and cost
of suitable energy for their needs. Some may wish to demonstrate particular levels of
efficiency or that the energy comes from renewable sources. Buildings are held to account
for considerable per cent (36% in EU) of CO2 emissions throughout the world and so energy
concerns are now a major factor driving legislation affecting property. Countries hope to
influence property occupiers to change their behaviour, reduce consumption, improve
efficiency and make greater use of renewable energy sources. Energy efficient buildings
distinctively have a much longer life cycle than equipment or systems. Many such
properties, particularly houses, are more than a century old.
2.1 Energy & Building

Energy Performance of Buildings is thus countable and the issue draws attraction from the
property developers, environmentalists, assessors and Government. Its Preamble notes
that: The sector is expanding, which is bound to increase its energy consumption.
Reduction in energy consumption and the use of energy from renewable sources in the
buildings sector constitute important measures needed to reduce the energy dependency
and greenhouse gas emissions. It is necessary to lay down more concrete actions with a
view to achieving the great unrealised potential for energy savings in buildings. The
professional valuer is to report his opinion as to the value of the property under his
instructions to the client on the basis of the evidence available to him. That will include the
evidence of values from the market place. That is essential to the concept of market
value. Energy costs and efficiency will be one part of this matrix and so one of many issues
for the valuer.
A building is a roofed construction with polygonal or round walls, for which energy is used
to condition the indoor climate, excludes a number of structures that might normally be
referred to as buildings, particularly those where no effort is made to heat or cool them,
from the energy performance standards. A nearly zero-energy building means a building
that has very high energy performance as determined. The nearly zero or very low amount
of energy required should be covered to a very significant extent by energy from renewable
sources, including energy from renewable sources produced on site or nearby.
The professional valuer is to report his opinion as to the value of the property under his
instructions to the client on the basis of the evidence available to him. The energy efficiency
of a building may be relevant to a propertys value but with the associated energy costs will
be only one part of this assessment. Where a valuation is being prepared in a context to
which construction, sale, or lease to a new tenant/purchaser is relevant. The valuer judges
appropriate, taken into account in the valuation.
22
2.2 Conditions:
when considering a property with an energy performance certificate, the valuerll take
account of the rating and recommendations so far as relevant, reflecting market
circumstances, in providing his opinion as to the value of the property on a recognised basis
of valuation;
when asked to advise on or assist with the determination of whether works constitute a
major renovation in a member state that has adopted the option based on cost and value,
the valuer when so instructed should: either (i) judge whether the renovation required by
the building is sufficient to trigger any upgrading of the buildings required minimum energy
performance; or (ii) according to the valuers skills and instructions, estimate, obtain a
reputable estimate or advise the client to obtain an estimate for the cost of that upgrading
so that the client may make an informed decision policy may now also be devoted to
achieving a very substantial reduction in the emission of greenhouse gases from energy.
2.3 Energy Performance Certificate (EPC)

An EPC is to record an assessment by an approved inspector of the energy efficiency of a
building using a standard rating basis and making comparisons and advisory
recommendations for its improvement. The rating would summarise in one letter or number
the buildings thermal characteristics and the extent of the buildings reliance on energy
from renewable sources, following country or states Energy from Renewable Sources
Directives. An EPC cannot be valid for more than ten years and its standard may change as
per the current recognized standards or their amendments. Certificates issued under the
previous Directive remain valid. The reported efficiency rating is to be shown in
advertisements marketing the property and the EPC is to be given to the prospective
purchaser or tenant.
Having a valid EPC is a legal requirement for the construction, sale, or lease to a new tenant
of most buildings and for all buildings occupied by public authorities with a useful floor area
of over 500 m2 European Commission. The energy performance certificate or a copy
thereof is shown to the prospective new tenant or buyer and handed over to the buyer or
new tenant.
Subject to the exceptions noted below, an EPC should be mandatory for:

Buildings that are:
- constructed
- to be sold to a new buyer
- to be rented
Buildings occupied by a public authority and frequently visited by the public.
The valuer may on occasion be instructed to assist the client in obtaining maximum value
from the EPC. The valuer should only do so if it is within his professional competence. If the
valuer undertakes this task, its purpose is to use the analysis of the EPC to help the client in
forming a judgment on his possible approaches to the issues raised. Common key points in
this may include:
the energy rating reported for the building (0 to 100);
the annual energy demand;
the cost of that annual energy use;
comparison with current relevant standards;
23
the condition of the technical systems in the building;

the efficiency improvement measures recommended by the EPC
with their associated costs and returns;
any other value that may be achievable by a different rating if, according to any national
rules, it makes it possible to sell or let a property more easily.
2.3 Energy Policy

The Energy policy of a country should also be referred in this regard. The essential thrusts of
the policy at least for the energy efficiency of a building should be on:
Energy should come from sources that do not make a net contribution to those gases
(GHG) and so a very strong emphasis on renewable sources of energy;
Energy for heat and transport should come increasingly from electricity;
Energy efficiency should be increased.
This is being tackled by an array of instruments which will have both direct and indirect
effects on property and its use, from the Energy Performance of Buildings Directives.
The current target set by the country/state Directives on Energy from Renewable Sources
should refer Kyoto protocol or all the following world summits. The use of minimum levels
of energy from renewable sources in new buildings and in existing buildings that are subject
to major renovation must be ensured and estimated. There is a parallel target for
greenhouse gas emissions to be reduced (following different summit
(Kyoto/Rio/Johannesburg) proceedings) from 1990 levels by 2020.
Following Energy 2020, A strategy for competitive, sustainable and secure energy reflects
the goals set for energy policy. Europes energy systems are also adapting slowly, while the
scale of the challenges grows and expresses concern that the EU may not meet all its 2020
energy goals. India also should give thrust on standards, rules, regulations, plans, projects,
financial and human resources, technology markets, social expectations, etc. and prepare
Europes citizens for the challenges ahead.
This will all have implications for property whether as the location for renewable generation
or improving the efficiency of its use of energy. If the costs of property together with
transport and other key factors change markedly, that may influence users and investors
decisions as to the nature and location of property.
2.4 Energy Efficiency

