1 <NaA 0 x * THE VALUATION OF VfATBEFRONT PROPERTIES ALONG THE COASTLINE OF KENYA BY H . A. SWA7.UR1, R.A., M . A. {UoN. NPB). A THESIS SUBMITTED IN FULFILMENT FOR THE DECREE OF DOCTOR Of PHILOSOPHY DEPARTMENT OF LAND DEVELOPMENT FACULTY OF ARCHITKCTURF, DESIGN AND DF.VKLOPMFNT UNIVERSITY OF NAIROBI * RRRUARY * Tin- thesis xc W original work and has not been ^ u ^ . i ' . e a £or a degree in any other University. MUHAMMAD A SWA2URI f y * jV| ___ Uu* b .c/. >ul..uitted f *»: ex?-ir.ation v.th out-- i.* . • ■'IS* University Supervisors. U rw v -t 1 as Professor 3AAD S. VAHVA a V (/ V l - / v ~ . CT PROPESSOF GEORGE K. KING*Or.Ah 1^96 ACKNOWLEDGEMENT 5nt o I t he gt'eats at difficult!®a on* endures z*~rr going tnrough su'-h ? study is who to remember to thank for any contribution they may have offered. It has taken a time since this study was started, and there are many people who contributed ’o its completion. The list ce*rain?y Iona, In. m particular I wish to convey my •hanks and gratitude for whatever help the following may have contributed: Hy dear family for having encouraged me thioughout the study, staying far away from them for long periods. D.A.A.D. Office for their continued sponsorship without whose help this study may not have been fruitful. The two serious supervisors, Profs. S.S. Yahya and G.K. K m g ’oriah, who patiently went through series of manuscripts. Prof. Paul M. Syagga, whose guidance was most helpful. Fellow staif of the Department of Land Developmen' -.n particular and the entire A.D.D. in general. The various icsearch assistants. The many people interviewed and those who li v unf.'ri ; -1 irfc*imotx">i *n*> Mir.r Maryavo? Ky?r.iu ChcAvn wnc . toyethr? v/ith myself, *.yr*d '.ho vroi fc on the computer. ;xiil a l l • »* <• • w in m i / v »y ••.olpad me but i =»nn.M poar I1'!) t l‘ •ham - u y than'; ynv a i. 1 :1 Tiij• work if dedicated to My i*te niothei 1ASIKA WINGI BOHAN H who did not live to enjoy • he expected benefits from M a s study. ABSTRACT Kenya is one of the coastal states that lie in the eastern part of Africa. For a long time now Kenyan valuation practice has been concentrated on land-based resources. Valuation of farms, houses, offices, Industrie? r . now pute familiar in everyday life Howe , .1 "ri* v»" now becoming important in world reaout :*•5 iffnin, nn a:oa .n which the valuation piofees*.or n Kenya can also participate. This area is the coastal ci marine env tcument, where many sectors cf « .'i.ronv a- ti wap* rt and research ax* new •nrrsii;ng,y turning Vo use. Whereas profession?* . 1 1 n* Me? co'Jii.iie.e have • xpanded their scope into * he«v “m v (onment' , the valuation profession in Kenya has «e»i i'i realise i-s potential :n the same. And because the full economic potential of the resources of the Kenyan coast is not known with certainty it is logical to carry out studies of their estimation. Unlike land-based resources, waterfront properties along the coastline possess somewhat peculiar characteristics which imply that a free market or a purely price competitive mechanism will not allocate these resources properly. It is even worse for the methods of valuation which can be employed in such cases. Identification and v explo_r.ntion of t c s c r v -* J ivo to be climaxed by irvpsr m®r.hod«« of th^ir estimation to be worthwhile. -w" n »* ible characteristic:; c £ the waterfront preperti* iocst-'1'' a ’.ong the Kenyon roastline are the extremities in vaiueo of similar properties, sometimes even tn the vne inr ■ M Arid the exclusive use of tho market - comparison method tn ;uch property valuations. This study contends that extremities m values have arisen from th* use of Improper methods for valuing waterfront properties. And the method being used currently in tho valuation disregards a number of important factors, most ..>! which are difficult to quantify using the market comparison method. This study aims, therefore, :c pte^u.i* iifitte’ ways of valuing waterfront lands. The vtiuit icu ot w.**-• fto*r. lands i; m i u e n c e d L, both sice-oriented, such as view, size and non-site-oriented variables like reasons for sale, date of transaction and so on. Evidence from the valuation practices in the study area suggests t lint only sito-oriented characteristics of property are considered during valuations and this loads to either under valuation ox overvaluation of these properties. Although some factors ar9 not directly on the property being valued, they are actually significant influences of value, and l i i : M J * U *i'i altogo her is not reasonable*. vi ' n*tho<! proposed m i this study con u *. s >oth •i*:? non sit*1 o»-en*:**d ! nctorn 1 > 'A • ■ ■ j' i1:n ■ 1 muitii •: • ’ irca ^ion AriaiysJir (CMRA) at • !• •. • t .vfn hr»•« r !•.