Property

An Overview of RICS’ New Global Measurement Standards



We’ve all been there — at a dinner or cocktail when a conversation comes up about flats. As someone from Australia, another from Canada, one from the UK and a Hongkonger try to discuss the relative bargain (or outrageous cost) of their current rental, the talk will invariably turn to size. That conversation need only happen once before tenants, homeseekers and investors quickly realise that 500 square feet in those four locations means four distinct things.

Apples to Oranges

As a collection of disparate societies we have nonetheless managed to find a common measurement for distance, temperature, film speed and time among other quantifiable facets of life. And while it would be nice to be able to buy shoes and trousers the same way worldwide, it’s long past time a major purchase like property found a similarly common measurement for that most fundamental of its aspects.

To some, arguing a few square feet (or square metres, or rai, or pyeong) may sound petty, but the variance in how commercial and residential spaces are measured in different parts of the world can have significant impact on all parties involved — from lost revenue, to lost living or working space all the way to litigation. So it is in that climate that the Royal Institution of Chartered Surveyors (RICS) set out to create a global measurement standard designed to help vendors, purchasers, landlords, tenants and investors get a clearer understanding of the size of the property they’re negotiating — and bringing floor area and dimension numbers closer to a single indicator.

In 2014, international commercial property transactions alone were valued at US$1 trillion. That same year, RICS drafted the International Property Measurement Standards (IPMS): Office Buildings, which, very simply, “[established] a consistent methodology for measuring office buildings around the world.” The mandatory standard for all RICS professionals that carry out commercial property measurements has already been adopted by several governments and corporate occupiers, not surprising given that, “There is widening recognition of the crucial role that a transparent real estate sector plays, not only as a facilitator of new investment and business activity but also, significantly, in community well-being and inclusiveness” according to JLL’s 2016 Global Real Estate Transparency Index.

Apples to Apples

In September last year, RICS unveiled its IPMS: Residential Buildings, which provides a uniform method for determining the size and dimensions of residential floor space that can be used anywhere in the world.

As it stands, residential property measurements can vary drastically from market to market; RICS research found measurement differences in apartments could vary by as much as 27% and homes by up to 58%, due to inclusion or exclusion of balconies, terraces, roofs, carparks, gardens or swimming pool areas. In Melbourne, for example, an apartment’s specifications are in square metres, but dimensions are not required — unless they’re for a house — whereas Toronto demands square feet, and includes balcony space in the total, which Melbourne does not. Sellers in New York are required to provide both total floor area and dimensions, but do not include balcony space. London provides floor area and dimensions in both metric and imperial units, doesn’t include balcony space, and deletes square footage for apartments.

Shanghai will indicate dimensions and area in metres, but nothing else. Individual dimensions — bedrooms, entry hall, closets — are par for the course in North America, Asia and the Middle East, but less so in Europe. A whopping 44% of residential size indicators include internal walls as part of an apartment’s size in Asia.

The next closest is Oceania, at just 14%. There isn’t even agreement across regions of how to measure a residence, though tape measure, laser and scaled drawings are the most common tools. Hong Kong prefers scaled drawings, which have the potential for “local inconsistencies in the areas calculated especially if local developers have inflated their areas to seek higher sale capital value on a square footage/metre basis,” said RICS.

The end result is owners and investors can be misinformed or misdirected with respect to floor area, which in turn can result in substantial differences in real size and listed size, particularly in off-plan purchases. Off-plan sales account for the majority of residential investment purchases by Hongkongers overseas, and currently the bulk of sales transactions here at home. RICS also theorises size differentials can lead to rental calculation and service charge disputes.

The standard bodes well for both Hong Kong investors and purchasers in the SAR. In an industry where a consensus on what exactly “gross” and “net” square footage means, every little bit helps. While the RICS residential standard is voluntary (for now) and is only applicable to RICS members, the idea is for the IPMS (referred to as “global open-source standards”) to become the benchmark for all real estate professionals. RICS is currently working on a standard for retail and industrial property.

Though it is far too early to gauge the impact of the IPMS on residential property transparency, RICS itself is confident in the practice. “We anticipate this international measurement standard to be adopted extensively globally,” commented Clement Lau, chair of the RICS Hong Kong board. “We urge all built environment practitioners to explore this new international benchmark and incorporate IPMS into their work.”

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