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AUTOMATED VALUATION MODELS OF REAL STATE FOR CADASTRAL PURPOSES

AUTOMATED VALUATION MODELS OF REAL STATE FOR CADASTRAL PURPOSES. Reform of the Italian cadastral valuation system: regulations, analysis and testing. Santiago de Compostela, October 20 th 2006. Reasons for the reform process. SYSTEM OUTDATE AND STATIC. LOW QUALITY OF VALUATIONS.

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AUTOMATED VALUATION MODELS OF REAL STATE FOR CADASTRAL PURPOSES

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  1. AUTOMATED VALUATION MODELS OF REAL STATE FOR CADASTRAL PURPOSES Reform of the Italian cadastral valuation system: regulations, analysis and testing Santiago de Compostela, October 20th 2006 Antonio de Santis - Santiago de Compostela October 2006

  2. Reasons for the reform process SYSTEM OUTDATE AND STATIC LOW QUALITY OF VALUATIONS INEQUALITY OF REAL ESTATE TAXATION SYSTEM Antonio de Santis - Santiago de Compostela October 2006

  3. EQUITY OF REAL ESTATE TAXATION TRASPARENCY LAND PLANNING AND MANAGMENT DYNAMISM TRASPARENCY OF REAL ESTATE MARKET EFFICIENCY The new valuation system: requirements OBJECTIVE GENERAL PURPOSES SPECIFIC PURPOSES CREATION OF A NEW CADASTRAL VALUATION SYSTEM Antonio de Santis - Santiago de Compostela October 2006

  4. The new valuation system: structure SUB-SYSTEMS DISTINCTIVE ELEMENTS BUILDING AND REAL ESTATE UNIT CHARACTERS BUILDINGS RURAL LANDS POSITIONAL CHARACTERS TECHNICAL AND PRODUCTIVE CHARACTERS BUILDING LOTS BUILDING CAPACITY THREE SUBSYSTEMS TO DEVELOP AND IMPROVE, STARTING FROM THE BUILDINGS CADASTRE Antonio de Santis - Santiago de Compostela October 2006

  5. The new valuation system: requirements Sub-systems THE VALUATION SYSTEM RURAL LANDS BUILDING LOTS BUILDINGS Antonio de Santis - Santiago de Compostela October 2006

  6. FROM THE USE OF COMPUTERIZED AND ON-LINE ADVANCED TOOLS AND A SHARED LAND INFORMATION SYSTEM FROM THE EXPERIENCES ALREADY CARRIED OUT IN OTHER COUNTRIES FROM THE DEVELOPMENT OF THE BRANCHES OF VALUATION The new valuation system: informing principles THE REFORM PROJECT SEIZES AND EXPLOITS THE OPPORTUNITIES CURRENTLY OFFERED AT LEVEL: NATIONAL INTERNATIONAL Antonio de Santis - Santiago de Compostela October 2006

  7. REFORM (not review) STRUCTURE OF THE SYSTEM ADAPTABLE AND BASED ON VALUES AND INCOMES VALUES INCOMES INNOVATIVE METHODS DIFFERENT DIVERSIFIED FOR EACH ANALIZED SUBSYSTEM AND BASED ON MATHEMATICAL/STATISTICAL MODELS CAP RATE The new valuation system: primary legislative choices Antonio de Santis - Santiago de Compostela October 2006

  8. Market Comparison Approach Short number of market data Impossibility to create an appropriate statistical sample Financial procedures Inadequate real estate transfer data Availability of adequate rent data, in case of dynamic rent market Real estate reconstruction value (net … value) Inadequate real estate sale and rent data Availability of price data for the areas Innovative valuation procedures: possible approaches ENFORCEABLE VALUATION PROCEDURE MARKET CONDITION Econometric procedures (regression models, etc.) Large number of market data possibility to create an appropriate statistical sample Antonio de Santis - Santiago de Compostela October 2006

