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DEVELOPMENT OF SPATIAL MODEL IN PROPERTY RATING
VALUATION
by
OLIVER VALENTINE EBOY

Senior Lecturer & Researcher,
Centre of Remote Sensing & GIS,
University Malaysia Sabah
Email: oliver@ums.edu.my
2017
DEDICATION & ACKNOWLEDGEMENT
The completion of this book has been possible with the assistance that I
have received from many people. Primarily, I must thank my supervisor,
Associate Professor Dr. Narimah Samat for her continuing support,
motivation, commitment and dedication in supervising my studies.
Without my supervisor, I would not have been able to reach this stage of
completion. I also would like to extend my thanks to Prof. Dr. Ruslan
Rainis, who had helped me provide solution to some of the main
problems I faced during the early and end stage of this study. Thanks are
also due to the chairperson of Geography section and Dean of School of
Humanities for all assistances while pursuing PhD at Universiti Sains
Malaysia (USM). My heartfelt thanks go to all the public and private
organisations that were willing to provide data for this research and their
staff who have been helpful in dealing with my enquiries regarding the
data. The DBKK had given permission for me to have their data through
Mr. Edmund Oktoberian Sepikit, Mr. Peter Liow and Stanley David
from Earth Info Sdn Bhd who, then, was willing to share some of the
data they had acquired and cleaned. To Mr. Lifred Wong, director of
valuation department in DBKK, who has my indebt gratitude by helping
me answered my queries about the valuation methods conducted in
DBKK including verified the results produced from this study.Beyond
that, I must thank Ms. Lauren Rosenshein, Geoprocessing Product
Engineer in ESRI, for her guidance regarding spatial statistics
communicated through emails. Thank you also to Rosmiyati Hasni and
Azizul Ahmad, postgraduate students from Geography Dept that assists
me a lot with the daily activities in USM. Denis Lajium from UMS has
been extremely helpful in providing me journal papers from Waikato
University in New Zealand.A debt of gratitude is also due to Universiti
Malaysia Sabah (UMS), my employer, which has been sponsoring my
studies and supporting me financially since October 2011. To all my
friends and colleagues, near and far, wherever they are now, I thank
them sincerely especially for their moral and technical support. Finally,
yet most importantly, I owe a great appreciation to my family especially
my parents, and my parents-in-law, for their prayers and moral support.
To my wife, Patriecia, and our three children, Joanne, Jojo and Jonjon,
their love, understanding and sacrifices are just invaluable to me. Above
all, I thank GOD for the knowledge and experiences that I had gained
along this journey.
ii
TABLE OF CONTENTS
Dedication and Acknowledgement ............................................................. ii

Table of Contents ......................................................................................iii
List of Abbreviations................................................................................vii
Abstract ................................................................................................... viii
CHAPTER 1 - INTRODUCTION
1.1 Preliminary ..................................................................................... 1
1.2 Research background...................................................................... 1
1.3 Problem statement .......................................................................... 6
1.4 Aim of the study ............................................................................. 9
1.5 Objectives of the study ................................................................... 9
1.6 Scope of study ................................................................................ 9
1.7 Summary of research methodology............................................... 10
1.8 Contribution of the study .............................................................. 11
1.9 Book structure .............................................................................. 12
CHAPTER 2 – LITERATURE REVIEW

2.1 Introduction .................................................................................. 14
2.2 Property Market............................................................................ 14
2.3 Property Market Value ................................................................. 15
2.4 Property Valuation........................................................................ 15
2.5 Property Tax................................................................................. 16
2.6 Property Rating in Malaysia ......................................................... 17
2.6.1 Brief history of Rating in Malaysia ................................... 17
2.6.2 Basis of assessment........................................................... 18
2.6.3 Rate of tax ........................................................................ 18
2.6.4 Valuation list .................................................................... 19
2.7 Methods of assessment ................................................................. 20
2.7.1 Main methods in residential property valuation ................ 20
2.7.2 Other method in residential property valuation ................. 21
2.8 Property value influence factors ................................................... 21
2.8.1 Physical structure factor.................................................... 22
2.8.2 Geography factor .............................................................. 22
2.8.3 Economic factor................................................................ 23
2.8.4 Government policies ......................................................... 23
2.8.5 Location factor.................................................................. 23
2.9 Application of GIS in property valuation...................................... 26
2.10 Spatial statistics modelling ........................................................... 32
2.10.1 Ordinary Least Squares (OLS).......................................... 32
iii
2.10.2 Geographical Weighted Regression (GWR)...................... 33
2.10.3 Spatial Regression Modelling (SRM) ............................... 34
2.10.3.1 Spatial Lag Model ............................................... 35
2.10.3.2 Spatial Error Model............................................. 35
2.11 Main sources of modelling problem.............................................. 36
2.11.1 Multicollinearity ............................................................... 37
2.11.2 Spatial Autocorrelation ..................................................... 37
2.11.3 Spatial Heterogeneity........................................................ 39
2.12 Main statistical procedure for property valuation modelling ......... 41
2.12.1 Data selection ................................................................... 41
2.12.2 Variable selection ............................................................. 42
2.12.3 Functional Form Selection ................................................ 44
2.13 Model testing................................................................................ 46
2.13.1 Multicollinearity test......................................................... 46
2.13.2 Normality test ................................................................... 48
2.13.3 Spatial autocorrelation test................................................ 49
2.13.4 Goodness of fit of the model............................................. 49
2.13.5 Significance test of the variable relationship ..................... 51
2.13.6 Variable relationship type test........................................... 53
2.14 Application of spatial statistics in property valuation modelling ... 54
2.14.1 Studies undertaken in the western developed countries..... 54
2.14.2 Studies in Asia .................................................................. 56
2.14.3 Studies in Malaysia........................................................... 57
2.15 Conclusion.................................................................................... 59
CHAPTER 3 – RESEARCH METHODOLOGY

3.1 Introduction .................................................................................. 61
3.2 Conceptual framework of the study .............................................. 61
3.3 Proposed modelling methodology................................................. 63
3.3.1 Ordinary Least Square (OLS) model................................. 63
3.3.2 Geographical Weighted Regression (GWR) model........... 67
3.3.3 Spatial Regression model (SRM) ...................................... 69
3.4 Model performance assessment .................................................... 72
3.4.1 Model assessment tools..................................................... 72
3.4.2 Model comparison ............................................................ 72
3.5 Implementing and visualizing the findings ................................... 73
3.6 Conclusion.................................................................................... 73
CHAPTER 4 – STUDY AREA AND DATA

PREPARATION
4.1 Introduction .................................................................................. 74
4.2 Study area..................................................................................... 74
4.2.1 Justification of study area selection................................... 75
iv
4.2.2 Property rating in Kota Kinabalu City Hall (DBKK) ........ 78
4.2.3 Problems in DBKK valuation data .................................... 84
4.2.3.1 Record Problems ................................................... 85
4.2.3.2 Rating value adjustment ........................................ 85
4.3 Data gathering .............................................................................. 85
4.3.1 Identification of data requirement ..................................... 86
4.3.2 Data sources and data availability ..................................... 86
4.3.3 Data quality ...................................................................... 87
4.4 Data preparation ........................................................................... 88
4.4.1 Data verification ............................................................... 88
4.4.2 Data cleaning .................................................................... 96
4.4.3 Data scaling ...................................................................... 98
4.4.4 Data format conversion................................................... 101
4.5 Distance measurement for the location factor ............................. 102
4.6 Identifying spatial data pattern.................................................... 104
4.7 Conclusion.................................................................................. 113
CHAPTER 5 – DEVELOPMENT AND DIAGNOSTIC OF

OLS MODEL
5.1 Introduction ................................................................................ 114
5.2 Model development .................................................................... 114
5.3 Variable selection ....................................................................... 115
5.3.1 Stepwise procedure ......................................................... 118
5.3.2 Variance inflation factor (VIF) ....................................... 119
5.3.3 Final selection of model variables................................... 120
5.4 OLS model diagnostic ................................................................ 122
5.4.1 Investigating OLS model for spatial autocorrelation ....... 122
5.4.2 Investigating OLS model for normal distribution............ 125
5.4.3 Investigating OLS model for non-stationarity pattern ..... 126
5.4.4 Investigating OLS model for significance ....................... 126
5.5 Assessing the performance of the OLS model ............................ 127
5.5.1 The performance of the OLS model................................ 127
5.5.2 The performance of the OLS model with building type .. 130
5.6 Conclusion.................................................................................. 134
CHAPTER 6 – SPATIAL REGRESSION MODELLING

AND MODEL COMPARISON
6.1 Introduction ................................................................................ 135
6.2 Spatial regression modelling (SRM) process .............................. 135
6.2.1 Spatial regression modelling for the overall model ......... 136
6.2.2 Spatial regression modelling based on building type....... 136
6.3 The performance of SRM’s property rating ............................... 138
v
6.4 Model comparison of OLS and SRM for the study area.............. 142
6.5 Visualizing and interpretation of property rating value map ....... 143
6.6 Conclusion.................................................................................. 151
CHAPTER 7 – CONCLUSION AND

RECOMMENDATION
7.1 Introduction ................................................................................ 152
7.2 Main findings of the study .......................................................... 152
7.3 Contribution of the study ............................................................ 154
7.4 Limitations of the study .............................................................. 155
7.5 Recommendation and direction of future study........................... 157
7.6 Closing statements...................................................................... 158
BIBLIOGRAPHY .................................................................................. 159
APPENDICES........................................................................................ 188
vi
LIST OF ABBREVIATIONS
1. AIC Akaike Information Criterion

2. BP Breusch-Pagan
3. CIA Central Intelligence Agency
4. DBF Database file
5. DBKK Kota Kinabalu City Hall
6. DFD Data Flow Diagram
7. ESRI Environmental Sciences Research Institute
8. GIS Geographical Information System
9. GWR Geographically Weighted Regression
10 IAAO International Association of Assessing Officers
11 IDW Inverse Distance-Weighing
12 IMF International Monetary Fund
13 JB Jarque-Bera
14 JPPH Property Valuation and Services Department
15 LM Lagrange Multiplier
16 MRA Multiple Regression Analysis
17 MS Microsoft
18 OLS Ordinary Least Squares
19 RCA Reduced Coverage Area
20 SPSS Statistical Package for Social Sciences
21 SRM Spatial Regression Model
22 UK United Kingdom
23 US/USA United States of America
24 VIF Variance Inflation Factor
vii
ABSTRACT
According to Local Authorities Act 1976 (Act 171), property tax rates
are required to be valued every five years to accommodate the present
market value. Usually, the revaluation activity involves exhaustive, time
consuming and costly processes because it involves large areas and
many properties that are needed to be covered. There are various
property valuation models being developed using spatial statistics
method to estimate property values of large quantities in a short time
involving small manpower and at low cost. However, it has been
difficult to produce either one property valuation model that is suitable
for the study area or subdivides it to many models in order to ensure
accurate of the model produced. Furthermore, the type of variables used
in model development and which variables have the most influence in
determining the property rating also are difficult to be examined.
Therefore, the aim of this study is to develop property rating valuation
model in Kota Kinabalu City Hall (DBKK) using Ordinary Least
Squares (OLS) and Spatial Regression Model (SRM). The model
developed could accurately estimate the property rating and eliminate the
error. These spatial models are developed based on the 1997 residential
property valuation data obtained from DBKK and subsequently tested to
measure its accuracy and reliability. The study found that using
segmentation approach of the data based on different building types are
suitable to be represented with separate models. However, the overall
study area is best represented by SRM as OLS model contain spatial
autocorrelation error. Similarly, the model based on building type in this
study is also suitable to be represented by SRM. The findings shows that
data segmentation based on building type model performed better and
each building type model produced different number of significant
variables that influence the property rating value. This was proven based
on the big marginal accuracy differences of R2 achieved by the highest
building type model of intermediate terrace with 84.3% compared to the
overall model with 59.2%. The study also found out that each building
type has it own significant variables that influence the most of its value.
Spatial statistics can be used to produce residential property rating
valuation model. This approach is also suitable for large valuation
dataset with fast processing and low in cost. The model developed is
suitable to be used by DBKK or local authorities in management of the
property rating valuation data.
viii
CHAPTER 1
INTRODUCTION
1.1 Preliminary
This chapter discusses the introduction of the study that includes the main
elements of the book. It comprises the research background, problem
statement, the aim and objectives of the study and the general methodology
to be used. This chapter concludes with the contribution of this study and
finally, the structure of the book.
1.2 Research Background

In this world of ever increasing human population, which has reached 7
billion figure (Kunzig, 2011), urbanization is unavoidable. More people
will move from rural to urban area to seek better quality of life in terms of
education, jobs, health and purchasing power. As projected by the United
Nation (UN) population division (2013), 4.9 billion people, or 60% of the
world’s population, are expected to be urban dwellers by 2030 (Table 1.1).
The increase of urban population is also experienced in Malaysia. For
example, the number of Malaysians moving to urban areas has increased
every year. As of year 2010, the percentage of total population in Malaysia
living in urban areas has reached up to 72.2% as shown in Figure 1.1
(World Bank, 2012).
1
Table 1.1: Global proportion of the urban population increase
Urban Population
Year Proportion
(million)
1900 220 13%
1950 732 29%
2005 3200 49%
2030 4900 60%
Source: UN Population Division (2013)
Source: World Bank (2012)

Figure 1.1: Urban Population in Malaysia (% in Total) Jan 2004 – Jan
2010
Ultimately, this phenomenon would lead to economic effect of demand and

supply and subsequently, change the price of services and goods
persistently with the economy market in urban area (Quigley, 2009:119).
Theoretically, if the demand is high and the supply is low, then the price of
the goods or services would be high (Lovewell, 2009:36). One of the goods
that is affected by this economic effect is the house price (JUSC, 2006).
Such an increase of demand (DD) in house or property would reduce the
supply (Q1 to Q2) and increase the price of the house (P1 to P2) (Figure
1.2).
2
Price
of
houses
P2
P1
DD Quantity of
houses
Q2 Q1
Source: Adopted from Lovewell (2009)