There is a clear concern to improve the efficiency with which energy is used so that the
greatest benefit is achieved for the least use of resources and so contain the likely increases
in energy demand. Both efficiency and greenhouse gas issues can be tackled by carbon
pricing through mechanisms like the EUs Emissions Trading System, making the use of fossil
fuels to generate energy relatively more expensive. Equally, energy conservation has a key
part to play and this is particularly significant for buildings.
One of the best known EU measure in this regard is the Energy Performance of Buildings
Directive of 2002 of EU which is now replaced by the recast Directive of 2010. It applies to
buildings, with their own technical systems, rather than the operations within them.
One of its prime objects is to improve market awareness of energy inefficiency and cost. Its
predecessor set in place the system of Energy Performance Certificates (EPCs), giving each
24
premises an energy efficiency rating on a relatively standard system. These are required for
the sale or lease to a new tenant of a wide range of buildings, essentially almost all
residential, commercial and public sector buildings and most other buildings unless they are
low energy demand.
Country Directive should build its new requirement/advertisements/ marketing of a

property for sale or rent show the buildings energy rating and requiring prominent display
of the EPC in buildings over 500m that are frequently visited by the public. A demanding
goal reinforcing other trends in policy would increase the energy efficiency requirements of
national building standards. It does not enforce standards for existing buildings except
where a renovation qualifies as a major renovation, in which case it requires compliance
with energy performance standards. It imposes a regime of inspections for heating and air
conditioning systems.
25
Chapter 3
Stigma & Cost of Cure

3.1. Definition
3.1a Stigma
An unfavourable perception, which may influence value that continued contamination,
remains after clean-up has been effectuated.
Stigma is an intangible factor, which may not be measurable in terms of cost to cure, but
may affect market value, at least as determined through the sales comparison (market)
approach. It may be seen as a blight or perceived blemish or stain on a property resulting
from real or perceived risk associated with the property. Where contamination problems
are not obvious, the stigma is likely to be overstated, and value effects may be minimal.
3.1b Cost to cure

This is in actual sense the cost or expense of cleaning up environmental contamination.
Clean-up would result in levels of contamination that met standards of regulatory agencies.
Complete clean-up may not be required, if contamination can be isolated. Costs include
future monitoring and costs to reduce stigma. In many cases complete cure is impossible,
and cost to cure is actually cost to control.
3.2 Stigma versus Cost to Cure

The cost approach is based on the premise that the market value of an improved
commodity or property is equal to the market value of the land plus the current
construction costs of the improvement with less accrued depreciation. The cost approach is
especially applicable in cases of environmental contamination, provided the present worth
of direct and indirect costs is calculated and used and provided adjustments are made for
overestimation or underestimation of costs and impact. The cost approach, however, may
ignore the value-in-use concept and thereby overstate the impact of costs to cure
contamination problems.
Because of the intangible nature of the stigma attached to a contamination problem, the
effect on value may be out of proportion to the cost to cure the problem. If the property
owner makes no attempt to overcome the stigma, however, and thereby accepts a lower
price for the property, this price may not accurately reflect market value. Similar problems,
in comparison with curative costs, should be reviewed in determining effect on value.
Appraised values should be adjusted to reflect typical costs of overcoming the stigma.
However, in some markets, time alone may reduce or eliminate the stigma. If this appears
to be the case, the valuer may wish to treat stigma as a type of time adjustment and ignore
additional costs incurred.
The public should be aware of hazardous contaminants. Residential buyers should give
some consideration to asbestos in a house; the villagers in India are still unaware about the
ill effect of asbestos and use it as shade of their residential extension or shade of their sales
counter. They would also probably be concerned if the house were located near a nuclear
power plant. Planned programme for public awareness development may result better in
developing consciousness among the people. People may not, however, be particularly
aware of radon gas, especially if the element is rare in the area. But creation of awareness
is a very important step in these cases. They should know potential effects of
26
electromagnetic radiation from proximity to overhead power distribution lines because the
effect of this contaminant is currently under debate in the scientific community. The
potential exists, however, that electromagnetic radiation or some other, yet unknown,
substance will be found harmful, and values of various properties could be affected
suddenly.
The present and anticipated status of environmental discharge permits held by a taxpayer
may also affect property value. A discharge permit has value to a company and may offset
the negative effects of environmental considerations, if permit requirements can be easily
met. A property with a discharge permit is usually more valuable than a similar property
without such a permit because the permit may be necessary for the company to be able to
operate as expected.
3.3 Govt. Regulations: Central, state and local Govt. agencies should take determined steps
to regulate hazardous substances and other contaminants and create stringent law to
respond to violations. The principal organization in the United States is the Environmental
Protection Agency (EPA), which administers the Comprehensive Environmental Response,
Compensation. The Govt. agency in India like the British, German, European, or United
States should formulate law and take strong action. Many state or local agencies are also
involved. Often, local requirements are more stringent than federal requirements. The
assessor should maintain periodic contact with these various agencies to stay current with
all regulations and changes.
Governments environmental regulatory acts are subject to periodical review/ amendment.
Changes that are promulgated through this process may affect value & the assessor should
remain aware of such changes.
3.5 Reduced Market Value: A stigma reduces the value of property considerably, even
though complete cleanup is accomplished. This creates a situation similar to obsolescence
because, if the market will pay less for a once contaminated, but now restored property, the
value of the property is diminished. Effects of this nature may be transitory, declining over
time or perhaps after additional restorative efforts are demonstrated. For example, even
though the water from a previously contaminated well now meets all environmental
standards and passes all tests, property value may be reduced until the seller builds a new
well in a different location or establishes an independent, alternative water supply.
Stigma can also affect property neighbouring previously contaminated areas, especially if
regulatory agencies declare the neighbouring property to be in a border zone. The stigma in
these cases may, however, be overstated because value is often not demonstrably affected
despite the presence of nearby contaminated sites. Any adverse effect of stigma must be
supported by the marketplace.
1. Bibliography
1. IAAO (2001). Standard on the Valuation of Properties Affected by Environmental Contamination
2. Anon (2012) European Valuation Standard
nd
3. Datta, Shyamalesh (2004) valuation of Real property Principle & Practice, eastern Law House (2 Ed).
4. S.C. Rangawala (2011) Town Planning , Pharotar publishing House Pvt. Ltd., Anand, Gujarat
5. Appraisal Institute (2010) Guide Note to the Standard of Professional Appraisal Practice of the Appraisal Institute,
USA
27
Module II
Chapter 1
Water
1.1. Water quality issues one most important factor
Most water issues naturally fall into three categories- (i) water quality i.e. pollution, (ii)
shortage and (iii) excess i.e. risk for flood or water logging and seepage.
The water aspect needs to be focussed in any building residential/office/factory, because it
provides an important infrastructure to the construction through water pipes, storage tanks,
may be over head or underground. It is also intrinsically related to human health. The
ecological role of water bodies is recognised in nature conservation also sometimes
imposing a significant constraint on development. Although EU or international directives
always emphasise water quality, in India it is yet to get adequate focus.
In a residential building in India water storage structure and supply arrangement are often
very noteworthy. Due to lack of maintenance and flaw in the structure (sometimes design
passed without much verification)itself there remain some risk of pollution and may become
source of bacteria or breeding ground of mosquitoes or others insects or germ carriers.
Water pollution issues can be divided into point source ones such as with a specific sewage
pipe, factory outlet or local incident) and diffuse pollution arising from the background
environment. In general, pollution legislation can be effective in limiting the potential for
point source pollution and penalising incidents. The Water Framework Directives should
tackle the much harder problems of diffuse pollution from a background of contaminants
which may be anything from soil, fertilisers, sprays for weeds or pests, animal wastes and
urban run-off to naturally occurring chemicals and bacteria.
There should be definite water quality directives for potable drinking water, surface water,
ground water directives as well as directives for water with a wide range of substances
whose discharge is either to be prevented or controlled, subject to their toxicity as referred
in European Union directives/legislation for property valuation.
1.2 Water Framework