  9. Preliminary check: enforceability Critical case linked to the market short dynamis, that requires the use of alternative valuation procedures 50 millions (nearly) units (Millions) 1,5 millions (nearly) ~ 40 Real estate groups 6 BARRACKS BOARDING SCHOOL MUSEUM, SCHOOL RESIDENTIAL OFFICE SHOP WAREHAUSE BOX LABORATORY INDUSTRY CINEMA Areas AREAS IN WHICH THE USE OF ALTERNATIVE VALUATION PROCEDURES IS PREVALENT (DEPRECIATED RECONTRUCTION VALUE AND/OR VALUE BASED ON CAPITALIZATION OF INCOME) AREAS OF POSSIBLE USE OF ECONOMETRIC PROCEDURES (STATISTICAL REGRESSION MODELS, ….) Antonio de Santis - Santiago de Compostela October 2006

  10. TESTING IN ORDER TO VERIFY Testing objectives ENFORCEABILITY COVERAGE QUALITY/COSTS TIME Antonio de Santis - Santiago de Compostela October 2006

  11. Conceptual model: residential Positional characters of zone Positional characters of the neighbourhood Technical characters of the building Technical characters of the unit Municipality zone Civil building B M +20% 1,5-1,6 A +10% Valore medio 1,6-2 General model of function for real estate valuation V= x x x x Average value zone coef. Neighbour. coef. Building coef. Unit coef. A B C D Antonio de Santis - Santiago de Compostela October 2006

  12. POSITIONAL CHARACTERS OF ZONE A POSITIONAL CHARACTERS OF THE NEIGHBOURHOOD B TECHNICAL CHARACTERS OF THE BUILDING C TECHNICAL CHARACTERS OF THE UNIT D Parametri tecnici • Town centre, valuable zone, … (with reference to the municipality) • relative position in the zone, specific characters of the neighbourhood • Historical or modern building • Building maintenance • Building typology • Structural typology • Building equipment • Building trimmings • Size of common portions Groups of characters IMPORTANT TECHNICAL PARAMETERS • Class of area • Level (with or without lift) • Predominant overlooking • Rationality of rooms distribution in the unit • Trimmings and equipment (if different from the building) • Unit state (if different from the building) Antonio de Santis - Santiago de Compostela October 2006

  13. Optimization of quality / costs ratio Vi = ƒ (A;B;C;D) Approximate representation of the optimisation area about the relationship between the number of functions and the number of parameters Number of processed functions Number of analysed parameters Antonio de Santis - Santiago de Compostela October 2006

  14. Optimization of quality / costs ratio Costs (C) CONFIRMATIONS FROM THE TESTING ACTIVITY Positional characters of the buildings neighbourhood Technical characters of the units Positional zone characters Quality of the Evaluation(Q) (BESIDES THE AREA AND AVAILABLE OTHER-ONES) THE USE OF ADDICTIONAL TECHNICAL DATA, WHICH DESCRIBE THE UNIT, GENERATES A CONSIDERABLE INCREASE OF COSTS. THIS INCREASE IS NOT PROPORZIONATE TO THE IMPROVEMENT OF THE QUALITY OF THE EVALUATION. Antonio de Santis - Santiago de Compostela October 2006

  15. Belluno Pordenone Aosta Milano Novara Torino Bologna Genova Firenze Ancona Terni L'Aquila Campobasso Roma Napoli Taranto Potenza Cagliari Catanzaro Siracusa The testing activity about the building sub - system The geographical areas of the testing activity 20 PROVINCIES 40 MUNICIPALITIES 100 ZONES 10.000 BUILDINGS 100.000 IMMOVABLE UNITS FOR EACH GEOPRAPHICAL AREA OF THE TESTING ACTIVITY THERE IS A LOCAL WORKING TEAM. ALL THE LOCAL TEAMS ARE COORDINATED BY A TASK-FORCE AT CENTRAL LEVEL Antonio de Santis - Santiago de Compostela October 2006

  16. T7 100% SPECIAL T2 9% 9% 9% T1 80% 3% 52% R1 60% 23% R4 ORDINARY 91% 40% 3% R2 20% 0 Asset The analysed real estate asset The whole real estate asset R1/R2 = RESIDENZIAL O MIXED UNITS R4= GARAGES T1= SHOPS T2= WAREHOUSES T7= OFFICES THE TESTING ACTIVITY HAS BEEN EXTENDED ON CATEGORIES (GROUPS), WHICH REPRESENT THE 91% OF THE WHOLE REAL ESTATE ASSET Antonio de Santis - Santiago de Compostela October 2006