Figure 1.2: The effect of housing supply and demand towards house price
The value of a property or house price usually reflects the local economic
growth (Lin, 2010). In Malaysia, the residential property transaction values
gradually increased in parallel with the number of units sold as shown in
Figure 1.3 (CIMB, 2012). This figure illustrates property transaction from
1990 to 2012, which reflects rapid development of Malaysian economy
during this period.
3
Source: CIMB Property Market Report 2012
Figure 1.3: Residential transaction values and volumes 1990 - 2012
By knowing the property value, the place was able to be identified as

developed or not. Furthermore, the economy affects the variation in
property value from time to time (Cho, 1996; Abraham and Hendershott,
1996; Johnes and Hyclak, 1999; Rapach and Strauss, 2007, 2009). Hence,
the increased or decreased of the property values measured the
development of the area.
The properties values also have become the basis of property rating in
which the local authorities used to impose tax to the property owners
(Buang Alias, 2000). As stated in the Local Government Act 1976 Act 171
(2006), one of the tasks of the local authority in Malaysia is to collect
property tax annually, where the tax imposed is important for the relevant
authorities to generate revenues and continue to provide goods and services
for local consumption. Moreover, the property rating needs to be reviewed
every five (5) years such that the property will reflect the current property
market value. Therefore, a property valuation or revaluation is required to
accommodate the current value for the whole property in the area under the
jurisdiction of the local authority.
Valuation has been defined as the art and/or science of estimating values
(Millington, 2001:4). Property valuation is conducted by professional
valuer who will inspect the said property and assess the property value
based on the property characteristics such as its physical structure factor,
geography factor, location factor, economic factor of demand and supply,
4
and government policies (Ismail Omar, 1992). However, property location
which involves the accessibility and surrounding neighbourhood is the
most influential factor to the property valuation (Suriatini Ismail, 2005;
Kim, 2005; Theriault et. al., 2003; Wyatt, 1997; Goodall, 1972).
Various methods have been used to conduct property valuation but many
studies consistently mentioned five methods namely comparable method,
cost method, residual method, investment method and income method
(Scarrett, 2008; Richmond, 1985; Ismail Omar, 1992; Appraisal Institute,
1992). Another valuation method, however, has gaineds popularity
especially during this age of technology is the regression method (Brown,
1974; Gloudemans and Miller, 1978; Mark and Goldberg, 1988; Cannaday,
1989; Ismail Omar, 1992). Regression analysis is capable to model,
examine, explore spatial relationships, to better explain the factors behind
observed spatial patterns, and predict outcomes based on that
understanding. Thus, the regression was used to develop a mass appraisal
model.
Mass appraisal or mass valuation has been defined as the systematic

appraisal of groups of properties as of given date using standardized
procedures and statistical testing (IAAO, 1978). Mass appraisal has been
conducted since 1896 with the revaluation of St. Paul, Minnesota by
William Somers in which he was credited as the first technical cost
approach-based mass appraisal exercise (Silverherz, 1936 as cited from
Almy, 2010 and McCluskey, 1997a). The concept of mass valuation
somewhat differs from that of individual valuation as the mass valuation
used for a large amount of property by applying standardized statistical
data processing and it is difficult to single out individual features of every
property unit. Therefore, the main attention is focused in defining what is
common to all properties being valued, but not to the specific features
characteristic of a single unit (Bagdonavicius and Deveikis, 2005). This
type of valuation is suitable to be used by local authorities for revaluation
exercise to estimate property rating for tax in their jurisdiction area as it
involves many properties and covers large area (Dzurllkanian Daud et al.,
2008:9).
Unfortunately, the usages of this approach have yet to be materialised in

Malaysia as it is still developed and tested at the academic level even
though such approach has been adopted by various countries such as
United Kingdom, Australia, U.S, Africa, New Zealand and Europe
5
(Dzurllkanian et al., 2006:2). Therefore, new method and new study is
needed to convince the local authority in Malaysia to adopt this approach.
1.3 Problem Statement

Property revaluation process in Malaysia is supposedly to be conducted
every five (5) years in accordance with the Local Government Act 1976
(2006) which is similar to other countries such as England and Wales
(Tretton, 2007). In reality, however, the revaluation was carried out after 10
or 20 years (Dzurllkanian Daud et al., 2008:5). Table 1.2 shows the
pending revaluation exercise by Local Government in Malaysia. As stated
in Table 1.2 below, only 16 local authorities have performed revaluation
within 1 – 5 years after the end of last revaluation, while 29 others
conducted the revaluation after 6 years or more. Thus, the values of
properties did not reflect the current market value and consequently, the
local government will lose a lot in terms of revenue.
Table 1.2: The Number of Pending Revaluation Exercise by Local

Governments in Malaysia.
Pending Revaluation (After Last Revaluation) Frequency Percentage (%)

1-5 years after 5-year end of last revaluation 16 35.6
More than 15 years after 5-year end of last 11 24.4
revaluation
Total 45 100
Source: Dzurllkanian Daud et al. (2012)
Revaluation has not been conducted regularly since it is time consuming

and costly process to be undertaken manually (Tretton, 2007; Mustafa
Omar et al., 2004). The manual tasks undertaken by qualified valuers
would require the property and its location to be inspected. Furthermore, it
is also required researching and analyzing all relevant information, carrying
out all calculations to estimate the value and reporting the results of the
research and providing the valuation (Blackledge, 2009). In addition to
time consuming and costly processes, there are inadequacies in tax
administration such as lack of assessment tools and absence of technically
qualified personnel (Dzurllkanian Daud et al., 2008). Therefore, the tax
values of the property were generally behind the current market value.
Although, computers has been used in producing property rating maps and
running daily administrative operation such as tax collection in many local
governments, it has not been used for the analyzing or calculating the
property rating for tax.
6
In order to shorten the time taken to conduct property valuation for large
area, property value model with mass appraisal capabilities could
potentially be used as it has ability to peform valuation faster. This can be
done as mass appraisal technique provides uniformity and consistency in ad
valorem valuations particularly when revaluations of large number of
parcels at the same time (Deddis, 2002:4). Mass appraisal is suitable for
revaluation purpose and there are various methods that capable to perform
it (Löchl, 2010). For example, Ordinary Least Squares (OLS),
Geographical Weighted Regression (GWR) and Spatial Regression Model
(SRM) were some of the spatial statistics techniques commonly used to
conduct mass appraisal (Borst and McCluskey, 2009). The study by
Renshaw (1958), Brown (1974), Gloudemans and Miller (1978), Mark and
Goldberg (1988) and Cannaday (1989), for example conducted mass
appraisal using OLS approach. Ordinary OLS is one of the regression
techniques that provide a global model to understand and make prediction
of the variables in the study (Scott & Janikas, 2010). However, the OLS as
a global statistics model, only capable of providing a single regression
equation to represent the whole data in the region. Consequently, it
produced limited result (Fotheringham et al., 2002:6).
Recent studies showed that an advance or a local version of OLS in a form

of GWR developed by Brunsdon et al. (1996, 1998) could potentially be
used for property appraisal. This method has gained attention among
researchers in property studies (Hernandez et al., 2003; Bitter et al., 2006;
Long et al., 2007; McCluskey and Borst, 2011) including in Malaysia
(Taher Buyong, 2011; Ibrahim Sipan et al., 2012). Most of the studies
managed to prove that the GWR, with the capability to include the
longitude and latitude coordinate in the regression equation, was a better
model. It managed to provide better accuracy than a normal GIS-OLS
model or other spatial statistic model that been used in determining the
properties’ value at that time.
Although GWR is capable to produce a better model, it is still vulnerable

and produce model error especially spatial autocorrelation error (Löchl and
Axhausen, 2010; McCluskey and Borst, 2011). Spatial autocorrelation is
one of three main modelling errors that could occur in a property valuation
model (Des Rosiers et al., 2001). The other two are multicollinearity and
spatial heterogeneity. These model errors, if unchecked, would lead to bias,
misleading or misspecification to the property valuation models
(Rosenshein et al., 2011). In other word, the model would be inaccurate.
7
Therefore, another modelling method namely Spatial Regression Modelling
(SRM) specifically used to address the spatial autocorrelation error was
used (Suriatini Ismail, 2005; Löchl and Axhausen, 2010). The SRM also
called spatial econometrics was originated since early 1970s as a set of
technique to deal with spatial autocorrelation (Anselin, 2001). It has the
capability to detect the spatial autocorrelation in two different forms
namely, spatial error model and spatial lag model using the Lagrange
Multiplier (LM) test (Wilhelmsson, 2002). Thus, SRM managed to provide
good estimation in some property value model studies (Suriatini Ismail,
2005; Löchl and Axhausen, 2010) and potentially eliminate the model
error.
In Malaysian context, most property value modelling undertaken were in

the form of the academic research (Norhaya Kamarudin et al, 2008:7). The
modelling of property valuation study in Malaysia was conducted since
year 1987 using OLS approach (Azhari, 1987). Similarly, the studies by
Fadilah and Fauzi (1991) and Dzurllkanian and Rosdi (1997) also used
OLS in property valuation. The integration of OLS and GIS was then
conducted to produce land value maps for the residential properties in
Johor Bahru (Azhari and Mohd Ghazali, 1994) and develop property
valuation modeling for residential properties in Shah Alam (Noordin
Ahmad, 1997). Another study by Abdul Hamid Mar Iman (2007) employed
the same method to perform surface mapping analysis to identify the
location influence as a reference for the valuer in determines the residential
property value in Johor. The property valuation modeling studies by Taher
Buyong (2011), for example, has pushed to a greater height where various
modeling method namely SRM and GWR were used. That study attempted
to find the most appropriate property price modeling in Kajang, Selangor
and Johor Bahru which focused on the issues arising from spatial effects of
the property data by examining it using modelling tests such as Jarque-
Bera, Breusch-Pagan and Moran’s I. Ultimately, that study managed to
prove the superiority of GWR than other spatial models in terms of
prediction accuracy. However, that study only covered a small area of data
and highlighted that there was no unique model that is good for every
dataset as series of assessment is required to deal for each dataset.
Based on the previous studies, it shows that different dataset or area can be
explained with different type of model. The OLS represents the global
model that normally used as a benchmark for comparison with other
models. Although it usually produced an undesired model but it could still
perform better if the data is significantly stationary. The GWR, being the
8
local model, was currently used by many studies in property valuation
modelling. It capable in dealing with spatial heterogeneity and has been
proven to be the best model in most property studies. In addition, SRM, as
an alternative model to accommodate spatial dependence is useful when
spatial autocorrelation error exists in the data. Based on different
capabilities highlighted in the model, there is no unique model that can be
used for all dataset. The selection of the model will depends on the nature
of the dataset undertaken.
Therefore, based on the issue above, some research questions for this study
were summarized as follows:
i. What is the suitable property rating model that should be used for the
local authorities of Malaysia based on the nature of the data?
ii. Is the model suitable as single model or should be segmented in
multiple models such as building type?
iii. What are the model’s variables that influence the most in determining
the property rating?
Ultimately, this study attempts to assess the potential of spatial statistics

models to the property value model for rating in Malaysia in which Kota
Kinabalu City Hall (DBKK) was used as the study area.
1.4 Aim of the study

The main aim of this study is to develop a residential property rating model
using spatial statistics which could be used to assists valuers in the local
authority council to undertake revaluation within shorter time and at low
cost.
1.5 Objective of the study

The study is conducted to achieve three (3) objectives:
i. To develop the residential property rating valuation model using
suitable spatial statistics methods with suitable model requirement
ii. To assess the performance of the two models developed in order to
assess their suitability to be used in property valuation
iii. To assess the most significant variables that influencing the property
rating
1.6 Scope of study

The research area focuses on Kota Kinabalu area in Malaysia which covers
all residential property under the jurisdiction of Kota Kinabalu City Hall
(DBKK). This does not include apartments and condominiums as it
9
involves different parameters or data input which is difficult to make
comparison. Based on availability of the data, only 14 zones within DBKK
selected for this study. This study used ArcGIS 9.3 as data preparation,
database development and for OLS analysis. While GeoDa software was
used as an additional spatial statistics tool for spatial regression model
(SRM) and SPSS/PASW version 22 as a tool for statistical analysis of the
property valuation data. The spatial statistics tools of OLS and SRM were
used as the main tools provided by ArcGIS 9.3 and GeoDa. The tool in
SPSS/PASW and was also used specifically for additional model testing.
1.7 Summary of Research Methodology

This section summarized the procedure undertaken to achieve the research
objectives. In this study, the research procedures were implemented in
three main stages namely theoretical, empirical and evaluation as shown in
Figure 1.4.
The theoretical stage involves a theoretical overview and a literature

review. It aims to find evidence to substantiate the need for the research
and to develop the framework to address the research issue. At this stage
the property market value including its contributing factors and the spatial
elements in property valuation to be included in the model were examined.
The second stage of the research is empirical. This stage involved model
development and addressed the use of spatial statistics to cover the issue of
multicollinearity, spatial autocorrelation and spatial heterogeneity in a case
study of Kota Kinabalu property value. GIS analysis was used to assists in
preparing spatial data, distance measurement for location factor variable to
be used in the model development and display the data pattern. The
procedures followed were guided by the framework identified in the
theoretical stage. Empirical data were collected and prepared before
property valuation models for ratings are estimated. Depending on the data
pattern, model estimation made use of three types of specifications, namely
OLS and SRM. The OLS models undergo specific testing for
heteroscedasticity and spatial autocorrelation. However, if the spatial
autocorrelation persists, it was then be addressed by SRM modelling
(Anselin, 2001:316; Suriatini Ismail, 2005:260; Löchl and Axhausen,
2010:42).
The final stage of evaluation involved a comparison of the performance of

the models and generalisations. Models were compared based on their
error-free and goodness-of-fit estimation. The analyses were focused on the
10
performance of the model. Then the model was validated and implemented.
Finally, at this stage, the important results were pulled together to draw
more general conclusions about spatial statistics in property valuation
modelling.
THEORITICAL
IDENTIFYING
RESEARCH ISSUE & AIM
LITERATURE &
THEORITICAL STUDY
EMPIRICAL
IDENTIFYING DATA &
GATHERING
GIS ANALYSIS
CONSTRUCT PROPERTY
VALUATION MODELS USING
SPATIAL STATISTICS
MODEL DIAGNOSTICS
EVALUATION
MODEL COMPARISON
MODEL IMPLEMENTATION
RESULTS & FINDINGS
Figure 1.4: Research methodology flow chart

1.8 Contribution of the study
The method adopted in this study allows for the findings to be used to
address issues faced by local authorities regarding property valuation for
rating purpose. In addition, by achieving the research aim, significant
contribution is made in this study. One of it is by identifying which spatial
11
statistics methods suitable for mass property rating valuation model for
local authorities and subsequently analyse which variables that plays an
important roles in influencing the property value. Finally, it exemplifies the
usage of spatial statistics for mass residential property valuation model for
rating purpose in Malaysia for not only to Kota Kinabalu City Hall
(DBKK) but potentially for other local authorities in Malaysia.
1.9 Book structure