Discharges of industrial waste water to sewage or treatment plants must be subject to prior
regulation. Therefore, any necessary pre-treatment to reduce its pollution potential and use
collecting systems designed and maintained in accordance with the best technical
knowledge not entailing excessive expenditure. The Water Framework Directive should
apply to surface waters (lakes, reservoirs, rivers, canals estuaries and waters up to one
nautical mile from the shore) and groundwater. Its aims are:
to prevent further deterioration of water and to protect and enhance aquatic eco-
systems;
28
to promote sustainable water use based upon long-term protection of available water
resources;
to reduce discharges, emissions and losses of priority substances, and to cease or
phase out discharges, emissions and losses of priority hazardous substances into aquatic
environment. Priority substances are governed by both the Directive and the
Environmental Quality Standards Directive;
to reduce and prevent groundwater pollution;
to contribute to mitigating the effects of floods and droughts.
Proper and strategic management plans are required for each river basin to show the
procedure of meeting the objectives of conservation for the water bodies, focussing on
point source as well as diffuse pollution. For good surface water status both physical and
chemical composition and ecology should be studied and ensure groundwaters chemical
status and quantity. These standards are to be created and referred to Indian Standards for
Environmental Quality. Because water quality control in buildings is a building management
issue, responsibility usually rests with the property owner or operator. It is not an issue that
falls within the responsibility of water suppliers.
The materials used for piping systems and fittings within buildings must be
approved/certified by local authorities for contact with cold water. This results in the ban of
unsuitable materials such as lead or coatings, which might leach in cold water.
In addition, the water quality within buildings is usually ensured by application of codes of
good practices by the plumbing industry. In Europe and North America most countries could
adopt such codes, which are based on existing standards and good network design and
maintenance. Beyond these documents, the development of sanitary inspection schemes
appears necessary to enable users to identify potential problems and help taking technical
and operational measures to prevent water contamination or deterioration in their
premises.
Such codes of good practices and sanitary inspection schemes can only offer the envisaged
results, if all operatives involved in the design, installation, inspection and maintenance of
drinking water installations in buildings are duly qualified / certified.
29
Chapter 2
Waste Management
2.1 Waste Disposal System & Management
The waste disposal system in a building either residential or office is a vital and connected
directly with human health and keeping the environment OK in the premises. In this regard
the sanitary system and related engineering holds importance. The waste disposal including
sanitary system in any building must provide is the application of engineering methods to
improve sanitation of human communities, primarily by providing the removal and disposal
of human waste, and in addition to the supply of safe potable water. It is not concerned
with environmental factors that do not have an immediate and clearly understood effect on
public health.
Skills required within this field have the primary goal of Prevention & protection from
disease of the inhabitants by ensuring a supply of healthy drinking water,
removing garbage from inhabited areas, and so on. Compared to (for example, electrical
or mechanical engineering which are concerned primarily with closed systems, waste
disposal is a very interdisciplinary field which may involve elements such as hydraulics,
constructive modelling, information technology, project
design, microbiology, pathology and the many divisions within environmental science and
environmental technology .
Generally, sanitary engineers work for municipalities and are highly trained professionals
with a diverse range of engineering skills. Some are involved with a specific area of concern
such as waste collection or the maintenance of waste water facilities and drainage systems
within a district.
Others cover a broader scope of activities that might include the two just listed as well as
such maintenance of the public water supply, collection of residential yard waste program,
disposal of hazardous waste, recycling strategies and even community programs where
individuals or businesses "adopt" an area and either maintain it themselves or donate funds
for doing so.
Government of India took an initiative during early nineties on urban solid waste
management primarily focusing on promoting composting of urban municipal solid wastes.
However, due to an outbreak of epidemic in Surat (Gujarat) in 1994, which actually threw
light on the appalling condition and realities regarding solid waste management services.
This provided a renewed impetus to the efforts of the Government and Bajaj Committee,
Member Planning Commission (1995) made recommendations including waste segregation
at source, primary collection, levying of user charges, use of appropriate equipments and
vehicles, focus upon sanitary land filling & composting and encouraging public private
partnership (PPP) on a pilot basis.
Government of India, during February 1998 prepared Manual on Municipal Solid Waste
Management. The Expert Group included the members from various Govt. and
international organizations and reputed companies. Mr. Asim Burman, Municipal
Commissioner, Kolkata Municipal Corporation (popularly known as Barman
Committee) and Members from State Government/ULB/ CPWD/USAID/Ministry of
Environment & Forests and NGO, Mrs. Almitra H. Patel. The Ministry of Urban Affairs &
Employment, Government of India issued order No. Q-11021/1/97-PHE dated 29.1.1998
regarding constitution of Committee as mentioned above.
30
Appropriate technology, research and development

Financial resources and private sector participation
Capacity building, human resources development and IEC
Many of the management practices are recommended that contribute to a reduction in risk
for personnel who handle health-care waste; these are summarized as follows:
Waste segregation: careful separation of different types of waste into different and
distinct containers or bags defines the risk linked to each waste package.
Appropriate packaging: prevents spillage of waste and protects workers from
contact with waste.
Waste identification (through distinct packaging and labelling): allows for easy
recognition of the class of waste and of its source.
Appropriate waste storage: limits the access to authorized individuals only, protects
against infestation by insects and rodents, and prevents contamination of
surrounding areas.
Appropriate transportation for wastes: reduces risks of workers being exposed to
waste.
For clearing up spillages of body fluids or other potentially hazardous substances,

particularly if there is any risk of splashing, eye protectors and masks should be worn, in
addition to gloves and overalls. Respirators (gas masks) are also needed if an activity is
particularly dangerous, e.g. if it involves toxic dusts, the clearance of incinerator residues,
or the cleaning of contaminated equipment. Residues should be recovered as completely as
possible using hand tools (e.g. a shovel), and then packed safely. It is especially important to
recover spilled droplets of metallic mercury. If a leakage or spillage involves infectious
material, the floor should be cleaned and disinfected after most of the waste has been
recovered.
Two categories are used to specify storage capacity requirements for residual waste and
recycling within residential properties: Individual properties and smaller developments
(individual bin storage is provided for each property) Purpose built blocks of flats and large
developments (communal bin storage is provided).
2.2.1. Residential premises with individual refuse facilities