  17. The workflow of the supposed process CADASTRAL CATEGORIES TYPOLOGIC FUNCTIONAL SEGMENTS ≈ GEOGRAPHIC SEGMENTS ZONES ≈ TECHNICAL PARAMETERS VALUES Market Values In each zone determination of the driver parameters: neighbourhood characters, building and urban real estate units characters CAP-RATE INCOMES INNOVATIVE EVALUATION PROCEDURES Ordinary Incomes Determination of value/income through standardized and computerized procedures with the support of mathematical-statistical techniques Antonio de Santis - Santiago de Compostela October 2006

  18. Geographical subdivision Subdivision of the Municipal circumscription in homogeneous areas (zones) 8 2 3 4O PARAMETRIC SCALE OF THE POSITIONAL FACTOR ( zone factor  ambit factor) 7O 75 4 60 100 40 5O 5 100 85 A ± B 7 7O ZONES 1 6 Antonio de Santis - Santiago de Compostela October 2006

  19. Statistical and mathematical procedures The evaluation function, which is checked for each tyological-functional group V= b0 *1 * x2 * x 3 * x 4 *………………………. * xn-2 * xn-1 * xn CU = xF+1……….xU CB = xI+1………..xF CZ = X1………....XM CN = XM+1………...XI A B C D The first testing activities involved from 10 to 15 parameters Antonio de Santis - Santiago de Compostela October 2006

  20. Segmentazione funzionale - tipologica • Real estate units in buildings for residential use and for mixed destinations • Real estate units included in villas and cottages • Typical real estate units of a place or region • Sheltered parking places, not sheltered parking places in private areas, boxes Residential • Shops and similar real estate units • Sheds, warehouses, workshops and similar real estate units • Buildings and other real estate units for sport activities • Guesthouses • multi-storey car park, car park in specific areas or in buildings, for public use Commercial BUILDINGS • Offices, work-rooms and similar real estate units Offices • Real estate units for productive activities • Real estate units for productive activities related to Agriculture • Real estate unit for mixed commercial activities and service industry activities • Real estate units for mixed service industry and office districts activities Productive Antonio de Santis - Santiago de Compostela October 2006

  21. More appropriate function, on the basis of the tests Innovative valuation procedures: the regression MULTIPARAMETERS REGRESSION • MAKES IT POSSIBLE TO CALCULATE THE REAL ESTATE VALUE V (dependent variable) IN RELATION WITH THE TECHNICAL CHARACTERS xi, HAVING i=1,2,…,n (independent variables), WITH DIFFERENT RELATIONS: V= c0 + m1* Y1+ …+ mn* Yn Linear Exponential in the variables V= b0 * b1y1 * b2y2 * … * bnyn Exponential in the coefficients V= b0 * y1 b1 * y2 b2* ….. * ynbn Antonio de Santis - Santiago de Compostela October 2006

  22. The testing activity: quality of results • The statistical sampling has involved about 100 zones, which are composed by 10.000 buildings, which characteristics have been surveyed. • Results has been extended to 100.000 real estate units. 10% 8% 8% 8 7% 6% % of buildings, which Error is higher than 20% 6 4 2 0 R1-Res. Units T1-Shops R4-Garages T7-Offices Max error means 27% 23% 23% 24% Buildings with a percentage error higher than the “acceptable level” (20%) are less than 10%. However the average error is lower than 30%. Antonio de Santis - Santiago de Compostela October 2006

  23. Verification of the model: results for the segment R1- residential Total buildings of the analysed samples = 1.792 that statistically represent 1/30 of 53.460 buildings in the D.B. and 268.800 units (1/150) Analysed buildings 66% 100% 100% 80 60 40 26% 20 8% 0 Error>20% Error between Error <10% Total buildings 20% and 10% Average maximumerrors 27% 14% 5% Less than 10% of the buildings shows an error above 20%, with an average maximum error of 27% Antonio de Santis - Santiago de Compostela October 2006

  24. 35% Zone appreciation Verification of the model: results for the segment R1- residential Frequency 100% 85% 80% 80% 80 60 45% 40 30% 20 10% 0 Building Historical or Construction Other Neighbourhood Maintenance typology modern period typology • On average the regressions use 4 parameters (3 related to the building + 1 related to the neighbourhood) • In 35% of cases the parameter “zone appreciation” was used, too, • in aggregation cases Antonio de Santis - Santiago de Compostela October 2006

