- Broker Directory
- My Tools
- News & Advice
- Market Trends
- Other GN Sites
In September last year, the Dubai Government became the first in the world to embrace the International Property Measurement Standard (IPMS) as part of a move to bring in more transparency to the real estate market.
As the IPMS Coalition (IPMSC), the group responsible for developing the new standard, prepares to release the final version of the IPMS for Offices this month, proponents say they are now gaining strong support from more organisations worldwide.
The advocates say global real estate stakeholders are beginning to realise the merits of a common language for measuring buildings across international markets.
“IPMS will ensure property assets are measured in a consistent way internationally, creating a more transparent marketplace, greater public trust, consistency in the reporting of property size, stronger investor confidence and increased market stability,” says Rob Jackson, Regional Director — Middle East and North Africa (Mena) of Rics International. “It will, for the first time, allow cross-border international comparability.”
IPMSC, which comprises 55 professional and not-for-profit organisations, released the first draft of the standard for offices in January. The final version will be released following a second round of public consultation held from June to September.
Being an early adopter of the standard has helped reinforce Dubai’s standing in global real estate, says Mohammed Khodr Al-Dah, Director of the Technical Department at the Dubai Land Department (DLD).
“The early adoption of IPMS allows Dubai to maintain its pre-eminent real estate position, both locally and globally,” says Al-Dah. “The DLD’s official support sets a worthy example for other countries — where Dubai leads, others will follow.
“The emirate recognises exactly what is required to boost the international and domestic property sector.”
The IPMSC was formed on May 30 last year after members met with the World Bank in Washington DC, USA, to create unified property measurement standards for office, residential, industrial and retail property. Coordinated by Rics, the coalition now includes the Appraisal Institute, Asia Pacific Real Estate Association, Australian Property Institute, Building Owners and Managers Association International, China Institute of Real Estate Appraisers and Agents and South African Property Owners Association among many others.
“This project is the first of its kind where professional organisations and standards bodies from around the world have come together to create one shared international standard for property measurement,” says Jackson. “Markets that do not have an existing established measurement standard are encouraged to adopt IPMS.”
More developed markets, where existing measurement standards are set in law or custom, are expected to implement IPMS in conjunction with local standards on a dual reporting basis initially, until such time when it is likely that IPMS will become the predominant standard.
The implementation and adoption mechanism is also likely to mirror how the International Financial Reporting Standards was introduced and is now adopted in more than 120 countries globally, says Jackson.
The area of a property is a crucial factor that affects property valuation. It is also an important element for investors, who tend to compare projects, properties and markets. However, at present there is no unified system for property measurement, and variations in measuring methods generally raise issues concerning a property’s area.
With no standardised system, Al-Dah says there is often a difference between the area mentioned in a property contract and the area recorded in the official certificate of ownership issued by the DLD. He says there is also often a difference in the recorded gross area and net area.
“Having different space measurement standards for real estate makes it very difficult for international investors to make easy, meaningful comparisons,” says Al-Dah. “This is what IPMS seeks to address.”
He points out that while the coalition has already agreed on the new standards, they are not yet officially adopted and published. While the first set of standards are expected to be completed this year, Al-Dah says the second set of standards relating to apartments will be published next year.
“The DLD will progressively apply the new guidelines in collaboration with relevant government entities and developers, starting with new projects. “These new criteria are essential to bring current disparate measurement methods, which invariably introduce an element of uncertainty into the market, into line with the new standards,” he says.
“Market confidence will be boosted after their introduction because of the removal of doubt and the strengthening of trust through transparency.”
With the adoption of IPMS, the DLD aims to enrich its property measurement techniques to promote market efficiency.
In some countries, communal space such as lift shafts, hallways, balconies, etc., are included in the floor area measurements, whereas in others off-site parking or even swimming pools are included. Jackson says with so many different methods, it is difficult for global investors to accurately compare space and this often leads to legal disputes between property sellers and purchasers.
Research by JLL reveals the difference in building area can vary as much as 25 per cent between the different codes of measurement currently in use in Europe.
“The current average sales price of residential units in Dubai is in the order of Dh1,000 per square foot,” says Alan Robertson, CEO of JLL — Mena. “On this basis, a unit measured at 1,600 sq ft would cost Dh1.6 million. Using a more generous measurement standard for the same unit would result in an area 25 per cent bigger, or around 2,000 sq ft, increasing the price by Dh400,000 to Dh2 million, which is quite a difference.
“The same applies in respect of office rents, where different measurement standards will have a major impact on a tenant’s total occupancy costs.”
Another complication in some markets in the region is the use of both square feet and square metres to express building areas on plans and in advertising material, Robertson points out.
“Recognising this problem, the Dubai Government issued a recommendation more than two years ago that all buildings in the emirate should be measured in square metres,” he says. “In practice, this has not been widely accepted and many developers continue to use square feet as their preferred unit of measurement.”
The lack of a unified standard on how buildings should be measured is an unnecessary obstacle to facilitating greater flows of both capital and occupiers between real estate markets around the world, says Robertson. This problem remains particularly acute in less mature markets such as those in the Middle East, which are traditionally rated poorly in terms of openness and transparency.
Jackson says the aim of the standard is to enable buildings to be measured consistently to promote market efficiency.
“The growth of cross-border property investment and expansion by global corporate occupiers underpins the demand for transparency, against a background of many differing national and local building measurement conventions,” he says. “The new standard is, therefore, considered one of the most significant developments in the global real estate profession in recent history.”
While the initial standards to be published this month focus on office buildings, the initiative will go beyond office measurement standardisation to include other property types such as residential, industrial and retail in the coming months.
Source: Hina Navin, Special to Property Weekly