Apart from chapter 1 that had been described in detail the background of
this study including the research aim and objectives in this chapter, the rest
of this book is divided into six chapters.
Chapter 2 reviews the literature on property, property valuation, property

rating, GIS and spatial statistics. It elaborates the definitions of the above
terms including its relationship to each other. This leads to the description
to the latest techniques used in property valuation modelling studies.
Accordingly, the main sources of modelling problems namely
multicollinearity, spatial heterogeneity and spatial autocorrelation are
outlined. These problems are linked to the issue of the study. This chapter
also outlines the main statistical procedures of property valuation
modelling for rating purpose. The discussions in this chapter are useful for
identifying the factors or variables and data needed to achieve the main
objective of the study.
Chapter 3 discusses the conceptual framework of the study. It includes the

methodology of the modelling process, model performance, the assessment
and visualization of the model output.
Chapter 4 provide description of the study area and preparation of the data.
This involves the introduction of the geographical study area of the Kota
Kinabalu under the jurisdiction of Kota Kinabalu City Hall (DBKK) and
description of the modelling data in terms of its gathering, preparation and
quality. The studies expected to gather over 5000 dataset of various
property types in Kota Kinabalu using the available dataset used by DBKK.
The use of GIS at this stage is to map the data pattern of the study area and
it will also be conducted to accommodate the distance and accessibility
measurement for location variables.
Chapter 5 discusses the development of OLS model and addressed the

variable selection by investigating the multicollinearity that could
contribute to the modelling error. Diagnostic test of the OLS model would
12
also be discussed to identify the error and accuracy of the OLS model for
the whole area and each building type of the study.
Chapter 6 provide the development of SRM to accommodate the model

with spatial autocorrelation error present. The performance of the SRM
outputs was also assessed and then compared with the OLS. In the end, this
chapter shows which model best represent the study area.
Finally, chapter 7 summarises the research according to the objectives. It

presents the findings in relation to the research objectives. This is followed
by the strengths and limitations of the research and potential areas for
future research. The chapter is concluded with some closing statements
highlighting the contribution the research has made to knowledge.
13
CHAPTER 2
LITERATURE REVIEW
2.1 Introduction
This chapter reviews the main definitions, methods and previous research
regarding the study of property valuation modelling that needs to be
examined and subsequently produce the basis of the study and provided
information for the subsequent stages of empirical and evaluation activities.
Theoretical overview and literature review of property market, property
valuation, property tax, rating, GIS and spatial statistics including its
connection to each other were focused in this chapter. It highlights the
importance of spatial elements in property valuation analysis that were
undertaken in the past studies of property valuation modelling.
2.2 Property Market

To develop property valuation models, the economics of property markets
needs to be imperatively understood for the research to substantiate the
need. Definition of property market was provided by several literatures.
Early study defined property market as a ‘place’ in which property
activities occurred, and market participants were those persons who buy,
sell and otherwise participate in property transactions (Brown, 1970).
However, at present, as the evolutions of internets and telecommunications,

property transactions could be conducted anywhere, non-physically.
Therefore, such physical transaction was difficult to be delineated clearly.
Eventually, some studies defined market as a ‘setting or environment’ in
which buyers and sellers gathering together to reach an agreement of the
14
price of their business dealing (Smith and Corgel, 1987; Abdul Hamid,
2002).
In Malaysia, property market was commonly classified into five categories

based on property types namely agriculture, residential, commercial,
industrial, and “others” categories (Abdul Hamid, 2002:38). Among the
five, the residential property was the largest in the market (Property Market
Report, 2011). This indicated that the transactions for the residential
property occurred frequently, and thus it involved many property valuation
activities to obtain the property market value. The property market value
reflects the recent property value of the said property which would be
discussed in the following section.
2.3 Property Market Value

For the purpose of achieving the valuation standards, market value was
defined internationally and locally as follows:
“Market value is the estimated amount for which an asset
should exchange on the date of valuation between a willing
buyer and a willing seller in an arm’s length transaction after
proper marketing wherein the parties had each acted
knowledgeably, prudently and without compulsion.”
(International Valuation Standard Council-IVSC, 2003:96;
Malaysian Valuation Standard-MVS, 2014)
Based on the definition above, market value was stated as estimation by

using valuation methods and procedures that were affected the nature of
property and the circumstances under which the given property would most
likely trade in the open market. Furthermore, in order to estimate market
value, the highest and best use or most probable use must first be estimated
by a valuer (Pagourtzi et al., 2003). That use may be a continuation of a
property’s existing use or some alternative. These determinations were
derived from market evidence.
2.4 Property Valuation

The term property valuation or real estate valuation is defined as:
“The art, or science, of estimating the value for a specific
purpose of a particular interest in property at a particular
moment in time, taking into account all the features of the
property and also considering all the underlying economic
factors of the market, including the range of alternative
investments.” (Millington, 2001:4)
15
The property valuation defined above applied for all property types
including residential, commercial and industrial properties (IAAO,
2013:10). The property valuation was used to estimate the value of the
property for various purposes such as for sale, purchase, mortgage, rental,
insurance, inheritance tax, stamp duty and rating for property tax (Shapiro
et al., 2009:5). Since this study was undertaken to estimate property value
for tax purpose, the following section will discuss property tax.
2.5 Property Tax

Property Tax is an important income for the local authorities to generate
funds and initiate services to the people. According to Steiss (2005:182),
the term ‘property tax’ is usually used to describe a group of taxes which
are levied on the value of different kinds of property at different rates. The
main objective of imposing such tax is to raise revenue (Brueckner,
1983:10).
Generally, property tax was not based on personality (in personam) but in
kind (ad valorem) (Musgrave and Musgrave, 1984:331). This type of tax
could be recognised based on its characteristics. Among the characteristics
of property tax were stated as follows:
i. One of the main revenue sources of local authority. For example,
rates contributed 66.9% to the revenue of Majlis Perbandaran
Petaling Jaya in 1996 (Phang, 1997);
ii. The revenue and burden of this type of tax vary considerable from
one locality to another. Different local authorities may impose
different rates for similar type of property (Buang Alias, 2000);
iii. This type of tax applies to land as well as man-made capital
(buildings, machinery, and other items) (Buang Alias, 2000);
iv. Tax applied on real property which includes real estate (Santoso
Makmur Palal, 1989)
The property tax has become means to raise revenue or for other purposes
and had been exists and utilised the revenue system in about 130 countries
(Eckert et al., 1990).
In Malaysia context, states authorities were entitled to collect a form of

annual tax imposed on properties (Buang Alias, 2000). For example, the
determination of quit rent was set out in the Land Rules of each state as
required by the National Land Code of 1965. While at local level, in
addition to quit rent, property owners are subjected to pay local tax, which
was known as rates to local authorities. The right to impose rates is
16
provided in Act 171 of Local Government Act 1976 (2006). Under section
39(a) of the Act 171, properties located within the local authorities
boundary limits are subjected to this type of tax. As stated under section 2
in Act 171 of Local Government Act 1976 (2006), this tax is based on the
annual value which is the estimated gross annual rent at which the holding
might reasonably be expected to let from year to year the landlord paying
the expenses of repair, insurance, maintenance or upkeep and all public
rates and taxes. It also stated in Article 156 of the Federal Constitutions
that all lands, buildings or hereditaments occupied for public purposes by
or on behalf of the Federal Government State or public authority are
required to make contributions in aid of rates to the Local Authorities.
Revenue obtained by local authorities from rates would be used to provide

goods and services for local consumption. The discussion on the process of
conducting property rating valuation in Malaysia would be elaborated
further in the following section.
2.6 Property Rating in Malaysia

In Malaysia, rating or assessment is a local government tax imposed on
holdings (real property) within a local authority area for the services
rendered by the Local Authority. As stated by JPPH (2010), the power to
impose rates was provided for in the;
i. Local Government Act 1976;
ii. Local Governemnt Ordinance of Sabah 1961;
iii. Local Authorities Ordinance 1996 for the State of Sarawak
2.6.1 Brief history of Rating in Malaysia

The rating in Malaysia had been done way back before Malaysia gained
independence (Kwong and Mani, 1997). However, it was not until the year
1957, a valuation division had been set-up within the Treasury of the Ministry
of Finance with expatriate officers which conducted the rating activities. This
was the beginning of the present Valuation and Property Services Department
(JPPH). Post independence saw the establishment of a Royal Commission in
1965 to look into local government administration and finance headed by Dato
Athi Nahappan. The report from this commission paved the way for the
enactment of the Local Government Act 1976. This Act also determined the
basis of assessment to be conducted which would be discussed in the following
section.
17
2.6.2 Basis of Assessment
Rates imposed by all local authorities are based on the annual value of the
property with the exception of the State of Johor which adopts improved
value (Ahmad Ariffian dan Hasmah Abu Zarin, 2001; Kwong and Mani,
1997).
Section 2 of Local Government Act 1976 (Act 171) (2006) defined the
annual value as “the estimated gross annual rent at which the holding might
reasonably be expected to let from year to year with the landlord paying the
expenses of repair, insurance, maintenance or upkeep and all public rates
and taxes”. While the improved value defined by the same act as “the price
that an owner willing and not obliged to sell might reasonably expect to
obtain from a willing purchaser with whom he was bargaining for the sale
and purchase of the holding”. Additionally, the act also stated that the
revaluation for these rates of all holdings was done once every 5 years or
within such extended period as determined by the State Authority.
2.6.3 Rate of Tax

The rates charged are based on a certain percentage of the Annual Value or
the Improved Value (Kwong and Mani, 1997: 260). This percentage may
be varied from year to year by the Local Authority with the State
Authority’s approval and is subject to the following maximum percentage
rates as shown in Table 2.1.
Table 2.1: Rate of Tax

Basis of Valuation
Type of Rates
Annual Value Improved Value
Consolidated Rate or
35% 5%
Annual Rate
Drainage Rate 5% 1%
Source: Kwong and Mani (1997), JPPH (2010)
For example, to calculate the rate of annual value, the equation 2.1 is used
and is stated as follows;
ൌͳʹ͵͸Ψ (2.1)
Where;
R = rates of annual value;
RV = the monthly rental value
18
The Local Government Act 1976 also provides for the use of different rates
based on the location or use of the property. The responsibility for the
determination of Annual Value or Improved Value, percentage rate and the
collection of rates lies with the respective Local Authority.
Once the rates have been estimated, the valuation list could then be
prepared before it is implemented by the local authority. This would be
2.6.4 Valuation List

Before the local authority enforced and implemented the tax rates, a
valuation list has to be prepared as in accordance with section 137 of Local
Government Act 1976. Hence, the local authority has to value all rateable
holdings and prepare a valuation list of all holdings which were not
exempted from the payment of rates with the date generally taken to be 1
January of the year preceding the year when the valuation list comes into
operation (Ahmad Ariffian dan Hasmah Abu Zarin, 2001). Therefore, the
following information has to be included for each holding in the valuation
list (Ahmad Ariffian dan Hasmah Abu Zarin, 2001; Kwong and Mani,
1997, Raja Aris Hussain, 1987):
i. the name of the street or locality in which the holding is situated;
ii. the designation of the holding either by name or number
sufficient to identify it;
iii. the names of the owner and occupier;
iv. the annual value or improved value of the holding as the case may
be
The new valuation list has to be prepared once every five years. However,
the state authority has the discretion to extend the time interval between the
preparations of valuation lists. In practice, due to the shortage of resources,
the old valuation list together with amendments which were made from
time to time would be generally adopted as the new valuation list in many
local authorities (Kwong and Mani, 1997).
Apparently, the inability of the local authority to prepare the valuation list
was also due to the method of assessment conducted in Malaysia
(Dzurllkanian Daud, 2006) in which traditional method was still being
used. The following section discussed the traditional and modern methods
of assessment used for residential property valuation.
19
2.7 Methods of Assessment
In order to estimate an appropriate property value, the right choice of
property valuation method was needed. Currently, there were various
valuation methods used in conducting property valuation where some are
from traditional methods and others are new or recent methods.
2.7.1 Main methods in residential property valuation

There were various methods of property valuation but the main traditional
method that specifically used for residential properties especially in
Malaysian local authority was comparable method (Scarrett, 2008;
Richmond, 1985; Ismail Omar, 1992; Millington, 2001, Azhari Husin,
1996; Ring, 1970; Appraisal Institute, 1992). The comparable method was
the most frequently used method in property valuation (Millington,
2001:89) since it does not involved complex mathematical calculation. In
this approach, comparison was conducted between the subject property and
other similar properties that were sold, based on value from past
transaction. In order to attain an accurate market value, the resemblances
and differences were examined by the valuer and then appropriate
adjustments were made to reflect the differences (Scarrett, 2008). In
valuation, these differences can be described as the factors affecting value
or the value determinants. However, the determination of the value was
subjective as it was based on individuals’ knowledge and experience
(Boyle and Kinnard, 1984). Moreover, it lacked market evidence (Scarrett,
2008) since not all valuations were related to transaction. This was due to
instances where an opinion regarding the values of building of interests was
required since no market activity had taken place.
Another downside of this method was that the estimation of the property
value needed to be conducted manually for each property. Estimating a
large scale of property area, therefore, would require a lot of time and cost
(Tretton, 2007). Thus, an alternative method was needed to overcome this
problem.
In addition to comparable method that is commonly used in Malaysia

(Ahmad Ariffian and Hasmah Abu Zarin, 2001; Mani, 1988), other
principal methods of assessment used are the cost method, the profit
method and the statutory formula (Kwong and Mani, 1997). All these
methods is in accordance with the property tax act and its subsidiary
legislation.
20
2.7.2 Other Method in Residential Property Valuation
A different type of valuation method that gains momentum especially
during this age of technology was the regression method (Brown, 1974;
Gloudemans and Miller, 1978; Mark and Goldberg, 1988; Cannaday, 1989;
Ismail Omar, 1992). Although the regression method had been mentioned
in numerous property valuation studies (Brown, 1974; Gloudemans and
Miller, 1978; Mark and Goldberg, 1988; Cannaday, 1989; Ismail Omar,
1992), it has been seriously used after the advancement of computer and
statistics programs. This method started with a simple regression that
describes the relationship between one factor or variable in relation to
another in statistic term (McCluskey et al., 1997a). One of the factors,
however, must be a dependent variable (Y) and the other one was the
independent (X) variable. This method can be described in the equation 2.2
below (Ismail Omar, 1992:96):
ൌ ܽ ൅ (2.2)
Where;
Y is the dependent variable
X is the independent variable
a is the constant
b is the coefficient or a weight for the independent
In property term, Y can be described as the property value and X is the

factor that influences the value such as floor area, property age, and
neighbourhood facilities (Kwong and Mani, 1997). This method is also
become the bases of multiple regression analysis which is one of the mass
appraisal method that will be discussed later in this chapter.
The usage of traditional and modern method of assessment however, was

unable to be conducted if the property value influence factors were not
obtained. These factors need to be chosen properly in order to produce a
reliable property valuation model specifically for rating purpose. The type
of property value influence factors would be discussed in the following
section.
2.8 Property value influence factors

There were many factors which could affect the property values and needed
to be considered in any property valuation to obtain the best market value.
These factors would determine how far the achievement of the value as it
could be positive or negative. Positive factors would increase the value
while the negative factors would downgrade the value of the property. As
21
shown in the diagram in Figure 2.1, most studies focused on these main
influence factors to the property value which consists of physical structure,
geography, economic, government policies and location factors which
would be described in the following sub topics.
WƌŽƉĞƌƚǇ/ŶĨůƵĞŶĐĞ
&ĂĐƚŽƌ
WŚǇƐŝĐĂů 'ĞŽŐƌĂƉŚǇ ĐŽŶŽŵŝĐ 'ŽǀĞƌŶŵĞŶƚ