  25. Technical characters of the building Civil building 40 - 50 1,5-1,6 1,6-2 Innovative evaluation procedures: quality-costs relation 100 100 D C B A 80/85 Positional zone characters Positional characters of the neighbourhood Quality Technical characters of the unit 65 MUNICIPALITY ZONE 50 B M +20% A 20 - 25 +10% Average value Costs 10 - 15 Q/C 3,3 – 5,0 2,5 – 3,2 1,8 – 2,0 0,15 Quality average indicators in relation with the typologies and the number of the used technical parameters Costs average indicators in relation with the typologies and the number of the surveyed technical parameters (on the spot, especially for the C and D characters) Antonio de Santis - Santiago de Compostela October 2006

  26. The model – simplified methodology NEIGHBOURHOOD BUILDING ORDINARY I.U. Civil building + I.U. ordinary for size and floor level - The methodology determined for ordinary units and buildings makes it possible to reduce the number of evaluation functions to be elaborated and buildings to be surveyed, as well as to limit the survey to the neighbourhood and building parameters Antonio de Santis - Santiago de Compostela October 2006

  27. Mathematical - statistical procedures The evaluation function under examination V= b0 *1 * x2 * x 3 * x 4 *………………………. * xn-2 * xn-1 * xn CU = xF+1……….xU CB = xI+1………..xF CZ = X1………....XM CN = XM+1………...XI A B C D Antonio de Santis - Santiago de Compostela October 2006

  28. Innovative evaluation procedures: ordinary units STANDARD BUILDING (with regression) BUILDING STANDARD CHARACTERS OF THE UNIT IMMOVABLE UNIT FLOOR LEVEL AREA CLASS Standard characters IMMOVABLE UNIT A great part of the real estate can be evaluated through standard regressive procedures Antonio de Santis - Santiago de Compostela October 2006

  29. BUILDING ADJUSTMENT CHARACTERS UNIT ADJUSTMENT CHARACTERS NET INTERNAL HEIGHT PREVAILING EXPOSURE … … Innovative evaluation procedures: not ordinary units (special) STANDARD BUILDING (with regression) BUILDING STANDARD CHARACTERS OF THE UNIT IMMOVABLE UNIT AREA CLASS FLOOR LEVEL IMMOVABLE UNIT Standard characters Non-standard characters The residual real estate can be evaluated through specific adjustment coefficients at building and unit level Antonio de Santis - Santiago de Compostela October 2006

  30. Unitary market price (Euro/sq) Surveyedcap-rate CAP-RATE Calculated cap-rate Unitary rental income (Euro/(sq month) From a value basis to a rental one Currency / cap-rate Location CENTRE SUBURBS Antonio de Santis - Santiago de Compostela October 2006

  31. Correspondence of the new system with the purposesand requirements • CHECK OF THE SYSTEM CORRESPONDENCE WITH REQUIREMENTS OF: FISCAL EQUITY SIMPLICITY AND TRANSPARENCY EFFICIENCY AND DYNAMISM PROGRESSIVE IMPROVEMENT Antonio de Santis - Santiago de Compostela October 2006

  32. Aosta Pordenone Milano Torino Genova Firenze Spoleto Campobasso Roma Increase >300% Sorrento 250%< increase < 300% Napoli Potenza 200%< increase < 250% Ca Selargius 150%< increase < 200% 100%< increase < 150% increase < 100% to be verified Check of the model – Results Extension Segment R1 FISCAL EQUITY The current relevant inequalities in the system in force would be overcome, through the correlation of the new values with the market values, with an allowance of 20%, normal for mass valuations. VALUE INCREASE COMPARED WITH THE CURRENT ONE Antonio de Santis - Santiago de Compostela October 2006

  33. Correspondence of the new system with the purposesand requirements EASINESS AND TRASPARENCY Vu = b0 * y1 b1 * y2 b2* ….. * ynbn where Ci = yi bi Vu = (preference price for sm) * C1 * C2* ….. * Cn VTOT = Vu* area C1, C2,……., Cn are coefficients that qualify the importance of the characters identified for that specific real estate unit (positional characters, building characters, unit characters) Antonio de Santis - Santiago de Compostela October 2006