It includes a specific dust bin for mixed dry recycling (properties without space for a
wheeled bin for recycling will instead be provided with an appropriate number of stackable
55 litre blue boxes in its place)
Waste management guidance notes for residential developments
A wheeled bin for refuse if appropriate for mixed food and garden waste (any properties
without the need/ space for a garden waste
Space must be provided for all the above requirements at the front of any new properties.
Any properties with a private garden should also be provided with space for a compost bin.
Collections for food and garden waste will be weekly. Dry recycling and refuse collections
will be on an alternate weekly basis.
31
The following formula is used to calculate the estimated total weekly refuse (recyclable and
non-recyclable) arising from a residential development with communal refuse facilities:
Total weekly refuse that space be provided for recycling bins to accommodate 50% of this
total weekly volume. This may be in line with the European or British Standard. As per both
the guidelines refuse provision is required.
Recycling provision (L) = Total weekly refuse (L) x 0.5
Residual waste provision (L) = Total weekly refuse (L) x 0.75
E.g. If the total weekly refuse is 1000ltr, we would require 500ltr capacity for recycling and
750ltr capacity
for residual waste.
The following can all be recycled together in one container:
Paper and cardboard
Cans, food tins, aerosols, and foil
Glass bottles and jars
Plastic bottles, food trays and pots
Food and drink cartons, e.g. Tetra Pak
Adequate storage to accommodate the above should be provided as a minimum in any
residential premise or building. Details of all the recycling and refuse containers are
available from the council to help you meet the capacity requirements.
In addition to the traditional container options outlined in section 6, developers may wish to
look at further options for storage of their waste pending collection. These may include
using a roll on roll off skip solution for their residual waste, or incorporating vacuum based
technologies into the design of their developments.
2.2.2 Internal storage

To help residents to actively move towards a culture of recycling wherever possible,
architects should design to provide space (typically in the kitchen area of each property)
for residents to be able to separate out waste into two different containers - one for
recyclable and one for non-recyclable waste.
Wherever possible, depending on whether its operational possible and subject to risk
assessments on fire and safety grounds, residents in flats or apartments can benefit from
the councils weekly clear bag waste management guidelines for residential developments
recycling doorstep collection scheme. Designs for walkways and corridors should
incorporate sufficient space for clear bags to be left outside the residents doorway on the
day of collection.
In suitable residential developments, and again where operationally feasible, refuse
collection may also be on a door-to-door basis once a week, rather than using communal
facilities. Storage spaces on corridors for refuse containment prior to day of collection
should also be designed in to be included on each floor.
Additionally, within corridors and/or foyers of developments, spaces should be designed in
for signage to promote recycling and refuse schemes.
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2.2.3 Organic waste options within purpose built flats

Understanding the option of recycling of wastes and at the same time scope of reduction of
atmospheric pollution the architect or building planner should consider for the flats or
residential places
Separate beans for vegetable wastes; storage space inside kitchens for a container with
litres volume
Food waste disposal units (underneath sinks)
Beans on site in-vessel food waste digesters
Storage space including maturing areas
Storage areas for communal food waste containers
2.2.4 Storage for bulky articles

Separate operations may also be made for bulky waste collection service for its residents.
Separate accommodation at ground level should be provided for the storage of large items
such as white goods and furniture, prior to special collection by our bulky waste crews. This
site should include an area for signage detailing the options and procedures for disposal of
bulky waste. By the terms of the councils bulky waste service, items may only be put out on
the day of arranged collection, and not before.
2.3. CLINICAL AND HAZARDOUS WASTE
2.3.1 Clinical waste

Clinical waste is likely to be generated separate storage and collection arrangements for
clinical waste will need to be considered especially in the hospital premises.
2.3.2 Hazardous waste

All hazardous wastes should be correctly identified, segregated and stored separately in
accordance with guidance from the state/Govt Environment Agency. The subject specialist
i.e. hazardous waste contactor should not be mixed with general waste, composting or
recycling. A waste removal team may be appointed.
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Chapter 3
Natural Calamities
3. Influence of Natural Calamities on Real Estate-Climate Change & Environmental Risks

The issue of climate change and its consequences are now well predicted and have come in
all over the media and moved up the political agenda. Occurrence and severity of natural
disasters increases year by year. The incident of Kedarnath is well known to everybody and
the reasons and consequences have already analysed and discussed. Flood, earth quakes
are some most common natural disasters in the world. Flood damages on property can
multiply and economical losses should not be underrated. Occurrence of cloud burst, flash
floods- all are very interrelated phenomena and on them humans have very little control.
Global warming will very likely increase frequency and intensity of natural disasters such as
floods, storms and heat waves. Storminess and rainfall in combination with expansion of
human settlement in floodplains leads to a higher number of homes located at risked areas.
According to reasonable judgment flood risk seriously affects the value and amenity of
home or business property. Consideration should be given on a discount on the regular
market value or other adjusting parameters within valuation. Literature research on
national and international studies has shown that a flood event and flood risk in general
influences the market value of real estate.
The risk of flooding has always been present for buildings close to rivers or coasts.
Originated by heavy rain or snowmelt and sea level rise but also by extending settlements,
the flood or other natural disasters obviously have certain positional impact on the
properties. Home owners are not alone in their concerns about the value of their property.
Valuation experts and mortgage lenders need to know about the value of property at risk to
advise their clients and protect their investments. Price theory predicts that buyers will
attempt to discount property prices for flood risk if they are aware of it. Changes in the
values of real estate could have unpredictable consequences. Occurrence of flood and in its
extreme case the total destruction of the property could make pension plans unreachable.
3.1 The impact of flood on the market value of real estate

3.1.1. Reduction of the remaining operating life period
Building structure of periodical flooded objects is more affected by negative ascendancies.
Chances of occurring of building defects are higher. That is why the total operating life
period is lower compared to objects that did not experience a flood event.
Destruction/damage hardly depends on the period of being underwater and the altitude of
the water level related to the building. At the same time a shorter total operating life period
results in a modified shorter remaining operating life period. This needs to be taken into
account in the valuation calculation process and will lead to a lower market value.
3.1.2. Reduction of the amount of the rent