•»*• t - t ~noiro of value- inf lucncing • * v>’a i »'••?! » cciontiric, mote reasonable and lets • ;*>.-* • •• than in r he * m n a r y Comparison Method, i f influencing virt’bits for valuation purposes iv 9 "oroRoary stop if props* values have to be estimated. Many valuations hove hod * suits because of Inability *o t <> •» r( t Ify p*.d m «* iKIlt *» factors* ;*pver?' rejt^ss^on methods of valuation have been tried li, i r, n study, ’.anginj from the simple multiple • *• ,tr s ion analysis to i ink transformation legreeoion. v . i t hr. method* ! ac it*? r-erits and demerits, in most •*sen in terms of their usefulness and accuracy in valuing waterfront lands. Conventional Multiple Regression Analysis (CMRA) and Rank Transformation Regression (RTR) were found to be tho best of the lot, accounting for 49t and 511 of the variation in property values in the area respectively. However, RTR seems to have the methodological problem of how to rank factors affecting value beforo using them in the procedure. While it is appealing and quite rational to rank factors, the criteria to be use! to; the ranking is contentious. CMRA was therefore, found to bo a 'better* method, it vii produced better ronults in tho various tests the models underwent and can easily be understood and applied. Using the same methods, it was found that SIZE of property is the most important factor affecting value in the study area. The larger the size, the higher the value, although other factors such as width of the beach area (AREA), VIEW of the ocean waters, availability of water SPORTS on the beach etc, have also to be considered. Furthermore, no single factor alone can be used as the only basis for estimating values of waterfront lands. Despite the study advocating for tho uso of CMRA m waterfront valuations, there are very few instances where th»» valuer will not use some form of comparison in the valuation process. Whether it is in tho choice of independent variables or in the measurement of these variables, the punciples of comparison have to be utilised to arrive at objective values. Aftet il . valuation is all about the market, and if the value? disregards the market trends then his valuation will be somewhat incomplete. M A SWAZUR1 FEBRUARY 1995 Vlil • TABLE OP CONTENTS PAGE TITLE ......................................... (0) DECLARATION ................................... (i) ACKNOWLEDGEMENT .................................. (li) DEDICATION ....................................... (iv) ABSTRACT ...................................... (v) TABLE OP CONTENTS ............................... (ix) LIST OF MAPS .................................. (Xiii) LIST OF FIGURES .............................. (xiv) LIST OF TABLES ................................ (xiv) CHAPTER ONE : INTRODUCTION AND PROBLEM STATEMENT » Introduction ..................................... 1 Problem Statement ................................ 5 Objectives of the Study ......................... 15 The Study Hypothesis ............................. 15 Scope of the Study ............................... 16 Research Methodology ............................. 18 Organisation of the Study ....................... 22 References ........................................ 23 CHAPTER TWO : COASTAL WATERFRONT PROPERTIES Introduction ..................................... 25 The Properties Themselves and Their Essence .. 25 ix Coastal Lands ................................. 31 Fisheries ...................................... 37 Minerals and Energy .......................... 39 Shoreline Forests ............................ 40 Ocean Waters .................................. 44 References .................................... 49 CHAPTER THREE : WATERFRONT PROPERTY MARKETS Introduction .................................. 50 The Kenyan Case .............................. 52 Factors Considered During Exchange of Waterfront Properties in the Market ....... 60 References .................................... 72 CHAPTER FOUR : THE STUDY AREAS Geographical Setting ......................... 73 Vegotation .................................... 77 Climate and its Influence on Property Values.. 79 Physical Infrastructure .................. 82 The People .................................... 84 Property Ownership Along theCoastline of Kenya.. 87 The Tourist Industry and its Influence on Waterfront Properties ........................ 91 Utilization and Conservation of Waterfront Properties Along the Coastline of Kenya....... 97 x » Mangrove and Other Forestry Uses ............. 104 Harbour/Port/Dockintf Uses .................... 104 The Ocean Waters and Their Uses .............. 105 Conservation of Resources in the Coastline .. 110 References .................................... 113 CHAPTER FIVE : REAL PROPERTY VALUATION METHODS Introduction