  34. Correspondence of the new system with the purposesand requirements BESIDES FOR THE SYSTEM DYNAMISM EFFICIENCY (effectiveness) ZONE FOCUS ON BUILDING USE OF THE UNIT TECHNICAL CHARACTERS AVAILABLE IN THE CADASTRAL DATA BASE SIMPLIFICATION (CARRIED OUT) UNIFICATION OF CHARACTERS COSTS REDUCTION PROGRESSIVENESS The identified methodology for the ordinary real estate units allows to reduce the number of valuation functions to be elaborated, and the number of building to be surveyed, as well as restrict the survey of the positional characters of the neighbourhood and the technical characters of the building, with important reduction of the implementation costs Antonio de Santis - Santiago de Compostela October 2006

  35. Correspondence of the new system with the purposesand requirements DYNAMISM (perfecting) PROGRESSIVE IMPROVEMENT MUNICIPALITY ZONE Civil building B M +20% 1,5-1,6 A +10% Agerage value 1,6-2 Positional characters of zone Positional characters of the neighbourhood Technical characters of the building Techncial characters of the unit New buildings and changes of builbing characters owing to a private intervention UPDATING THROUGH OWNER DECLARATION/STATEMENT Changes of the reference values prevalently owing to a public intervention UPDATING EX OFFICIO Antonio de Santis - Santiago de Compostela October 2006

  36. CREATION CREATION Urban and rural territory Real Estate market observatory Economic data NEW METHODOLOGIES New cadastral values Cadastral data base Technical data INTEGRATED LAND INFORMATION SYSTEMS The quality of the new system depends on the number and quality of information related both to the unit than to the local market performance Antonio de Santis - Santiago de Compostela October 2006

  37. The supposed system updating schedule GENERAL REVIEW GENERAL REVIEW INTERIM UPDATING (PARTIAL REVIEW) Cadastral Values Years 2 – 4 years 2 – 4 years 2 – 4 years 8 -10 years Antonio de Santis - Santiago de Compostela October 2006

  38. Actors and roles in the reform process Actors and roles MUNICIPALITIES COMMITTEES FOR TAXABLE REAL ESTATE AGENZIA DEL TERRITORIO DEFINITION OF RULES AND METHODS FOR IMPLEMENTATION OPERATING PLAN VALUATIONS APPROVAL AND EQUALIZATION ZONE DETERMINING (BOUDARIES AND STARTING VALUES) ZONE DETERMINING (BOUNDARIES AND RUNNING VALUES) FIRST LEVEL OF THE FISCAL CASES DETERMINATION OF VALUATION FUNCTIONS PRELIMINARY PHASES SUPPORT DATA BASE AND L.I.S. CREATION (IN COOPERATION WITH LOCAL AUTHORITIES) OPERATING PHASES FOR THE PROCESS EXTENSION L.I.S MANAGMENT AND UPDATING ACTIVITY COORDINATION PROCESSES QUALITY AND UNIFORMITY Antonio de Santis - Santiago de Compostela October 2006

  39. Final messages TECHNICAL-POLITICAL CHOICE OF THE FUNDAMENTAL PRINCIPLES AND LINES IN-DEPT VERIFY OF TECHNICAL AND ECONOMIC FEASIBILITY OF THE ADOPTED METHODOLOGICAL METHODS IDENTIFICATION OF AN ADEQUATE LEVEL OF QUALITY WITH SELF-IMPROVEMENT PROCESSES DURING THE OPERATION MESSAGES TECHNICAL DATA (INTEGRATION AND QUALITY IMPROVEMENT) ECONOMIC DATA (SURVEY, INTEGRATION, AND QUALITY IMPROVEMENT) IDENTIFICATION OF THE COOPERATION MODES BETWEEN CADASTRAL AGENCY AND LOCAL AUTHORITIES IN ORDER TO PERFORM AN EFFICIENT LAND ADMINISTRATION Antonio de Santis - Santiago de Compostela October 2006

  40. Thank you for your kind attention Antonio de Santis Agenzia del Territorio Central Director for the Technical Development and the International Relations Antonio de Santis - Santiago de Compostela October 2006

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