Basis for the calculations in the discount cash flow method is the achievable rent. In case of
flood event the absolute use of space on the property (refers to land outside the house as
well as inside) is limited for unknown period of time. In general, the limitations in the use
34
refer to the ground floor for the period of flood as well as the necessary reconstruction
time. The rent is to reduce or unconsidered completely depending on the level of
devastation. Business building will be affected more than residential ones. There the ground
floor is usually sales floor with the highest sustainable rent.
3.1.3. Increase of management costs

All four factors of Management costs include expenses for maintenance and repair,
operating, vacancy and collection loss and administrative work, increase in case of a flood
event. The amount of loadings depends again on the type of the object (business or
residential), interval and water level of the flood.
3.1.4. Consideration of actual costs for insurance cover

There is some evidence that the increase in flood risk and flood affect even insurance of
residential properties. In general insurance cover is usually required for mortgage lending.
The availability, terms and conditions attached to the insurance contract and the level of
premiums are also influenced by fact of flood risk. Insurance remains available for
householders. Flood is not the major factor in determining the level of premiums in
different countries still now. Calculation of the premium rate for protection covering
insurance is a very individual process. In different countries like Germany the level of flood
risk influences insurance premium. Insurance cover for buildings located in zone four
(highest threat, flood occurs statistical once in 10 years) is hard to get and depends on the
insurance company. Premiums become also high.
3.1.5. Consideration of actual costs for restoring the original condition of the property
In case of an instant flood event the market value is reduced by the costs that are necessary
to restore the conditions without flood. An important part of this overall reduction is the
costs for restoring the original condition of the property. As described before the essential
question is when the next flood will occur and what scale it might have.
A very relevant question is if the damages caused by the flood are eliminated completely,
suspicion of hidden damages, reservation and possible aversion might justify a business
decrease in the market value. Another approach could consideration of costs for
manufacturing a flood-resistant building (outside facilities are excluded since generally they
play a minor part) by installing flood defence to the property to ensure peace of mind and
minimize any adverse effects.
3.2. Impact of climate change and natural disasters on land value
Climate change leads to changes in the frequency, intensity, spatial extent, duration and
timing of extreme weather and climate events, and can result in unprecedented extreme
weather and climate events (IPCC 2012). It will significantly explain and magnify the existing
patterns of disaster risk and place extra pressure on the capacities of governments and
management agencies to respond. As per the note from Food & Agriculture, among several
serious consequences of climate change will be one food security and two agricultural
35
livelihoods in vulnerable countries. UN-HABITAT (2011) stated that urban development can
bring increased vulnerability to climate hazards. Many cities are facing rapid growth due to
urbanisation that results in the creation of informal settlements that are often vulnerable to
natural disasters.
While focusing on the role of land valuation, it is argued that the more vulnerable
community within hazard-prone areas may be forced to settle in hazard prone areas (such
as near a flood-prone river or at the base of an unstable hillside), because of the lack of any
affordable alternatives. This includes people with little or no security of tenure such as
informal settlers, farm labourers, lessees and sharecroppers. Also vulnerable are the elderly,
women, children, and minority groups. Their rights may or may not be considered in post-
disaster decisions. It is these people who may not be adequately considered when post-
disaster decisions on compensation are made. Where people are resettled with a host
community there may be an impact on their property value and accurate valuations can
help to assess this impact.
Damage due to the impact of a disaster can also have a significant impact on property
values. Following earthquakes in Indonesia in 2004 and 2007 some people left their
properties located in the high hazard-risk zone resulting in a considerable depreciation in
property values. In post-tsunami Japan concerns over living in the lower areas near the
coast placed downward pressure on property values.
As per the National Land Use Planning Act, the government should take the responsibility
about the issue very seriously and should declare an area under land price surveillance
when an unusual rise in land price is a concern. In order to prevent unusual price rises due
to a preference for high lands, the government should issue a press release stating that it
would watch land prices.
A series of approximately 8,000 earthquakes and aftershocks starting in New Zealand in

2010 caused widespread property damage to land and buildings and had a significant
impact on the confidence in the property market. The relative property values across
Christchurch City were permanently altered with the underlying physical features of the
land, and proximity to water channels, being most important determinants of buyer
confidence.
3.3 Estimating damage and loss in property values due to environmental factors
During the emergency phase people are mostly engaged in quick saving of lives and getting
basic temporary restoration of transport, communications networks, and preliminary
repairs to critical public utilities. But there is also need to do preliminary estimates of the
loss of public and private properties, in terms of their value, at least after the completion of
the rescue work. In completing the damage, loss and needs assessment phases of disaster
recovery, valuations are essential in estimating the economic losses. To calculate actual
losses in monetary terms, estimate of the economic value prior to the disaster
(retrospective value) and then in current condition (post disaster) have to be determined.
These valuation can be used for insurance or compensation purposes, for mortgage lending
(homeowners need to refinance / borrow to rebuild), rental assessment, and as cost benefit
36
analysis on where to allocation limited resources in the disaster recovery. Thus accurate,
comparable, and appropriately scaled information provides the basis for damage and loss
assessments also called DaLAs, and related decision making concerning recovery and
reconstruction.
In 2010 these did not use digital geospatial information or spatial analysis techniques.
However the GFDRR and the World Bank were developing standards and training manuals
for mission teams to integrate spatial analysis into assessments. It is important for post-
disaster rapid assessments to include questions on the quality of land valuation records, the
legislation with regard to land acquisition and compensation, and for information on land
value to be available along with other spatial data.
In addition to economic loss, cultural goods or landmarks may also suffer losses. Traditional
valuation approaches are not appropriate for these special properties and goods, and thus
non-economic valuation methods should be applied such as Derived Benefits Methods, Cost
Based Methods, Revealed Preference Methods and Stated Preference Methods.
37
Chapter 4
Valuation Technique for Environment Factors Affecting Real Estate
4.1. Hedonic Pricing Method: The HEDONIC PRICING METHOD is used to estimate
economic values for ecosystem or environmental services that directly affect market prices.
It is most commonly applied to variations in housing prices that reflect the value of local
environmental attributes.
It can be used to estimate economic benefits or costs associated with:
environmental quality, including air pollution, water pollution, or noise
environmental amenities, such as aesthetic views or proximity to recreational sites
The basic premise of the hedonic pricing method is that the price of a marketed good is
related to its characteristics, or the services it provides. For example, the price of a car
reflects the characteristics of that cartransportation, comfort, style, luxury, fuel economy,
etc. Therefore, we can value the individual characteristics of a car or other good by looking
at how the price people are willing to pay for it changes when the characteristics change.
The hedonic pricing method is most often used to value environmental amenities that affect
the price of residential properties.
Why Use the Hedonic Pricing Method?