>ŽĐĂƚŝŽŶ&ĂĐƚŽƌ
^ƚƌƵĐƚƵƌĞ&ĂĐƚŽƌ &ĂĐƚŽƌ &ĂĐƚŽƌ WŽůŝĐŝĞƐ
Source: Adapted from Millington (2001)

Figure 2.1: Main property influence factors
2.8.1 Physical Structure Factor

This factor involves the size, number of rooms, design and the type of
materials used for the building. As mentioned by Scarrett (2008:65),
buildings constructed of first class materials with a design that has aesthetic
appeal were most preferred by the investors. This was also supported by
Abdul Hamid (2002), which stated that an attractive design gives a pleasant
look and creates aesthetic values to the property and subsequently, gives
convenience and create good image status to the owner. In addition to the
above, the property must be in good condition without forcing buyer to
bear the cost of repair (Millington, 2001:45). The property which was in
good condition can be sold at a higher price than the one which was in bad
condition.
2.8.2 Geography Factor

Several geographical factors should be considered for property valuation
such as the latitude of the area, type of topography, the direction aspect of
the property and local climate conditions (Millington, 2001:40). The
latitude will show the place is warm or cold that could affect the demand of
the property. The topography will show the place is hilly or flat, while the
aspect will show the direction the property is facing whether it is north,
south, east or west. The local climate condition, however, will show the
annual rainfall of the place which some might be needed for farming
purpose. This also supported by the Appraisal Institute (1992), which
mentions that the climatic conditions such as snowfall, rainfall, temperature
and humidity with topography and soil will influence real property values.
22
2.8.3 Economic Factor
General economic activity and economic well-being of the country as a
whole would also influenced the property values (Ring, 1970). Investment
in property in an undeveloped area would be highly unlikely to be as
attractive as in thriving area, unless the undeveloped area offers investment
possibilities at bargain-basement prices with a future prospect (Millington,
2001). Moreover, the fundamental relationship between current and
anticipated supply and demand and the economic ability of the population
must be analyzed to satisfy its wants, needs and demands through its
purchasing power (Appraisal Institute, 1992). Other than that, it has been
identified that the Gross Domestic Product (GDP) and the house price
index were the major macroeconomic determinants of commercial property
supply in which a unit increase in the house price index has caused supply
of shop lots to drop while a unit increase in the GDP increased the supply
of the said property (Abdul Hamid, 2002).
2.8.4 Government Policies

The property value would be adversely affected by the way the policies
implemented by the government (Ring, 1970). For example, the
introduction of loan program and subsidies in the United States had
increased home ownership, thus increase the property value (Englund,
2003). While in Malaysia, the affordable house ownership program for the
poor would increase property transaction and stabilise the market price
(Zainal Abidin Hashim, 2010). The use of this factor was also evident in
other literatures (Appraisal Institute, 1992; Abdul Hamid, 2002; Millington,
2001; Ring, 1970). It has been identified that tax burdening, special
assessment, zoning and quality of fire and police protection, school and
other governmental services as the potential value influences provided from
this factor (Appraisal Institute, 1992). In addition, changes of zoning such
as removal of planning restrictions and requirements, and preferential tax
treatment conducted by the government in England had benefited the
development of the area. It subsequently attracted investment, thus
influence the property value (Millington, 2001).
2.8.5 Location Factor

Location factor is considered one of the most important factors affecting
property value. As stated by the Appraisal Institute (1992:186):
“Location represents the time-distance relationships, or
linkages, between a property or neighbourhood and all other
possible origins and destinations of people going to or coming
from the property or neighbourhood”
23
The importance of location towards property value was stressed out since
long time ago with Thunen (1826) produced a rental value model which
showed that rental value influenced by distance to the city or market centre.
Thus, land located near to the city was likely to produce high rental value.
While low rental value was obtained for the land located far from the city.
The usage of location factor also exemplified from a city location theory
model, in which rental value would decrease based on the increase of
handling cost and low production (Alonso, 1964). This study added that
different land use produced different type of rental value. In a recent note,
location factor had been observed as an important concept to any market
study that implies it as a position within clusters of properties with similar
neighbourhood criteria (Pearson, 1991) and this would be more relevance if
it consistently attract high or low value especially with the same existence
neighbourhood influence (Scarret, 2008).
Another study supporting the importance of location in property valuation

by using 30 residential consumers each in three different countries in which
the results clearly outlined the ‘location’ and ‘proximity to amenities’ as
the top choice from the consumers in identifying the factors influencing the
property value as shown in table 2.2 (Daly et al., 2003:303).
Table 2.2: Value influencing factors identified by consumers in three

countries
Factor of property value influence Australia UK Ireland
Location 10 10 10
Proximity to amenities 10 9 10
Accessible garage 8 2 2
Low maintenance 7 6 4
Locality (place to live) 7 2 6
Accommodation 4 5 9
Neighbourhood 2 5 4
Interior décor and design 4 7 8
Roof tiles 3 0 0
Brick construction 3 0 0
Manageable garden 2 0 0
Large plot 2 3 5
Within price range 2 4 1
24
Aspect 1 1 1
Aesthetic appearance 1 2 3
Well built 1 0 2
Fire resistance 1 0 0
Privacy 0 2 0
Detached residence 0 2 4
Parking 0 0 3
Source: Adapted from Daly et al. (2003)
Thus, location needed to be chosen properly as any bad location occurred
would be difficult to be rectified unlike bad building design which was
easy to be corrected (Abdul Hamid, 2002). However, choosing a good
location was a complex subject and difficult to be analyse (Abdul Hamid,
2006). Ring (1970) observed some of the location analysis that can be
considered in a property valuation;
i. Protection against inharmonious land uses
ii. Physical and social attractiveness
iii. Adequacy of civic, social and commercial centres
iv. Adequacy of transportation
v. Sufficiency of utilities and services
vi. Levels of taxes and special assessments
Additionally, another study highlighted the types of location attributes that

commonly used in property valuation (Kauko, 2003:252) which stated as
follow:
x Accessibility
x Neighbourhood
x Specific negative externalities
x Public services and taxes
x Density
Therefore, various study such as the study by Gallimore et al. (1996)

produce the location value response surface for property to determine
which location can be classified as over value or under value. Using similar
method, Ireland and O’Connor (2002) was able to use location factor to
predict the commercial property value. In other related study, Hening Widi
Oetomo (2003) discovered that by adding location factor can increased the
models accuracy and provides a much more accurate tax assessment. This
is also exemplified by Theriault et al. (2003) by using geographical
25
location of neighbourhood profiles and accessibility to service to interact
with the housing attributes to enhance property value assessment.
The discussion above shows that the main factors of property value
influence are required to obtain an accurate property valuation model.
However, the modelling process could only be conducted if variation
distribution occurred in the dataset (Osborne and Waters, 2002). The
discussion also highlighted the location factor as an important influence in
determining the property values. To provide an accurate measurement of
influence distance towards the property value, a more quantitative approach
can conducted by using GIS tools (Hening Widi Oetomo, 2003). This
would be discussed further in the following section.
2.9 Application of GIS in Property Valuation

Since the location factor had been given serious attention by the property
valuers and investors as it helps to provide higher revenues and suitable for
investment (Gallimore et al., 1996), Geographic Information Systems (GIS)
are necessary to be used. The study of GIS in property sector has started in
the United States (US) and then followed by the United Kingdom (UK)
researchers in the late 1990s with the residential sector been identified as
the most frequently used in GIS research (Suriatini Ismail, 2005:97). Real
estate professionals that were currently in the lead in exploring the endless
possibilities of GIS consist of retailers, brokers, institutional investment
managers, and property tax assessors but the appraisers was said to be
among them that have been slow to realize its potential (Castle, 1995).
Furthermore, GIS was capable in assisting towards making credible
decisions, enhancing presentation of the analysis results and subsequently
increasing competitive position, collecting greater revenues and bringing
higher profits for the companies.
Many studies had shown that GIS can effectively be used in describing
location attributes in property valuation (Fung et al., 1995; Wyatt, 1996a;
Plaut and Plaut, 1998; Din et al., 2001; &LFKRFLĔVNL and Parzych, 2006;
Abdul Hamid, 2007). For, example, GIS can effectively be used to produce
a value map, which is a spatial representation of statistical data that reflects
the value of property (Howes, 1980:7). Moreover at present, GIS was able
to address some of the problems inherent in traditional value maps by
producing them efficiently and as part of a wider suite of data analysis
techniques. By using spatial analysis in GIS, Wyatt (1996a) was able to
produce a better value map and at the same time enhances the valuer’s
understanding of locational influences on value. Besides that, the overlay
26
operation has also been used in the mapping of property values of Memphis
and Shelby County in 1980 and 1990 to describe the pattern of change
(Fung et al., 1995).
In the application of GIS in local authority, some case studies shows the
advantages of GIS to assists the local council in terms of facilities
management, tax assessment, asset management, population analysis and
environment monitoring and management (Taher Buyong, 1995; Wyatt and
Ralphs, 2003; Han and Yu, 2001; Gilfoyle and Thorpe, 2004). The usage of
GIS for tax assessment, in particular, greatly helped the local authority to
reduce cost and gain more collections for the purpose of development.
In the analysis perspectives, a review of the literature indicates that several

types of GIS analysis had been incorporated with property valuation to
solve various problems facing by the valuers or investors. Classification
operation, overlay operation, distance and connectivity measurement,
communication accessibility (&LFKRFLĔVNL and Parzych, 2006) and
interpolation of property value (Abdul Hamid, 2007) were among the most
commonly used GIS analysis in undertaking property valuation.
The use of the classification operations was evident in the residential

research by &LFKRFLĔVNL and Parzych (2006), Din et al. (2001), Plaut and
Plaut (1998) and McCluskey et al. (1997b). Generally, this operation
informed the property belonged to areas of some partition of geographical
space in the said area. For example in Figure 2.2, parcel A referred to a
‘plough land’ zone while ‘orchard’ zone highlighted in parcel B. Another
aspect of its usage was by classified the geometrical condition of the parcel
as it was known that elongated parcels were less profitable in terms of
development than the parcels that almost square. The third aspect is the
surface analysis that could generate the slope of the area. The slope would
help identify which area is good for property development and which area
is not as shown in Figure 2.3. Normally, more than 20% slope would
decrease the property value in that area.
27
Source: &LFKRFLĔVNL and Parzych (2006)
Figure 2.2: Classification operation informs the property belong to certain
landuse type

Figure 2.3: Parcels classified by slope
Besides that, another GIS analysis, in the form of overlay operations had
also been used in the mapping of property values such as in Memphis and
Shelby County in 1980 and 1990; in which it described the pattern of
change (Fung et al., 1995). In addition to that, the study also presented
other GIS analysis such as address matching, data geocoding and data
query of the property.
Apart from that, the function of distance and connectivity measurements

seems to be very popular among several property studies (&LFKRFLĔVNL and
28
Parzych, 2006; Zeng and Zhou, 2001; Lake et al., 1998; Des Rosiers et al.,
2000; Henneberry, 1998; and Chen, 1994). The ability to identify what
kind of objects and in what radius should be looked for could be applied
using this analysis to measure the property value. For example, in Figure
2.4, if the parcel was located inside any of the radius zone of 100m, 200m
and 500m, the neighboring parcels received similar influenced from the
noisy factory. This would decrease the property value with properties in
100m radius received the highest negative effect.

Figure 2.4: Buffer zones around noisy factory that affect the value of
nearby parcel land within the stipulated radius distance
Another function, the communication accessibility, measured the effect

based on road networks. Travel time usually incorporated with speed and
distance (Wyatt and Ralphs, 2003). For example in Figure 2.5, property
value could be increased if the distance from the property to the town
centre was only 5 minutes travelling time. The accessibility of mass
transport facilities such as bus or taxi would also increase the nearby
property value. Unfortunately this method has its downside as it required
vast information to produce an accurate analysis (&LFKRFLĔVNL and Parzych,
2006:11).
29
Figure 2.5: Zones of given travel time from Bus Stop
Lastly, another popular GIS function applied in property study was the
interpolation analysis. This analysis could predict the unknown property
values from observed data of known property values especially when
involves wider scale of property. It has been empirically tested in the
western countries for property value prediction (Dubin, 1998; Martinez and
Lorenzo, 2000; Chica-Olmo, 2007) and also in Malaysia (Abdul Hamid,
2007; Taher Buyong, 2008b). For example, one of the studies applied a
kriging interpolation surface for residential property valuation in which an
output of prediction residuals (errors of prediction) across the study area
was produced as shown in Figure 2.6 (Abdul Hamid, 2007). The display
clearly showed the “bumps” and “potholes” in the map which represent
under valued and over valued areas of the sampled properties. However,
the continous surface value generated by the the interpolation analysis must
be used with cautious as not all surface has land value (Stylianidis et al.,
2008:320). This required someone with experience or familiar with the
place as for example, some “potholes” might represent lakes or hills.
30
Source: Abdul Hamid (2007)
Figure 2.6. Kriging interpolation surface of residual value of residential
property in Johor, Malaysia
All the above analyses show capabilities in providing solution to most of

the property applications of interest. Based on the outcome of the
discussion above, this study would adopted the euclidean distance or buffer
measurement to determine the number of properties involved in certain
distance radius of influence from the location factor such as Bus Stop.
Although there are some limitations involves when using euclidean
distance compared to drive time approach, it able to contains a much
greater catchment area particularly when a barrier was involved such as
river and mountain in the study area (Wyatt and Ralphs, 2003:202). Other
than that, the usage of interpolation analysis would also be considered in
this study as it has the ability to visualize the property value effectively but
with cautious to prevent any misinterpretation occur. The usage of other
GIS functions would not be conducted as it consider unnecessary or
unavailability of the data required for the function to process.
However, these analyses are incapable to check any error within the data or
the validity of the output undertaken by each operation on the data. These
would result a wrong interpretation and incorrect solution in decision
making. It is only useful to provide distance measurement that would be
used to generate one of the location factor variables to be included in the
model. As a solution, spatial statistics was subsequently used by some
researchers to accommodate the limitations produced from the GIS analysis
31
(Krivoruchkoa and Gotway, 2003:2). The reason to that, the spatial
statistics has the ability to conduct estimation, prediction and hypothesis
testing. This method would be discussed intensively in the following topic.
2.10 Spatial statistics modelling

Spatial statistics is one of the most advance methods in GIS analysis that
become popular these days. The term spatial statistics can be defined as;
“A set of techniques for describing and modeling spatial data.
In many ways they extend what the mind and eyes do,
intuitively, to assess spatial patterns, distributions, trends,
processes and relationships. Unlike traditional (non-spatial)
statistical techniques, spatial statistical techniques actually use
space – area, length, proximity, orientation, or spatial
relationships – directly in their mathematics”.
(Scott and Getis 2008)
This was supported by several others that describe spatial statistics as a

way to analyse spatial pattern to identify and predict uncertainties that
occur or changes across the study area and over time for events such as
disease outbreaks, natural disasters, developments and many more
(Arlinghaus, 1996; Wong and Lee, 2005; Taher Buyong, 2006).
The spatial statistics is the process of learning from data and answers the
questions that arise in spatial analysis which involves statistics (Sherman,
2011:1) such as;
i. What are the phenomena under study?
ii. What are the relevant data and how should it be collected?
iii. How should we analyze the data after it is collected?
iv. How we can draw inferences from the data collected to the
phenomena under study?
There are various spatial statistics methods can be used in order to answer
those questions above. This would be discussed in the following section.
2.10.1 Ordinary Least Squares (OLS)

