Sunday, February 21, 2010

Appraisal in Fiji

The assignment was to appraise one square mile of swampy, beachfront land, as seen above, adjacent to one of the primary resort areas of Fiji, known as Denarau.

Nearby Sheraton Fiji Resort on Denarau Island

Denarau Island isn't actually an island, but a peninsula separated by a river with only one bridge, guarded by security, thus effectively restricting access to all but vacationers and those who serve them.

Denarau is considered quite a successful development today, with 5 star resorts by Sheraton, Westin, Hilton, Wyndham and Sofitel, but according to former University of the South Pacific real estae professor Matt Myers, the first developer failed and it took the second developer about 20 years to turn this former mosquito-infested mangrove swamp into the resort paradise it is today.

One of the issues to consider in this appraisal assignment was that none of the appraised land was "fee simple" or "freehold". Only 8% of the total land area of Fiji is freehold land. 88% of the land area is owned in common by indigenous Fijians, and is leased to prospective users by the Native Land Trust Board, typically for 99-year periods. (This is similar to landownership in the Hawaiian Islands, for instance.) The remaining 4% of Fiji’s land area is owned by the state and is known as “Crown Land”. It is also leased by the government to prospective users for 99-year lease terms. Freehold is the preferred form of ownership, but ground lease terms are not usually onerous, thus creating positive leasehold value for possessors of leasehold interests.

208 acres consisted of "crown leased" land with 97 years remaining on the lease, but another 53 acres were land that was "native leased" with less than a year remaining on the lease. There was no way that my lender client was going to accept an expiring lease as collateral, and I thus could not assign it value, with the leasehold interest expiring so soon.

A second complicating factor was the physical developability of the land itself, which had a high water table, making landfill necessary. Most of the site is heavily wooded, with mangrove being the main species near the beach. Mangrove swamp is expensive to deal with, for several reasons:

• Significant landfill would be required.
• Mangrove swamps produce dark sediments which foul beaches (see above photo), thus requiring the importation of new beach sand and are impossible to drive on.
• Mangroves are a protected species and the government will require the developer to relocate the plants.
• Flood prevention measures would be needed (river dredging, etc.).

Utilities have not yet been extended to this part of Fiji, either.

The third complicating factor was economic. Tourism to Fiji has been affected by the recession, causing discounting of already existing hotel rooms in Denarau. Denarau is just 20 minutes away from the failed Momi Bay Resort that was originally to be managed by JW Marriott, and the other major Nadi-area resort development, Naisoso Island, is struggling.

As in the Barbados assignment, most of my market data came from local journalists or real estate brokers. (One thing I like about these former British Commonwealth nations is that people write well and abundantly). I tried to hire a local appraiser to help me, but I did not find one with the same sense of urgency that my client had.

Appraising in Fiji seemed much like appraising in the Caribbean. The two dominant industries are Tourism and Sugar, and the island is a former British colony. Tourist develoments are kept removed from native communities, and the government is pro-development, despite the frequent coups d'etat, which are never violent.

Fiji has considerable natural beauty and posh hotel resorts. I would highly recommend mosquito repellent if you go there; there are occasional outbreaks of Dengue Fever, which causes painful bone inflammation.

Next stop: Playa Azul, Guanacaste, Costa Rica.