The hedonic pricing method was selected in this case because:
1. Housing prices in the area appear to be related to proximity to open space.
2. Data on real estate transactions and open space parcels are readily available, thus
making this the least expensive and least complicated approach.
Alternative Approaches:
If the open space of concern is used mainly for recreation, the travel cost method might be
sed. Alternatively, survey-based methods, like contingent valuation or contingent choice,
might be used. However, these methods would generally be more difficult and expensive to
apply
In general, the price of a house is related to the characteristics of the house and property
itself, the characteristics of the neighbourhood and community, and environmental
characteristics. Thus, if non-environmental factors are controlled for, then any remaining
differences in price can be attributed to differences in environmental quality. For example,
if all characteristics of houses and neighbourhoods throughout an area were the same,
except for the level of air pollution, then houses with better air quality would cost more.
This higher price reflects the value of cleaner air to people who purchase houses in the area.
To apply the hedonic pricing method, the following information must be collected:
A measure or index of the environmental amenity of interest.
Cross-section and/or time-series data on property values and property and household
characteristics for a well-defined market area that includes homes with different levels of
environmental quality, or different distances to an environmental amenity, such as open
space or the coastlines.
38
Advantages of the Hedonic Pricing Method:

The methods main strength is that it can be used to estimate values based on actual
choices.
Property markets are relatively efficient in responding to information, so can be
good indications of value.
Property records are typically very reliable.
Data on property sales and characteristics are readily available through many
sources, and can be related to other secondary data sources to obtain descriptive
variables for the analysis.
The method is versatile, and can be adapted to consider several possible interactions
between market goods and environmental quality.
Issues and Limitations:

The scope of environmental benefits that can be measured is limited to things that
are related to housing prices.
The method will only capture peoples willingness to pay for perceived differences in
environmental attributes, and their direct consequences. Thus, if people arent
aware of the linkages between the environmental attribute and benefits to them or
their property, the value will not be reflected in home prices.
The method assumes that people have the opportunity to select the combination of
features they prefer, given their income. However, the housing market may be
affected by outside influences, like taxes, interest rates, or other factors.
The method is relatively complex to implement and interpret, requiring a high
degree of statistical expertise.
The results depend heavily on model specification.
Large amounts of data must be gathered and manipulated.
The time and expense to carry out an application depends on the availability and
accessibility of data.
4.2 Contingent Valuation Method (CVM)

CVM is a simple, flexible nonmarket valuation method that is widely used in costbenefit
analysis and environmental impact assessment. However, this method is subject to severe
criticism. The criticism revolves mainly around two aspects, namely, the validity and the
reliability of the results, and the effects of various biases and errors. The CV method was
originally proposed by Ciriacy-Wantrup (1947) who was of the opinion that the prevention
of soil erosion generates some extra market benefits that are public goods in nature.
4.3 Valuation Techniques for Environmental Assessment of Landscape/Orchard/

Agriculture Farm/Garden/ Private Forests/ Forest Projects
Valuation Techniques for Environmental Assessment of Forest Projects

VALUATION TECHNIQUE ADVANTAGES DISADVANTAGES
Market Prices Market prices reflect Market imperfections and/or
Use prevailing prices for willingness to pay for costs policy failures may distort
goods and services traded in and benefits of forest land market prices which will
39
domestic or international use options that are traded therefore fail to reflect the
markets. (eg timber, fuel-wood, food, economic value of goods or
medicines, utensils, services to society as a whole.
recreation). They may be Seasonal variations and other
used to construct financial effects on prices need to be
accounts to compare considered when market prices
alternative land use options are used in economic analysis,
from the perspective of the etc.
individual or the firm
concerned with private
profits and losses. Price data
are relatively easy to obtain.
Efficiency (Shadow) Prices Efficiency prices reflect the Derivation of efficiency process
Use market prices but adjust true economic value or is complex and may require
for transfer payments, opportunity cost, to society substantial data. Apparently
market imperfections and as a whole, of goods and artificial prices may not be
policy distortions. May also services that are traded in accepted by decision-makers.
incorporate distribution domestic or international
weights, where equity markets (eg timber,
concerns are made explicit. fuelwood, food, medicine,
Shadow prices may also be utensils, and recreation).
calculated for non-marketed
goods.
Hedonic Pricing Method Hedonic pricing may have Application of hedonic pricing
The value of an potential for valuing certain to the environmental functions
environmental amenity is tropical forest functions (eg of tropical forest requires that
imputed from property or micro-climate regulation, these values are reflected in
labour markets. The basic groundwater recharge) in surrogate markets. The
assumption is that the terms of their impact on approach may be limited where
observed property value (or agricultural land values, markets are distorted, choices
wage) reflects a stream of assuming that the link are constrained by income,
net benefits (or working between forest functions information about
conditions) and that it is and agricultural productivity environmental conditions is not
possible to isolate the value is widely known and fully widespread and data are
of the relevant reflected in agricultural land scarce.
environmental amenity or prices
attribute.
Travel Cost Method Widely used to estimate the Data intensive; restrictive
The travel cost approach value of recreational sites, assumptions about consumer
derives willingness-to-pay including public parks and behaviour (e.g. trip multi-
for environmental benefits wildlife reserves. It has been functionality); results highly
at specific locations by using used to estimate willingness- sensitive to statistical methods
information on the amount to-pay for eco-tourism to used to specify the demand
of money and time that tropical forest areas in some relationship.
people spend to visit the developing countries.
40
location.
Production Function Widely used to estimate the Requires explicit modelling of
Approach impact of deforestation, soil the dose-response
Estimates the value of a erosion, wetlands and reef relationship between the
non-marketed resource or destruction, air and water resource or function being
ecological function in terms pollution etc, on productive valued and some economic
of changes in economic activities such as crop output. Application of the
activity, by modelling the cultivation, fishing, hunting approach is most
physical contribution of the etc. straightforward in the case of
resource or function to single use systems but becomes
economic output. more complicated with multiple
use systems. Problems may
arise from mis-specification of
the ecological-economic
relationship or double counting.
Source: IIED (1994)
41
Module III
1. Green Building or Green Construction