Regression analysis could be used to model, examine, and explore spatial
relationships, to better understand the factors behind observed spatial
patterns, and to predict outcomes based on that understanding. Ordinary
Least Squares (OLS) is the best known of all regression techniques (Scott
& Janikas, 2010). It is the proper starting point for all spatial regression
analyses. It also provides a global model of the variable or process that
32
could be used in trying to understand or predict by creating a single
regression equation to represent that process.
The OLS approach had widely been used for property valuation modelling
(Renshaw, 1958; Brown, 1974; Gloudemans and Miller, 1978; Mark and
Goldberg, 1988; and Cannaday, 1989) specifically for mass appraisal.
Recently, the OLS was enhanced by incorporating spatial element through
GIS to provide a better model especially when location is concerned
(Gallimore et al., 1996; Wyatt, 1996b; McCluskey et al., 1997b; Deddis,
2002; Gonzalez et al., 2002; and Suriatini Ismail, 2005). The usage of OLS
was still widely used even after the emerging of other spatial statistics
modelling such as SRM and GWR. However, it normally used for
comparison (Hernandez et al., 2003; Kim and Zhang, 2005; Lehner, 2011;
Taher Buyong, 2011).
The equation of OLS is expressed in equation 2.3 as follow (Charlton and

Fotheringham, 2009:1):
‫ݕ‬௜ ൌ ߚ଴ ൅ ߚଵ ‫ݔ‬ଵ௜ ൅ ߚଶ ‫ݔ‬ଶ௜ ൅ ‫ ڮ‬൅ ߚ௡ ‫ݔ‬௡௜ ൅ ߝ௜ for i = 1 … n (2.3)
Where,
y = Dependent Variable
ȕ0 = Constant
ȕ1x1 ȕnxn = Independent Variable Component
İ YHFWRURIHUURUWHUPV
Based on the equation 2.3, the predictions of the dependent variable are
obtained through a linear combination of the independent variables. This
basic regression of OLS was also adopted by GWR with some additional
element as described in the following topic.
2.10.2 Geographical Weighted Regression (GWR)

Geographical Weighted Regression (GWR) is another modelling technique
that has gained interest in many studies which utilized spatial data
(Matthews and Yang, 2012). This technique is specifically developed for
local spatial models. It was originally proposed by Brunsdon et al., (1996;
1998) but was popularised by Fotheringham et al. (2002) who developed
the GWR software which included a book and a manual to explain the
method. One of the early studies regarding GWR in property valuation was
conducted in Toronto, Canada (Hernandez et al., 2003) for residential
property valuation. Since then, many property studies were conducted
33
using GWR (Bitter et al., 2006; Long et al., 2007; McCluskey and Borst,
2011; Taher Buyong et al., 2008a; Taher Buyong, 2011).
The GWR approach is different from the OLS since it produced a

regression model for every point (location) in a given spatial data set
(Hernandez et al., 2003). Therefore, it is not suitable for incomplete data as
it is unable to estimate any point without current dependent value.
Apparently in GWR, the inclusion of the data coordinate u 1, has rewritten
the traditional regression model of OLS which expressed in 2.4 as follows
(Charlton and Fotheringham, 2009:5):
‫ݕ‬௜ ሺ࢛ሻ ൌ ߚ଴௜ ሺ࢛ሻ ൅ ߚଵ௜ ሺ࢛ሻ‫ݔ‬ଵ௜ ൅ ߚଶ௜ ሺ࢛ሻ‫ݔ‬ଶ௜ ൅ ‫ ڮ‬൅ ߚ௡௜ ሺ࢛ሻ‫ݔ‬௡௜
for i = 1 … n (2.4)
Where,
ȕ0 = Constant
u = vector of coordinates
The notation ߚ଴௜ ሺ࢛ሻ indicates that the parameter describes a relationship
around location u and is specific to that location. A prediction may be
made for the dependent variable if measurements for the independent
variables are also available at the location u.
Although the GWR capable to reduce the model error of spatial

autocorrelation if used properly (Rosenshein et al., 2011), but the error is
still exists in the model output (Long et al., 2007; McCluskey & Borst,
2011). Therefore, this study includes another model called Spatial
Regression Model (SRM) which is capable to accommodate the spatial
autocorrelation error (Suriatini Ismail, 2005) as both OLS and GWR unable
to eliminate it. This would be discussed in the following section.
2.10.3 Spatial Regression Modelling (SRM)

Another type of spatial statistics modeling is the spatial regression. This
method would be used if spatial dependencies (which is also called the
spatial autocorrelation) significantly exist in the spatial data pattern.
1
u indicate some general location in the study area. Typically u will be a vector of coordinates measured
in either a projected coordinate system (such as Universal Transverse Mercator) or a geodetic system such
as WGS84. A particular location can be indexed ui, with Cartesian coordinates (ui,vi) or geodetic
coordinates Ȝiĭi).
34
Lagrange Multiplier (LM) diagnostic was used to assess the spatial
dependencies. There are two types of diagnostic tests for LM, namely LM
(error) for spatial error dependence and LM (lag) for substantive spatial
dependence (Bell and Bockstael, 2000). Whichever test that produced
significant result, the LM model for that test will be used for the study as it
indicates the correct form of dependence. However, if both tests are
significant and have high values, the one with the highest value will prevail
(Anselin, 2005:200). The details of the two spatial models would be
explained as follow.
2.10.3.1 Spatial Lag Model

One of the two spatial models generated from Spatial Regression Model is
the spatial lag model. A spatial lag model or a mixed regressive, spatial
autoregressive model is appropriate when the focus of interest is the
assessment of the existence and strength of spatial interaction. In this
model, the property value would be estimated partially from nearby or
neighboring observations of other property values. This model would
assume that the property value of each property was affected by the
property values in the neighborhood in a form of spatial weighted average
(Suriatini Ismail, 2005). This is in addition to the other variables that
provide indirect effect to the property value which represent the property
and neighbourhood characteristics. A spatial lag model can be expressed in
2.5 as follows (Anselin, 2001:316):
ൌ ɏ ൅ Ⱦ ൅ ɂ (2.5)
Where,
ȡ VSDWLDOFRHIILFLHQW
Wy = weight matrix for dependent variable
x = matrix of observations on the independent variables
İ YHFWRURIHUURUWHUPV
2.10.3.2 Spatial Error Model

The second model of spatial regression model is spatial error model. This
method was used for spatially autocorrelated model which occurred
because of the error term in the model. Thus, the spatial error model is
capable to rectify any potential bias influence of spatial autocorrelation due
to the use of spatial data. It helps to find the most suitable coefficients
estimation in the model and in ensuring that the correct inference is
adopted. It however, not appropriate for model which indicates no spatial
35
interaction (Suriatini Ismail, 2005). A spatial error model can be written in
2.6 as follows (Lehner, 2011:5):
‫ ݕ‬ൌ ߚ଴ ൅ ߚଵ ‫ݔ‬ଵ ൅ ‫ ڮ‬൅ ߚ௡ ‫ݔ‬௡ ൅ ‫ݑ‬

ൌ ɉ ൅ ɂ
ɂ̱ሺͲǡ ıଶ ୬ ሻ (2.6)
Where,
y = vector of dependent variable
ȕ0 = Constant term
u= vector of spatially correlated error
Ȝ VSDWLDODXWRUHJUHVVLYHFRHIILFLHQW
W = spatial weight matrix
İ UDQGRPHUURU
The spatial error model in SRM was regarded as the most popular model
and widely used in real estate economics (Willhemsson, 2002; Suriatini
Ismail, 2005) compared to spatial lag model. Although SRM suitable to be
used if spatial dependence exists in the data, it however was unable to
accommodate spatial heterogeneity (Taher Buyong, 2011).
The relationship process occurred to all the spatial modelling of OLS,

GWR and SRM discussed above actually were based on spatial weights.
The spatial weight is an important element to the property valuation
modelling which would be discussed in the next section.
2.11 Main sources of modelling problems

There are many problem associated with statistical modelling and this does
not exclude property value modelling. However, this study focuses on three
main modelling problems which have been experienced by many
researchers. There are multicollinearity (Leishman, 2001; Hernandez et al.,
2003; Wheeler and Tiefelsdorf, 2005; Suriatini Ismail, 2005; Taher
Buyong, 2006), spatial autocorrelation and spatial heterogeneity
(Fotheringham et al., 2002; Wheeler and Tiefelsdorf, 2005; Suriatini
Ismail, 2005; Bitter et al., 2006; Long et al., 2007; LeSage and Pace, 2009,
McCluskey and Borst, 2011). Each of these modelling errors would be
described in the following sub-topics.
36
2.11.1 Multicollinearity
Multicollinearity exists whenever two or more of the predictors in a
regression model are moderately or highly correlated (Allen, 1997:176). In
statistical models, multicollinearity leads to large standard error of
estimators (Gujarati, 1999, 327). Thus, its presence may produce unstable,
misleading and incorrectly signed coefficients, the common symptoms of it
(Leishman, 2001). This error can occur when variable in the model facing
any situations as follow (Williams, 2012:2);
a. Improper use of dummy variables (e.g. failure to exclude one
category)
b. Include a variable that is computed from other variables in the
equation
c. Include the same or almost the same variable twice (height in feet
and height in inches; or, more commonly, two different
operationalizations of the same identical concept)
Multicollinearity happens more often in observational studies and

unfortunately, regression analyses most often makes used of data obtained
from observational studies. This type of error needs to be overcome first
before the performance of the model to be analyzed, even though the R2 is
high, the estimated coefficients may be statistically insignificant (Taher
Buyong, 2006). Statistical test used to detect this error is stepwise
regression, variation inflation factor (VIF) and scatter plot in which it
would be explained later in section 2.13.1.
2.11.2 Spatial Autocorrelation

Spatial autocorrelation is also referred to as spatial dependence or spatial
association, follows directly from Tobler (1970:236) First Law of
Geography, which stated "everything is related to everything else, but near
things are more related than distant things." Consequently, these will
inevitably leading to spatial clusters among similar values in variable. For
example, a high property price will often be surrounded by commercial
areas, or a high income area in a remote region, or may be neighboring
other high income areas. This form of spatial dependence also occurs
among some property characteristics. Houses with two bedrooms and less
than 50 sq m of floor areas are clustered together and distant away from
clusters of houses with six bedrooms and more than 400 sq m of floor areas
(Taher Buyong, 2011). In addition to that, based on theory of error, spatial
dependence also occur due to spatial interactions between residuals because
of omitted or unobserved, misspecified or incorrectly measured property
characteristics that exhibit spatial pattern (McMillen, 2003).
37
Positive autocorrelation is said to occur when high or low values for a
random variable tend to cluster in space. While a negative autocorrelation,
occurs when locations tend to be surrounded by neighbours with very
dissimilar values (Lee and Wong, 2001; Taher Buyong, 2006). However, to
attain good result when dealing with the model residual, a random pattern
must be achieved as positive or negative autocorrelation (low and high
residual) indicates a key variable is missing from the model
(misspecification) (Rosenshein et al., 2011; Suriatini Ismail, 2005; Orford,
1999). The tools normally used to detect spatial dependence or spatial
autocorrelation is Moran’s I (Moran, 1948).
Other forms of spatial autocorrelation occurrence which accounted the

error terms of the spatial correlation in the modelling were regards as
spatial lag or spatial error dependence (Anselin, 2001:316). Spatial error
dependence was based on the errors occurred between the independent
variables. This error usually generated from the spatial correlation from the
independent variables (LeSage and Pace, 2009), or from the missing
important variables (Wilhelmsson, 2002; Kim et al., 2003) which were not
included in the model. Misspecification of the independent variables
measurement could also contribute to this error (Wilhelmsson, 2002).
Failure to detect and rectify this error would lead to inefficiency estimates
and incorrect inference in the equation (Kim et al., 2003; 28-29). In
contrast, the spatial lag dependence occurred between the dependent
variables. For example in property valuation, the distance among property
value observations may cause this error as one property value may
influence the value of other nearby property (Suriatini Ismail, 2005;
Wilhelmsson, 2002). Thus, ignoring spatial lag dependence would produce
higher consequences than spatial error dependence as the former involved
theoritical error while the latter only affected from statistical error
(Herman, 2005:35; Anselin, 1992a:183). Therefore, rectification of this
error is very important to obtain an acceptable property value model.
Both spatial error and spatial lag problems can be identified and rectified
using SRM method. By using the SRM, the spatial dependant of the
property value would be specified and subsequently, an interdependent link
would be produced (Figure 2.7). This method of maximum likelihood
estimation is carried out in which the spatial dependent parameters are
estimated along with the coefficients (Anselin, 1988; Taher Buyong, 2011).
38
Source: Taher Buyong (2011)
Figure 2.7: Estimation of SRM with specified spatial dependance
Although by using SRM method, the spatial autocorrelation is reduced or

eliminated, it however, ignores the other component of model error which
is the spatial heterogeneity (Taher Buyong, 2011:8).
2.11.3 Spatial Heterogeneity

Spatial heterogeneity is another type of modeling error pertains to the
spatial or regional differentiation which follows from the intrinsic
uniqueness of each location (Anselin, 1992b:1). This type of spatial model
error which is also called spatial non-stationary could cause
heteroscedasticity (Fotheringham et al., 2002; Bitter et al., 2006; Martinho,
2011). Heteroscedasticity pertains to the unequal variance of the error
terms in the model (Fletcher et al., 2000). This is contradicting with the
assumption of OLS that the variance in the error terms should be constant.
The present of heteroscedasticity error in the model would lead to
unreliable interpretation of the model (Gujarati, 2003:398). Problem in
measurement of variables and model misspecification were identified to be
the cause for this error (Hendry, 1995, 45). The former may arise in the
situation where data for a higher level of the geographical aggregation,
such as census area data, are used to represent individual property. While
the former can arise out of missing variables, or from the use of
inappropriate functional form (Suriatini, 2005).
39
There are two types of spatial heterogeneity that have been identified and
categorized as discrete spatial heterogeneity and continuous spatial
heterogeneity. While the discrete spatial heterogeneity generated from
different relationship of different sub-region or sub-market, the continuous
spatial heterogeneity take place when different relationship occur vary
smoothly across a region (Fotheringham et al., 2002). The tools normally
used to detect spatial non-stationarity or heteroscedasticity is Breusch-
Pagan test which would be explained in a later topic. GWR was a powerful
tool in exploring spatial heterogeneity (Taher Buyong 2011; Yu, 2010;
Chasco et al., 2007). Being the local model, GWR addresses spatial
heterogeneity by regressing in smaller portion across a study region, thus, it
permits this effect to be captured (Figure 2.8). As each regression portion
produces a set of estimated coefficients and variation in their values
between different portions, it enables the spatial heterogeneity in the region
to be evaluated (Zhang et al., 2009). Therefore, this method would be
adopted for this study.
Source: Taher Buyong (2011)