1.1 Green Construction refers to a structure and utilization process which is environment
friendly and resource-efficient throughout life-cycle of a building i.e. from site selection to
design, construction, operation, maintenance, renovation, and demolition. This requires
close cooperation of the design team, the architects, the engineers supported by a team of
efficient environment specialists. The Green Building practice expands and complements
the classical building design concerns of economy, utility, durability, and comforts.
Although evolution of new technologies is a continuous process and the main purpose of
the same is to complement current practices in creating greener structures, the common
objective is that green buildings are designed to reduce the overall adverse impact of the
built environment on human health and the natural environment by:
Efficiently using energy, water and other resources
Protecting occupants health and improving employee productivity (especially in
office/industry)
Reducing waste, pollution and environmental degradation
Some other synonymous words are Natural Building (the infrastructure & built tends to
focus on the use of natural materials, that are available locally), Green
Architecture/construction, Sustainable Building Design etc., where sustainability may be
defined as meeting the needs of present generations without compromising the ability of
future generations to meet their needs. .
The concept of Green Construction emphasises two aspects: (i) enhancement of efficiency
of a construction to use energy, water and material in a sustainable way so that (ii) it
reduces the adverse impact on human health.
The U.S. General Services Administration (2009) reported about 12 such sustainably
designed buildings in USA that cost less to operate and had excellent energy performance.
In addition, occupants were more satisfied from available health and water facilities and
from ambient air with the overall building than those in typical commercial buildings. In fact,
Green Building practices aim to reduce the unfavourable environmental impact of the
building.
1.2 Rule of Green Building

I. The first rule is that the green building is the building that doesn't get built. Since
construction almost always degrades a building site, not building at all is preferable
to green building, in terms of reducing negative environmental impact.
II. The second rule is that every building should be as small as possible.
III. The third rule is the building should not contribute to sprawl, even if the most
energy-efficient, environmentally sound methods are used in design and
construction.
IV. Get more buildings (may be green) in Urban infill sites which are preferable to
suburban "Greenfield" sites.
42
The concept of green architecture is found revolutionary and has nullified so many
traditional commercial concepts which came into vogue in the last century. It has changed
the very theory of development as it has been found that for achieving development many
of them made environmental/resource destruction. There remains very little scope of
recycling of the waste material which increases the accumulation of solid wastes. The
International Energy Agency released a publication that estimated that existing buildings are
responsible for more than 40% of the worlds total primary energy consumption and for
24% of global carbon dioxide emissions.
1.3 Goals of Green Building

Green building brings together a vast array of practices, techniques and skills to reduce and
ultimately eliminate the impacts of buildings on the environment and human health. It often
emphasizes taking advantage of renewable resources, e.g., using sunlight through passive
or active solar, and photovoltaic equipments, and using plants and trees through green
roofs, rain gardens, and reduction of rainwater run-off, even recycling of rain water. Many
other techniques are used, such as using low-impact building materials or using packed
gravel or permeable concrete instead of conventional concrete or asphalt to enhance
replenishment of ground water.
While the practices or technologies employed in green building are constantly evolving and
may differ from region to region, fundamental principles persist from which the method is
derived: Site & Structure Design Efficiency, Energy Efficiency, Water Efficiency, Materials
Efficiency, Indoor Environmental Quality Enhancement, Operations and Maintenance
Optimization, and Waste and Toxics Reduction. The essence of green building is an
optimization of one or more of these principles. Also, with the proper synergistic design,
individual green building technologies may work together to produce a greater cumulative
effect.
On the aesthetic side of green architecture or sustainable design is the philosophy of
designing a building that is in harmony with the natural features and resources surrounding
the site. There are several key steps in designing sustainable buildings, e.g. specified 'green'
building material from local sources, reduces loads, optimizes systems, and generates on-
site renewable energy.
Sustainable architecture design uses types of design techniques to achieve greater
sustainability in energy, land, and water usage, as well as in building materials. Sustainable
energy design takes climate and natural geographical features into consideration, in an
effort to use those attributes to reduce impact on the environment. Energy conservation
can be achieved to a greater degree in new construction, as choices are many at the pre-
construction stage.
For example, in planning to build a home on a lot, sustainable architecture design would
factor in geographical features, such as a lot's orientation to the angle of sunlight
throughout the day and seasons. This sunlight factor may be considered as both a potential
negative and positive on the overall energy usage of the structure. If there is abundant
sunlight from one direction, then solar panels may be installed on the roof. At the same
time, window coverings may be designed to respond to more or less light through manual or
automatic means, with an aim toward reducing the amount of heating or cooling that is
required.
43
Another type of eco-friendly architecture addresses energy needed to maintain a certain

comfort level. Many possibilities for reducing energy consumption are available and include
technology that regulates energy output, stores energy, produces energy, and conserves
energy through active or passive means. For example, for a home situated in a windy place,
a small wind turbine could offer a homeowner cheap, renewable energy generation.
1.4 Compressed Stabilized Earth Block Technology (CSEB): CSEB is one such environmental
friendly technology that possesses a good compressive strength and water resistance and
on the other hand is highly energy efficient.
1.4.1 A Modern Technology: The technology is modern but the principle is said to be old in
which soil, raw or stabilized, for a compressed earth block (CEB) is slightly moistened,
poured into a steel press (with or without stabiliser) and then compressed either with a
manual or motorized press. CEB can be compressed in many different shapes and sizes.
The input of soil stabilization allowed people to build higher with thinner walls, which have a
much better compressive strength and water resistance. With cement stabilization, the
blocks must be cured for four weeks after manufacturing. After this, they are dried and used
like common bricks with a soil cement stabilized mortar. Since the early days, compressed
earth blocks are most of the time stabilised. Therefore, the technology is called Compressed
Stabilised Earth Blocks (CSEB) technology.
1.4.2 Soil Suitability and Stabilization for CSEB: Not every soil is suitable for earth
construction and CSEB in particular. But with some knowledge and experience many soils
can be used for producing CSEB. Top and organic soils are discarded rather sandy soil is
preferred. A soil is an earth concrete and a good soil for CSEB is more sandy than clayey.
According to the percentage of these 4 components, a soil with more gravel will be called
gravely, another one with more, sand, sandy, others silty or clayey, etc.
A very few laboratories can identify soils for building purposes. But soil identification can be
performed by anybody with sensitive analyses. The main points to examine are:
Grain size distribution,
Quantity of each grain size
Plasticity characteristics,
Quality and properties of the binders (clays and silts)
Compressibility,
Optimum moisture content, which will require the minimum of compaction energy for the
maximum density Cohesion,
Binder materials binding characteristics
Organic & other materials that might disturb the mix.
1.4.4. Cost Effectiveness

CSEB are most the time cheaper than fired bricks. This will vary from place to place and
specially according to the cement cost. The cost break up of a 5 % stabilised block would
depend on the local context. It would be within these figures, for manual equipment with an
AURAM press 3000:
Labour: 20 - 25 %
44
Soil & sand: 20 - 25%

Cement: 40 - 60 %
Equipment: 3 - 5 %
The strength of a block is related to the level of compression and to the quantity of
stabiliser. This implies that to reduce the cost of a block one should try to reduce the
quantity of cement but not the cost of the labour with unskilled people.
One should also not cut down the cost of the press with cheap quality machines, which
would not last and would not give strong blocks.
In the context of Auroville (Pandicheri), a finished m3 of CSEB masonry is always cheaper
than fired bricks: 19.4% less than country fired bricks and 47.2 % less than wire cut bricks.
1.5 Certification of Green Buildings

LEED is an internationally recognized green building program, that provides building
owners and operators with a framework for identifying and implementing practical and
measurable green building design, construction, operations and maintenance solutions. The
United States Green Building Council (USGBC) is known best for its initiative called LEED
(Leadership in Energy and Environmental Design), a globally acclaimed green building rating
system.
LEED is an internationally recognized green building certification system, providing third-
party verification that a building or community was designed and built using strategies
aimed at improving performance across all the metrics that matter most: Energy savings,
water efficiency, CO2 emissions reduction, improved indoor environmental quality and
stewardship of resources and sensitivity to their impacts. The Indian Green Building Council
has adapted LEED system and has launched LEED India version for rating of new
construction.
LEED India certification provides independent, third-party verification that a building project
meets the highest performance standards. The LEED India plaque awarded by the IGBC is
recognition of the project achievement.
LEED India would certify that the buildings are-
leading the transformation of the built environment
built as designed and perform as expected.
have lower operating costs and increased asset value
are healthy and comfortable for their occupants
reduce waste sent to landfills
conserve energy and water
reduce harmful greenhouse gas emissions
demonstrate an owner`s commitment to environmental stewardship and social
responsibility
The Certification Process would include the following steps:

* Registration
* Credit Interpretations
* Certification and Documentation
* Certification Award
* Appeal
* Fee Summary
45
The certification is mainly given on following issues

Facilitation
Energy Simulation
Fundamental & Enhanced Commissioning
Green Building certification consultant should consider the following aspects (refer
following figure) before giving consent /certification.
1.6. Valuation of a Green Construction
Valuing Green
Lifecycle cost analysis is needed to make the link between green building and asset
value because much of a green buildings asset value may lie in its long-term lifecycle
benefits. Better and more formalised life-cycle valuation will help to demonstrate
the advantages of green buildings.
Theres a need for assessment of how green buildings perform in the market, and
the degree to which their capital value rises. The sample size for green buildings is
still small and operational data on them smaller still, making professional
documentation and tracking a must.
Valuation is increasingly used to assess green assets by developers, renovators,
investors and owners.
Valuation lags in accounting for green features within accepted standards, although
knowledgeable practitioners can apply valuation methods to green assets.
Financial indicators of value are increasingly incomplete unless they take account of
other green indicators in order to satisfy Corporate Social Responsibility.
Clients and governments have to be drivers of valuers/appraisers adaptation to
green values. Valuation is largely a service business, and therefore client-, regulation-
46
and profession-led. Valuation professions must advise their members on absorbing

green buildings value into valuations.
Valuation professions will profit from a greater understanding of how to deal with
the impacts of green features on asset values, and by developing appropriate
methodologies.
A valuer or his team must consider following benefits before valuation of such construction
i. Environmental
Land/site/location
Indoor air quality and compare the same with commercial ones
Atmosphere or pollution level
Energy
Materials & wastes
Water quality, supply etc.
ii. Social
Productivity-better day light availability, air quality, water quality
(occupants views)
Image-Low energy building etc.
A valuer or valuer Team of Green Building should emphasise collection of following

information:
Initial construction costs
Operating costs
Operating performance
Occupant satisfaction levels
Occupant health
Marketing and absorption periods
Vacancies
Rent levels
Tenant inducements.
Then the following approaches can be taken by the valuers:

Direct comparison
Investment approaches
Cost approach
Full cost approach
Etc.
References
www.grrenconcepts.com
www.wisegeek.com
www.epa.gov/greenbuilding
www.earth.auroville.com
www.civil.iitb.ac.in
47

Environmental Issues in Real Estate Valuation

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Environmental Issues in Valuation

Environmental Issues in Valuation

ESTATE MANAGERS AND

Subject: Environmental Issues in Valuation

Public Awareness and Perception--Govt regulations including EPA

1.2. Value & valuation of a property

Factor affecting valuation

MOST IMPORTANT VALUE INFLUENCING FACTORS OF REAL ESTATE

Increasing population Topography

Neighbourhood Urban greening

Life style & interest Contaminations

Form & size of property

Purchasing costs & living costs, earnings Conveyance facility

Socio-political Issues Bank rate of interest

Market demand & supply

Most Important Influencing Factors on Value of Real Estate

The following four forces that impact property/real estate value:

2.A.1. Population Growth and Decline

2.A.2. Family Composition

2.A.3. Aging Population

2.A.4. Evolution of Home Offices

2.A.5. Environmental and safety Consciousness

2.A.6. Security Consciousness

2.A.7. Leisure Time

2.A.8. The Family and Functional Utility

2.B. Economic Forces

2. B.1. Income Levels

2. B.3. Housing Construction Costs

2. B.4. Credit Availability & Rate of Interest

2. B.5. Utility Costs

2. C.2. Fiscal Policy

2. C.3. Real Estate Taxes and Assessments

2. C.4. Labour Issues

2. C.5. Service Quality

3.1.2 Surface Water and Groundwater Quality Requirements

3.2. Contaminated Land and Environmental Liability

3.4.1 Contamination including Asbestos

3.4.1.1 Physical Contaminants

3.4.1.2 Nonphysical Contaminants

3.5. Asbestos hazards

3.6. Other contaminants

3.7. Lead Paint and Products

3.9. Arsenic & Fluorides

3.10. Nuclear aspects

3.11. Noise Pollution

3.12. Bio-diversity and Conservation

3.13. Toxic Substances in the Home

3.14. Extent and Nature of Contamination

3.15. Underground Storage Tanks (USTs)

3.16. Public Awareness and Perception

Health & Safety

1.1 Health and Safety

To have an understanding of the effect of environmental contaminants on real property

2.1 Energy & Building

2.3 Energy Performance Certificate (EPC)

Subject to the exceptions noted below, an EPC should be mandatory for:

the condition of the technical systems in the building;

2.3 Energy Policy

2.4 Energy Efficiency

Country Directive should build its new requirement/advertisements/ marketing of a

Stigma & Cost of Cure

3.1b Cost to cure

3.2 Stigma versus Cost to Cure

1.2 Water Framework