Figure 2.8: Local model of GWR fit a model to several local areas in a
region
For this study to produce a better model, a good statistical modelling

procedure with a proper model testing to detect the error was needed. This
would be discussed in the following section.
40
2.12 Main statistical procedure for property valuation
modelling
This topic focuses on the main statistics procedures that are relevant with
the property value modeling. The modelling procedures usually based on
the modelling requirement. By fulfilling the modelling requirements, it
would surely help in obtaining an accurate property rating model with
correct variables chosen from the correct data and correct assumption with
valid interpretation of the estimated regression (Gujarati, 1995: 66). This
process would be discussed in the following section.
2.12.1 Data selection

One of the most important tasks and usually the first step in property
valuation modelling is identification of important property attributes
(Suriatini Ismail, 2005:54). Figure 2.9 shows that the modelling procedure
for the property rating assessment using Multiple Regression Analysis
(MRA) which begins with data compilation before the rental listing is
obtain and filtered (Tretton, 2007). This shows that the effectiveness of the
model depends on the selection of the data as it will apparently affect the
whole modelling process.
This was supported by Theriault et al. (2003), Ting Xu (2008) and Lin
(2010) in which their studies also focused on data selection in the first
stage. Some studies would scrutinize or categorize the data in the first stage
before the modelling were initiated (Tretton, 2007; Theriault et al., 2003).
This was conducted to ensure the quality of the data was not compromised.
Valuation accuracy and the quality of the result in the modelling depended
heavily of the data obtained as it was the foundation of the model.
Some of the data needed to be recoded to provide a good measurement of

the variables. Usually the variables were recoded as dummy variables
especially when the variables were non-numeric (Suriatini Ismail, 2005) as
it was not allowed in the regression modelling. However, the usage dummy
variable might cause problem in the modelling (Leishman, 2001:136) by
producing multicollinearity error in the model. Therefore, correlation
statistics was required to examine it before the dummy variable can be
selected (Suriatini Ismail, 2005:152).
Based on the discussion above, this study would adopt the ‘data selection’
as the first step of modelling and provide suitable measurement value or
dummy variable if necessary before the second stage begin.
41
Source: Tretton (2007:504)
Figure 2.9: Multiple regression analysis workflow for rental valuation
After the first stage, it would be followed by ‘variable selection’ to identify

which variables are suitable to be included in the model. This would be
2.12.2 Variable Selection

Variable selection was conducted in the second stage of modelling
development for most property modelling studies (Suriatini Ismail, 2005).
The variables were organized and arranged based on the data obtained from
the study (Tretton, 2007). However, to determine the effectiveness of the
variables selection, model testing must be conducted. A model used
without proper testing can lead to bias and misinterpretation in decision
making (Rosenshein et al., 2011). As shown in Figure 2.10 based on the
study by Theriault et al (2003), model testing such as multicollinearity,
spatial autocorrelation and heterogeneity (heteroscedasticity) were
conducted to ensure the selected variables is free from error or whether
some variables were missing from the model. This also followed by the
study in Figure 2.11 that eliminated any correlated independent variable
present in the model before the analysis was initiated (Lin, 2010).
This study, therefore, would use this approach as the second stage of the
modelling procedure and adopt the various testing as suggested to identify
suitable variables for the model.
42
Starting point Property attributes
Stepwise multiple
regression
procedure
Factor analysis of
interrelated independent
variables
yes Test for

multicollinearity
Add geographic and

no neighbourhood attributes
and/or interactions
Test for spatial yes

autocorrelation
Improve market
segmentation or use binary
no interactions with property
specifics
Test for yes

heteroscedasticity
no
Unbiased and stable

hedonic model
Source: Theriault et al. (2003:40)
Figure 2.10: Main hedonic modelling procedures
43
Source: Lin (2010:44)
Figure 2.11: Model development process for residential property valuation
2.12.3 Functional form selection

Functional form (i.e., mathematical form or model structure) is critical in
determining an accurate and consistent econometric model (Brown and
Ethridge, 1995:166). Since the development of the property value method,
there has been much debate on the choice of a proper functional form of the
regression model. There is no guideline in choosing the best functional
form and most study using the goodness-of-fit measures and the signs and
significance of estimated coefficients for their selection (Coley et al.,
2006:6).
44
There are three types most common use of functional form in multiple
regression models which are the linear, semi-log and log-log. The formula
of linear function of OLS, GWR, and SRM of Spatial Error and Spatial Lag
was shown in equation 2.3, 2.4, 2.5 and 2.6 from the previous section
respectively. While the semi-log (Malpezzi, 2002) and log-log (Azhari
Husin, 1990) is stated in equation 2.7 and 2.8 respectively as follow:
୬ ൌ Ƚ ൅ ȭȾ୩ ୬ ୩ ൅ ȭஓ୨ ୬୨ ൅ ɂ (2.7)
Where;
Ln P = a vector of log 2 of housing prices
Ln Sk = a matrix of log of structural characteristics,
k=1,…,K
Ln Lj = a matrix of log of locational characteristics,
j=1,…,J
Įȕk DQGȖj = corresponding parameters
İ = a vector of random error terms
୬ ൌ Ⱦ ൅ Ⱦଵ ଵ ൅ Ⱦଶ ଶ ൅ Ⱦଷ ଷ ൅ Ⱦସ ସ (2.8)
Where,
Ln P = a vector of log of housing value or rent for the unit
X = a list of housing and neighborhood characteristics
Ti = series of dummy variables representing the time periods
ȕi = corresponding parameters
It was initially addressed by Can (1990) which pointed out that the property
value modelling was usually specified in a linear form. This was supported
by Azhari Husin (1990) that linear form was widely used compared to log-
log and semi-log.
Watkins (1998) however, noted that researchers seem to choose the

functional form based on convenience. Convenience is probably
synonymous with linear. Linear has the advantage of ease of interpretation
(Watkins, 2001; Bowen et al., 2001). It produces coefficients of actual
4
“Ln” represents the normal log of base e (e= 2.718). “Log” represents the common log of base 10. “Ln”
is more common in real estate studies. All the log values in this study are based on the natural logs.
45
value as per transacted value which is straightforward to interpret. Adair et
al. (1996) highlighted that, although a linear model is convenient, it
imposes constraints on value response to change in attributes levels, that it
does not capture the non-linearity characteristic of housing. Nevertheless,
Watkins (1998) argues that property specific dummies that included in
linear model, such as different dummy variables for different number of
rooms, capable to capture the non-linear effect of housing characteristics on
prices. This implies that linear functional form is still feasible to be use for
property value modelling. Therefore, Based on the discussion above, this
study adopted the linear functional form. The equation stated in 2.3, 2.4,
2.5 and 2.6 would be applied in the study to develop the property valuation
modelling for rating purpose.
2.13 Model Testing

In order to identify the acceptability or the performance of the property
value model, testing need to be conducted. Six (6) checks consist of
questions that need to be solved which were outlined as follows
(Rosenshein et al., 2011:41-44):
i. Are these explanatory variables helping my model?
ii. Are the relationships what I expected?
iii. Are there redundant explanatory variables?
iv. Is my model biased?
v. Have I found all the key explanatory variables?
vi. How well am I explaining my dependent variable?
These checks will help measure the performance of the model and its
applicability to be used in the study area. The checks, however, can be
solved in random order. It involves modelling error that needed to be
identified as mentioned in the previous section (2.12). In the six checks,
question (i) examined the significance of the model relationship, question
(ii) investigated the type of the relationship, question (iii) regarding
multicollinearity error, question (iv) for the normality of the residual
distribution, while question (v) about the spatial autocorrelation error and
finally, question (vi) identify the goodness of fit of the model. Therefore,
suitable statistical methods were needed to test the model and checked for
error. Hence, the statistical methods used from past studies to conduct the
test would be discussed in the following sections.
2.13.1 Multicollinearity Test

To solve question (iii) pertaining multicollinearity error, the redundancy of
the model need to be investigated as some models may have redundant
explanatory variable. In other words, there are variables that produce same
46
relationship or tell the same story towards the dependant variable. As
mentioned in the previous topic, multicollinearity will cause incorrect
coefficient of the model. To detect this error, stepwise regression, variance
inflation factors (VIF) and scatter plot can be used.
Previous studies by Theriault et al. (2003), Suriatini Ismail (2005) and Lin
(2010) show a preference for stepwise regression as a variable selection
procedure. The stepwise procedure is regarded as the best safeguard
measure against multicollinearity in hedonic modelling. This study adopts
the stepwise regression procedure and the “dropping variables” measure in
dealing with signal of multicollinearity in the variable selection stage
presented in Chapter 5.
VIF was used as conducted by Des Rosiers and Thériault (2008), Suriatini
Ismail (2005) and Orford (1999). VIF calculation is given in equation 2.9
(Gujarati, 1999:325) as follow;
ଵ
ܸ‫ ܨܫ‬ൌ మ (2.9)
ଵିோ೔
Where;
R2i = the coefficient of determination of the regression equation for the
sample i
VIF identifies multicollinearity based on how much it inflated the variance

of the coefficient estimate. The VIF value measures the variable
redundancy and provides suggestion to which variables need to be omitted
from the model and at the same time, maintain effectiveness in explaining
the model (Rosenshein et al., 2011). As rule of thumb, when the VIF value
increases, the stability of the coefficient estimation would be decreases
(Leishman, 2001). There was a lot of debate however, when determining
the VIF cut-off value. Some studies stated the VIF value should be less
than 11 (Orford, 1999; Buang Alias, 2000; Kutner et al., 2004), others
suggested 5 (Des Rosiers et al., 2000:303) and 7.5 (Rosenshein et al.,
2011). Therefore, as there is no formal cut-off value to use with VIF for
determining presence of multicollinearity, the cut-off value of 7.5 provided
by (Rosenshein et al., 2011) was chosen for this study. This was also
convenient for this study as the cut-off value set by ESRI for the Spatial
Statistics tool in ArcGIS 9.3 was 7.5.
Scatter plot are other statistical methods that were used to measure the
degree of relationship between two independent variables in a model
(Taher Buyong, 2006:101) in which it provides graphic presentation of the
pairs (Wheeler and Tiefelsdorf, 2005:163). The usage of scatter plot for
47
multicollinearity was straight forward as straight line shape of the dots in
the graph would indicates high multicollinearity while scattered dots would
show no or low multicollinearity between two independent variables (Taher
Buyong, 2006:102).
As there are many method of multicollinearity test given, not all would be
apply for each model. This study would use two or three multicollinearity
tests for certain model as it consider sufficient to show the model was free
from this error.
2.13.2 Normality Test

Test that needs to be conducted to determine whether the model is bias or
not (to solve question (iv) is also referred to as normality test. With a
biased model, the distribution of the residuals is unbalanced. The impact of
this bias may be that the model does well for low values but is ineffective
for high values (or vice versa) (Rosenshein et al., 2011). Jarque-Bera (JB)
test is one of the statistical tests to indicate whether or not the residuals (the
observed/known dependent variable values minus the predicted/estimated
values) are normally distributed (Jarque and Bera, 1980). When the p-value
(probability) for this test is small (is smaller than 0.05 for a 95%
confidence level, for example), the residuals are not normally distributed,
indicating model misspecification (a key variable is missing from the
model). Results from a misspecified property valuation model are not
trustworthy (Rosenshein et al., 2011).
The test statistic JB (Jarque and Bera, 1980) is defined in equation 2.10
with its sub equation in 2.11 and 2.12.
௡ ଵ
‫ ܤܬ‬ൌ ሺܵ ଶ ൅ ሺ‫ ܭ‬െ ͵ሻଶ ሻ (2.10)
଺ ସ
Where;
n is the number of observations (or degrees of freedom in general);
S is the sample skewness, and
K is the sample kurtosis:
భ ೙
ෝయ
ఓ σ ሺ௫ ௫ҧ ሻయ
೙ ೔సభ ೔ష
ܵൌ ෝయ
ൌ యȀమ (2.11)
ఙ భ ೙
ሺ σ೔సభሺ௫೔ష ௫ҧ ሻమ ሻ
೙
భ ೙
ෝ
ఓ σ ሺ௫ ௫ҧ ሻర
೙ ೔సభ ೔ష
‫ ܭ‬ൌ ෝ రర ൌ భ ೙ మ (2.12)
ఙ ሺ σ೔సభሺ௫೔ష ௫ҧ ሻమ ሻ
೙
48
Where;
and = the estimates of third and fourth central moments,
respectively,
= the sample mean, and
= the estimate of the second central moment, the variance.
The usage of Jarque-Bera test can be found in Fletcher et al (2000, 2004)

study on hedonic model for house prices as part of its model testing to
determine the normality of the model. The test on normality is required
before the Breusch-Pagan test can be performed to test the spatial
heteroscedasticity error of the model. Similarly, the study by Gallo and
Chasco (2009) also tested for heteroscedasticity using this test.
2.13.3 Spatial Autocorrelation Test

The next test is to identify whether the entire key explanatory variable is
obtained which stated in question (v). This can be examined using the
residual distributions of over prediction and under prediction of the
property value and tested for spatial autocorrelation. The Moran’s I is the
tool that measures spatial autocorrelation in the residuals (Can, 1990; Taher
Buyong, 2011; Suriatini Ismail, 2006; Lee and Wong, 2001; McCluskey
and Borst, 2011). Moran’s I takes the formula in 2.13 as follow
(McCluskey and Borst, 2011):
σ೙ ೙
೔సభ σೕసభ ௪೔ೕ ሺ௬೔ ିఓሻሺ௬೔ ିఓሻ
‫ܫ‬ൌ݊ (2.13)
ሺ σ೙ మ
೔సభሺ௬೔ ିఓሻ ሻሺσ σ೔ಯೕ ௪೔ೕ ሻ
Where;
n = the number of observations,
wij = the spatial weights between observations,
yi = the value at location i, and
= the mean value of y
This test will describe the spatial pattern of the residual whether it is
clustered, random or dispersed. The residual must exhibit random pattern to
ensure that there is no spatial autocorrelation present.
2.13.4 Goodness of fit of the model

In answering question (vi), the goodness of fit of the model need to be
examined to find out how well the estimated property value was explained
by the model. This required the usage of R2 and Adjusted R2. The square
49
value of the coefficient R2, known as the coefficient of determination, has
two (2) important interpretations (Taher Buyong, 2006; 105): i) It serves as
a strength measurement of the relationship between the variables; ii) It
explains the proportion of the variance in one variable accounted for by the
other variable. The R2 is calculated from the equation in 2.14 (Taher
Buyong, 2006: 168) as follow:
σሺ௬ෝഢ ି௬തሻమ
ܴଶ ൌ (2.14)
σሺ௬೔ ି௬തሻమ
In which;
yi is the data y at sample i
‫ݕ‬ത is the sample mean of data y
‫ݕ‬ො is the estimated value of yi with residual (error)
If the value of R2 is 1.0, then 100% of the variability of the explanatory

factor is explained by the model while the value of 0.0 shows that none of
the variability of the explanatory factor is explained by the model (Taher
Buyong, 2006:168).
However, there is a serious flaw in R2 as when more independent variables

included, R2 also increases. This is not the correct procedure as the best
model does not necessarily use all the variables. Therefore, as to overcome
this problem, the adjusted R2 is used for model comparison. This method
adjusted the R2 for the number of variables and sample size (Taher Buyong,
2006). The adjusted R2 is given in equation 2.15 (Taher Buyong, 2006:189)
as follow:
ሺ௡ିଵሻ
݆ܽ݀‫ ܴ݀݁ݐݏݑ‬ଶ ൌ ͳ െ ሺ௡ି௠ିଵሻ ሺͳ െ ܴ ଶሻ (2.15)
Where n is the number of equation (sample size) and m is the number of b

coefficient.
There are numerous property studies adopted adjusted R2 to evaluate their

model performance such as Suriatini Ismail (2005), Taher Buyong (2011),
Fletcher et al. (2004), Bitter et al. (2007) and Des Rosiers and Thériault
(2008). However, for spatial regression model, adj R2 is not applicable as
goodness of fit of the model (Yu et al., 2007; 1092). Other measure such as
Akaike’s Information Criterion (AIC) is applied.
Akaike’s Information Criterion (AIC) is another type of test that performs

goodness of fit criterion for model comparison (Akaike, 1974). This test
applies maximum likelihood estimation that penalizes for the number of
parameters of the model. Generally, the model with the smallest AIC value
50
is deemed to be the best fit to the data (Schabenberger and Gotway, 2005).
However, as a rule of thumb, in cases where the differences between AIC is
less that around 3, the comparison is considered very close and therefore
there is no clear evidence as to which of the two models is better
(Fotheringham et al., 2002). The AIC calculation takes the following
formula in 2.16 (Akaike, 1974) as follow:
௡ା௧௥ሺௌሻ
‫ܥܫܣ‬௖ ൌ ʹ݊ ௘ ሺߪො ሻ ൅ ݊ ௘ ሺʹߨሻ ൅ ݊ ቀ ቁ (2.16)
௡ିଶି௧௥ሺௌሻ
Where;
n = the number of observations in the dataset,
ߪො = the estimate of the standard deviation of the residuals, and
tr(S) = the trace of the hat matrix.
2.13.5 Significance test of the variable relationship

The significance test of the independent variable relationship with the
estimated property value from the model was required to solve question (i).
The method used for this test is t statistics. The t statistics or t-test could
help to determine the explanatory variable’s strength or significant to the
dependent variable. It able to test whether the parameter estimated is
significantly different from zero. A parameter whose estimated value is
found to be not significantly different from zero is associated with a
variable whose variation does not contribute to the model. Variables with
non-significant parameter estimates can be dropped from the model
(Charlton and Fotheringham, 2009).
The t-test will assists in identifying which variable is significant that should
be at the level of 0.05 or less. If level 0.05 was chosen, the variable must be
statistically significant at 95% confidence level. This task usually called as
critical value of t or probability of t. This statistical test computes the
probability that the coefficient is actually zero. If a coefficient is zero (or
very near zero), the associated explanatory variable has very little impact
on the model or in other words, the variable unable to contribute
(Rosenshein et al., 2011; Taher Buyong, 2006).
The calculation for the t statistic for regression model is given in equation
2.17 as follow (Taher Buyong, 2006:193):
௕ ିఉ
‫ݐ‬ൌ ೔ ೔ (2.17)
௦್೔
Where;
bi is the determined coefficient
ȕi is the corresponding population parameter which is equal to 0
51
‫ݏ‬௕೔ is the std. deviation of bi
While the calculation for the critical value of t for regression model is
given in equation 2.18 as follow (Taher Buyong, 2006:193):
‫ݐ‬௖ ൌ േ‫ݐ‬ഀǡ௡ି௠ିଵ (2.18)
మ
Where;
Į WKHOHYHORIVLJQLILFDQFHUHTXLUHG
n-m-1 = degree of freedom
However, the above method could only be used if the model indicated
stationary relationship as it was not suitable for non-stationary relationship
(Rosenshein et al., 2011). Breusch-Pagan (BP) (Breusch and Pagan, 1979)
test is used to identify the stationarity of the model (De Graaf et al., 2001).
If the residuals follow a normal distribution (Fletcher et al., 2000), its use is
sufficient in testing for the presence of significant non-stationarity in a
model. Moreover, it can determine if the explanatory variable in the model
have consistent relationship (same story happen to all places) to the
dependent variable both in geographic and data space. Generally, the BP
test formula is given in 2.19 and 2.20 as (Breusch and Pagan, 1979);
‫ݑ‬ො ଶ ൌ ߚ଴ ൅ ߚଵ ‫ ݔ‬൅ ‫ݒ‬ (2.19)
Where;
‫ݑ‬ො ଶ = residual variance
ߚ଴ = constant
ߚଵ = coefficient parameter
x = the independent variable
(2.20)
If BP is significant, non-stationary occur which also called as

heteroscedasticity, in which the robust t-test estimation need to be refer to
assess the effectiveness of each explanatory variable (Rosenshein et al.,
2011). Other study that use BP test in house price modelling are such as
Suriatini Ismail (2005); Orford (1999) and Taher Buyong (2011).
If non-stationary relationship exists, GWR model is recommended to be

used (Rosenshein et al., 2011). Based on the previous study, Monte Carlo
52
approach was normally used for non-stationary relationship to test the
individual parameters (Hope, 1968; Fotheringham et al., 2002; Brunsdon et
al., 1998a). Monte Carlo test is capable for not only to explore the variation
of the parameters, but can also test the significance of the variation (Leung
et al., 2000). This method creates random numbers observing how the
fraction reacts in every case. In effect, it is about the transformation of non
random problems in random form so as to facilitate finding a solution to the
problem via statistical sampling (Kyratso and Yiorgos, 2004). However,
Matthews and Yang (2012) pointed out that the mapping of Monte Carlo
test results does not provide the map reader with sufficient information to
be able to discern the areas where local parameter estimates have
significant local t-values. Ultimately, the study suggests the local t-value
needs to be visualized separately or overlay it with other map to better
illustrate the study outcome. The study by Bitter et al. (2007) adopted
Monte Carlo test for property modeling studies. That study managed to
detect spatial variation with 0.01 significant using Monte Carlo tests from
its seven parameters of dwelling area, lot size, number of storey, built prior
to 1940, structural quality, factor1 and factor2 that influence the house
price. The factor1 and factor2 parameters were derived using principal
component analysis (PCA) from 8 orginal factors.
2.13.6 Variable relationship type test

In solving question (ii) the type of variable relationship produced from the
model need to be identified. The relationship between the independent and
the dependent variable would be determined based on the model
coefficients signs of positive and negative (Rosenshein et al., 2011). The
positive sign shows that the independent variable would increase the
property value while the negative sign would decrease the property value.
It was observed that the significance of regression coefficients depends on
the choice of estimating technique and the functional form of the regression
equation (Kang and Reichert, 1987). Once the type of relationship was
known, the property value that was not included in the estimation for
unsold or new developed property could then be conducted (Dubin, 1998).
The estimated vector of coefficients contains information concerning the

relationships between independent variables and dependent variable in the
study region. Thus, it can be used to predict dependent variable (price) of
any house in the region, provided that the values of its independent
variables (land area, floor area, number of bedrooms, etc.) are known. The
coefficient can be estimated with the equation in 2.21 as follow (Taher
Buyong, 2008b:3);
53
ȕˆ ( X' X ) 1 ( X' X )Y
(2.21)
Where;
Y = the vector of dependent variable,
Ⱦ= the vector of coefficients,
X = the matrix of independent variables
Another type of equation which is called the beta coefficient or

standardized coefficient was used to determine which of the independent
variable was more important in influenceing the dependent variable and in
this case, the property value. It can be estimated using the original or
unstandardized coefficient as the basis such as in equation 2.22 follow:
ௌ஽
ߚ ᇱ ൌ ߚመ ೣ (2.22)
ௌ஽೤
Where;
ߚመ = the unstandardized coefficient,
ܵ‫ܦ‬௫ = the standard deviation of independent variable,
ܵ‫ܦ‬௬ = the standard deviation of dependent variable
2.14 Application of Spatial Statistics in Property Valuation

Modelling
The nature of property as heterogeneous product with no mobility and has
different location makes it very unique (Fahrländer, 2006). It was even
harder to translate this uniqueness into property value. The property value
however, can be estimated using spatial statistics methods. Recent studies
on the application of spatial statistics showed that there were various
approaches used for specifying the property value models. Different
approaches had been conducted to take into consideration different
property characteristics and policies in different regions. The following
section discusses the applications of spatial statistics in property valuation
conducted in the western developed countries, Asia and Malaysia.
2.14.1 Studies undertaken in the western developed

countries
The development of property value model using spatial statistics in Europe
was conducted since 1960s. Early work dated in 1966 in which linear
54
model was first introduced (Lancaster, 1966). The linear model which was
later called OLS was one of the earliest approaches used in spatial statistics
to produce property value model. The development during that time,
however, faced difficulties in expanding the spatial statistics approach
because of lack of technology which limited its scope and appeal (Pace et
al., 1998). Nevertheless, since the 1990s, the usage of spatial statistics for
property value modelling was accelerated due to the rapidly growing GIS
software (Kulczycki and Ligas, 2007).
This was exemplified by a study for house price index construction in

Miami, Florida involving 944 housing transaction (Can and Megbolugbe,
1997). That study showed that the prediction accuracy of the house price
index could be increased using spatial regression model. The model was
necessary as the spatial dependence was present, and it had large dataset
with limited number of variables. Similarly, other studies that were
conducted in Stockholm, Sweden by Wilhelmsson (2002), Glasgow,
Scotland by Suriatini Ismail (2005) and Krakow, Poland by Kulczycki and
Ligas (2007) obtained same outcome. All of the studies encountered the
presence of spatial autocorrelation in their models, therefore, SRM was
used to overcome the error. Those studies suggested that SRM’s spatial
error model appeared to be the most appropriate model.
Recently, the application of GWR in property value modelling were

undertaken by Hernandez et al. (2003), Bitter et al. (2006), Long et al.
(2007), McCluskey and Borst (2011). The study by Hernandez et al.
(2003), for example, was undertaken for residential property valuation in
Toronto, Canada using OLS and GWR. That study found the GWR
performed better than the OLS. That study, however, raised concern
regarding local multicollinearity issue that could have existed in the GWR
model but it did not perform the test to verify it. The study by Bitter et al.
(2006) examined the spatial variation in housing attribute prices in Tucson,
Arizona housing market using spatial expansion method and GWR. That
study showed that the GWR performed better than the spatial expansion
method as the former accurately estimated house prices and enhanced the
model’s factors explanation. That study, however, did not perform spatial
dependence test to detect error in the model.
Other study which was also conducted in Toronto, Canada examined the
spatial effect of house price estimation when using GWR, Moving Window
Regression (MWR) and Moving Window Kriging (MWK) undertaken by
Long et al. (2007). The result showed that the GWR managed to achieve
55
slight advantage in accuracy estimate the house price than the other
modelling approaches. However, since spatial dependency was detected in
the model, it failed to provide test to eliminate the error such as using SRM
to probably achieved better result.
The study by McCluskey & Borst (2011) on property rating valuation
system for the residential properties was conducted in USA using GWR.
That study also found that spatial autocorrelation present in the residual for
all three counties (Catawba, Sarasota, Fairfax) in the study area after GWR
analysis was conducted. However, by using the segmentation or submarket
approach, the spatial autocorrelation error was gradually decreased when
the number of segmentation increased. That study showed that
segmentation or submarket approach was able to improve prediction
accuracy (R2) and reduce spatial autocorrelation (Morans I) in residual
errors. Eventhough the approach able to decrease the spatial autocorrelation
but it still failed to eliminate the error completely in the model.
The study undertaken by Löchl and Axhausen (2010) that developed the
hedonic property rents model undertaken in Zurich, Switzerland which
involved 8592 dataset showed that the GWR model was unable to eliminate
the spatial autocorrelation error. This prompts the study to use SRM, where
it managed to produce good accuracy of the predicted values. Its data,
however, were taken from public web site from December 2004 until
October 2005 based on asking rent and does not reflect paid market price.
Moreover, since that study used old data, it also did not inflate the rental
value to accommodate it to the present market value. Consequently, the
accuracy of the estimated value from the model is questionable.
2.14.2 Studies in Asia

Various studies were undertaken in Asia that used spatial statistics in
developing the property value model. One of the studies was conducted by
Tse and Love (2000) to measure residential property values in Tsing-Yi,
Hong Kong using OLS. In that study, the prediction accuracy of the OLS
model was increased by producing multiple models with different set of
independent variables. The study found that the property type and
neighbourhood amenities were important housing attributes to be included
in the model. The usage of GIS was also necessary to define position and
estimate the distance of the neighbourhood effect. Similarly, the study by
Hening Widi Oetomo (2003) also developed land value spatial model to
estimate property tax value in Kota Madya Surabaya - Jawa Timur,
Indonesia. The study incorporated GIS and multiple regression approach to
produce four (4) groups of factors namely structural, neighbourhood,
56
location and time that influenced land value. The study showed that the
usage of GIS to assists the four models were beneficial. Both of these
studies however does not perform any model testing for error and also does
not compare it with other model such as GWR to observe the result in local
model.
In another development, the study on transit impact on commercial land

values in Seoul, Korea was conducted using spatial econometrics (also
called as SRM) by Kim and Zhang (2005). The study found that spatial
autocorrelation existed in the model. Therefore, spatial lag and spatial error
of SRM were applied in that study. The result of that study showed that the
estimation of SRM was better than the OLS to produce an efficient model.
Similar situations also occurred in the study of hedonic house prices using
SRM in Changsha, China with 46,356 residential property sales records by
Liao and Wang (2011). That study found that when integrated with quantile
regression, the SRM managed to produce better property value prediction.
Although both of these studies provided solution to eliminate the error from
the OLS model by using SRM but it does not perform the GWR to examine
the data in local model as it may produce an error free model with better
accuracy.
The study undertaken by Lehner (2011) in Singapore uses various

approaches of OLS, GWR, and SRM to develop the property value model
using 110,000 housing prices. The output of the study showed that the
SRM’s spatial error model performed better than the other modelling
approaches. However, similarly with Löchl and Axhausen (2010), its data
were taken from online source from February 2011 until May 2011 and
mostly based on asking sale/rental (59%) which does not reflect paid
market price. Therefore, the accuracy of the estimated value from the
model is also questionable as even the study recommended that different
source of data to be used.
2.14.3 Studies in Malaysia

In Malaysia, although various property value modelling were studied and
developed, the applications have still been limited to research or at
academic stage. In the early years, most of the property value models were
developed using integration of OLS with GIS such as by Eboy (2001) and
Abdul Hamid (2007). One of the early study conducted by Eboy (2001)
developed a property rating valuation system with integration of GIS and
OLS (also called MRA) in Kuantan, Pahang. That study was able to
calculate the property rating in mass valuation and at the same time
57
visualised the estimated value in a GIS map. This system however, required
two separate softwares namely SPSS and Arcview GIS to obtain the
desirable result and did not perform other model such as GWR or SRM for
comparison. Moreover, model error testing was also not conducted in this
study.
Other study on the assessment of residential property values in Johor Bahru

using a combination of GIS and OLS model was conducted by Abdul
Hamid (2007). The study also used two separate softwares where the
property value prediction was calculated by using SPSS software and then
the result was visualized by using ArcGIS. A locational value residual
surface model was then developed using IDW and Kriging. The generated
surface was enabled a more visualized representation of locational
influence on property values and had enabled such influence to be captured
at any geographic points across a particular area. The study also performed
diagnostic test of multicollinearity, spatial autocorrelation and
heterogeneity (heteroscedasticity). It however did not perform the GWR
analysis to observe the result in local model that could adversely affect the
accuracy of the model estimation.
Recently, few studies had been conducted for property value model using
spatial statistics particularly in GWR. One of the studies by Taher Buyong
(2008a) was conducted property values prediction on 196 single storey
terrace house for rating purposes in Kulai, Johor. The study compared
GWR with OLS in which the former standout to be a better model. The
GWR achieved high accuracy for adjusted R2 and was capable to capture
spatial variation of the data. That study however, did not perform any
model error testing and only small dataset was used. Therefore, the
accuracy of the estimated model is questionable.
Ibrahim Sipan (2009) applied and compared OLS, GWR, Kriging and
Spatial Hedonic Model (SHM) to produce an Automated Valuation System
for property rating in Kulai, Johor which involved 1500 transaction data.
The study shows that the OLS was the suitable model to be used in the
study area while the SHM, although is the best model, has calibration
problems to perform mass appraisal. Other study conducted by Ibrahim
Sipan et al. (2012) which used GWR method for mass property rating
assessment on 178282 properties in Selayang, Selangor. The result showed
that the GWR fared slightly better than the OLS model. That study
however, did not perform any test for spatial autocorrelation and
heteroscedasticity to verify the validity of the model.
58
In addition to the above studies, the study conducted by Taher Buyong
(2011) compared various spatial statistics models for mass appraisal on
residential properties in Johor Bahru, Johor based on 463 transaction
records and in Kajang, Selangor based on 1399 rental records. All records
acquired in year 2008. That study used OLS, GWR and SRM approaches.
The three models were tested for spatial autocorrelation and spatial
heterogeneity (heteroscedasticity). The result showed that GWR model
proved to be a better model for both study areas. SRM loses out to GWR
because spatial heteroscedasticity was more dominant compared to spatial
autocorrelation in the dataset (Taher Buyong, 2011). This study provides a
detail solution in property valuation modelling. However, the study was
conducted using small dataset compared to the vast size of Johor Bahru and
Kajang.
Previous studies had shown that OLS, SRM and GWR were preferred in
developing property valuation model. The selection of the model to be
used, however, could be undertaken based on few considerations. Firstly,
the selection was based on the present of spatial autocorrelation of the
model. For example, if spatial autocorrelation was detected, then SRM
shall be selected. Otherwise, OLS and GWR would be selected. Secondly,
the model accuracy can be increased by applying area segmentation or
submarket approach. As stated by McCluskey and Borst (2011), smaller
area would encourage GWR approach and produce a better accuracy of the
model. However, none of the previous study has tested building type as
their data segmentation as model accuracy could also be improved by using
this approach. Finally, the accuracy of the model was based on the
independent variables selected. The influence of the independent variables
or property valuation factors towards property rating need to be identified
and measured to find out the number of significant factors and which of it
that plays an important role to determine the property rating.
2.15 Conclusion
A review has been performed in this chapter, in which the property
valuation modelling was highlighted as the current popular method to
assists in property valuation work especially in rating purpose. The
importance of value influence factor including model testing was stressed
out in order to develop an accurate property valuation modelling. Other
than that, various spatial statistics modelling of OLS, GWR and SRM were
discussed as one of the approach to model the residential property
valuation. As stated from the previous studies, the OLS was suitable to
59
model the property value if the dataset is global or stationary in nature.
While the GWR model was best used if the dataset indicates local or non-
stationary pattern. In the event of when spatial autcorrelation unable to be
removed from the model, the SRM would help produced an alternative
model for the dataset. Some studies also highlighted the usage of
segmentation or subdivided approach to increase accuracy and reduced the
error of the model. This approach however, usually been conducted to
subdivided the area but segmentation based on building type has never
been tested yet. Another question of whether each segmented model use the
same variables or not and which variables play an important role, need to
be examined. Finally, the main important part in developing a model is to
have a good modelling process. The modelling process not only constitutes
the step-by-step process to produce a good model but also includes various
modelling tests that need to be performed. As a result from the outcome of
this chapter, it sufficiently can help this study to develop an accurate and
acceptable property valuation model for property rating valuation.
60
CHAPTER 3
RESEARCH METHODOLOGY
3.1 Introduction
Based on the discussion on the issues of property valuation methods and
spatial statistics in Chapter 2, it was found that there is a growing
recognition on the importance of spatial elements in property value
modelling studies. This study would then embark on the empirical
investigation. In this chapter, the conceptual framework, methodology of
the modelling process, model performance, the assessment and
visualization of the model output were discussed.
3.2 Conceptual framework of the study

In order to construct a good methodology process of the study, a conceptual
framework needs to be outlined by graphically explained the main things to
be studied and the presumed relationship among them (Miles and
Huberman, 1994:18). In this study, the conceptual framework is
categorised into three (3) main parts namely input, processing and output
that reflects the property valuation activities as shown in Figure 3.1 below.
61
Figure 3.1: Conceptual framework of this study
As shown in Figure 3.1, the first stage namely input involved theoretical
study and data collection. It aimed to find evidence to substantiate the need
for the research and to obtain the data required for this study. At this stage
the property market value including its contributing factors and the spatial
elements in property valuation that needed for valuation were acquired. In
addition, attributes consists of physical building, geographical aspect,
neighbourhood, external facilities and legality represent the non-spatial
data were also compiled. Expert judgement was required to identify the
62
data scaling for some of these attributes. This was conducted using
questionnaire to obtain feedback from the valuers to ensure data
measurement used for the modelling are valid. Next, the location factors
were derived using GIS in which distance from each property location for
the spatial data was measured. The selected relevant data were then
gathered and examined by going through steps such as verification,
cleaning and conversion to prepare database suitable for analysis. The
discussion of the input stage was elaborated further in chapter 4.
Data gathered during input stage was used in the processing stage, where
analysis was performed using spatial statistic method to produce spatial
model based on the data acquired. Spatial pattern of the data need to be
identified first to choose which modelling method need to be applied. Once
the type of model was chosen and developed, it would run through a series
of tests and assessment to obtain a suitable property rating value model for
the residential properties in the study area. Detail discussion of these
models would be explained in section 3.3 below.
In the final stage or the output stage, an assessment on the performance of

the model was conducted. The models were compared and examined for
accuracy assessment to determine which one is a better and more suitable
model for the study. The results were then displayed as property value map
and discusses for interpretation.
3.3 Proposed modelling methodology

As discussed above, the second stage of the study is the modelling process.
The modelling process of this study began after the spatial pattern of the
data was identified. The modelling process conducted by developing the
OLS for global model or the GWR for local model if spatial autocorrelation
was not present in the spatial pattern of the data. SRM model would be
conducted if OLS model failed in spatial autocorrelation test. The detailed
processed for each model would be discussed in the following section
3.3.1, 3.3.2 and 3.3.3.
3.3.1 Ordinary Least Square (OLS) Model

Once the spatial pattern had been identified, the global model developed
using the OLS method would be conducted first. As even though the spatial
autocorrelation exist in the spatial pattern, the OLS would still be
developed for benchmark or comparison purpose. This is because the OLS
have proper and established diagnostic tools to rectify modelling problems
such as missing explanatory variable or model bias (Rosenshein et al.,
63
2011:45). The processing of OLS models were conducted using ArcGIS
software version 10. Figure 3.2 shows the Data Flow Diagram (DFD) to
perform the process of the global OLS model. Based on that figure, the
process of OLS analysis began firstly by scrutinizing the list of property
attributes which were obtained from DBKK database. Only the relevant
data used for property valuation was extracted from the list. Secondly, the
relevant data was set as the independent and dependent variables which
were recoded based on suitability of the residential property valuation
modelling process. Thirdly, the OLS were then run and the model output
was generated. Fourth, using the output run by the OLS analysis, model
tests were conducted to determine the reliability and acceptability of the
model. Finally, the tested model was then prepared for performance
assessment to be compared with SRM or GWR model.
Figure 3.2: DFD of OLS model process
64
Source: Adapted from Rosenshein et al. (2011)
Figure 3.3: DFD of OLS model testing
65
Referring to the Figure 3.3 above, once the OLS analysis was conducted
using the selected property variables, multicollinearity test would be the
first test to be carried out. Pairwise correlation and variation inflation factor
(VIF) were used to identify the multicollinearity error. The pairwise
correlation was used to detect high correlation among the independent
variables, while the VIF measured redundancy among independent
variables. Any independent variable that produced correlation value of 0.4
or more (Lin, 2010:35) and VIF value larger than 7.5 (Rosenshein et al.,
2011:42) should be removed or modified.
Secondly, the spatial autocorrelation test was conducted towards the data’s
estimated residual. Spatial Autocorrelation (Moran's I) tool is used on the
regression residuals to ensure they are spatially random. Statistically
significant clustering of high or low residuals (model under and over
predictions) indicates a key variable is missing from the model
(misspecification) (Rosenshein et al., 2011). Thus, OLS results cannot be
trusted when the model is misspecified.
For the third test, the Jarque-Bera statistics test was conducted to detect
model bias. The Jarque-Bera statistic indicates whether or not the residuals
are normally distributed (Jarque and Bera, 1980) as model bias occurred if
the residuals distribution was not normal. The histogram would show that
the classic bell curve or Gaussian distribution was produced if the residuals
are normally distributed. When the p-value (probability) for this test is
small (is smaller than 0.05 for a 95% confidence level, for example), the
residuals are not normally distributed, indicating model misspecification (a
key variable is missing from the model). Results from a misspecified OLS
model are not trustworthy (Rosenshein et al., 2011).
Once the tests above were performed and any error were rectified or
minimized, than the fourth test for stationarity would be conducted. The
Koenker (BP) Statistic (Koenker's studentized Bruesch-Pagan statistic was
used as a test to detect stationarity (Breusch and Pagan, 1979). When
results from this test are statistically significant to non-stationarity, it
proceed to the fifth test of Joint Wald Statistics to estimate the overall
model accuracy and the robust coefficient standard errors and probabilities
were consulted to assess the effectiveness of each explanatory variable.
Regression models with statistically significant for non-stationarity is
especially good candidates for GWR analysis (Rosenshein et al., 2011:45).
However, if the Koenker test is statistically non-significant (stationary), the
Joint-F statistics or F-Test was used to measure the overall model accuracy
66
and subsequently leads to the usage of t-test (probability) to assess the
explanatory variable statistical significance.
The outcome at the end of these series of test, an error free and acceptable
global model of property value would be produced.
3.3.2 Geographical Weighted Regression (GWR) Model

The GWR analysis, being the local model, was undertaken in the later
stage, is useful if non-stationarity or heterogeneity (heteroscedasticity) was
detected in the OLS model. GWR could explain the spatial
heteroscedasticity effect better and provide accurate value estimation which
varies across the study area (Fotheringham et al., 2002; Bitter et al., 2006;
Long et al., 2007). It however, unable to be use if the data is incomplete of
dependent variable (Fotheringham et al., 2002) or spatial autocorrelation
was present in the data (Suriatini Ismail, 2005). Figure 3.4 shows the DFD
on how the GWR models were developed if there was no spatial
autocorrelation.
Figure 3.4: DFD of GWR model process
The GWR model procedure began firstly by acquiring the same variables
produced from the OLS model analysis. Since the variables were tested
from the OLS diagnostic tools, most of the error were reduced or
67
eliminated to before it can be used local model analysis. In the second step,
the GWR analysis was processed and the output was generated. Thirdly,
the model was tested using some proposed local model tests that had been
experimented by Rosenshein (2011), Rosiers and Theriault (2008), Bitter et
al. (2006), Wheeler and Tiefelsdorf (2005) and Hernandez et al. (2003).
Finally, the tested GWR model can be proceed to the assessment process
stage.
The GWR model need to be tested as some modelling error still existed
from local model which was detected from the previous study and
currently, the local model specifically GWR, has no established diagnostic
tool (Rosenshein, 2011; Rosiers and Theriault, 2008; Bitter et al., 2006;
Wheeler and Tiefelsdorf, 2005; Hernandez et al., 2003). However, this
study tested GWR model with the usage of scatterplot as proposed by
Wheeler and Tiefelsdorf (2005).
This study performed the tests as shown in Figure 3.5. This figure
illustrates the steps taken to test the GWR model. Firstly, the GWR model
testing began with spatial autocorrelation test using Moran’s I tool to
identify the residual pattern of the value in the study area (Charlton and
Fotheringham, 2009; Leung et al., 2000). Key variable need to be added if
spatial autocorrelation exists with residual patterns formed a non-random
pattern.
Secondly, the study performed the test to examine multicollinearity which

was conducted using scatter plot for the local parameter coefficient
(Wheeler and Tiefelsdorf, 2005). The variables need to be reselected if high
correlation between explanatory variable was detected.
Thirdly, the local parameter variability significance test was conducted

using Monte Carlo test. The Monte Carlo test examined the significance of
the parameter’s variation (Fotheringham et al., 2002; Leung et al., 2000) by
recommended any parameter of the model which attained the p-value of
0.05 or less considered to be statistically significant spatial non-stationarity.
A reliable local model would then be produced when all the errors detected
from the tests above were rectified or minimized. The performance of the
models was then ready to be assessed which were described in the
following topic.
68
Source: Adapted from Wheeler and Tiefelsdorf (2005) and Charlton & Fotheringham,
2009
Figure 3.5: DFD of GWR model testing
3.3.3 Spatial Regression Model (SRM)

There would be some cases in which spatial autocorrelation error present
because of the nature of the data in the study. The existence of spatial
autocorrelation in the property valuation model would surely affect the
accuracy of the model’s prediction capability (Orford, 1999; McMillen,
69
2003; Rosenshein et al., 2011). Therefore a spatial regression model was
needed to rectify it (Anselin, 2001:316; Suriatini Ismail, 2005:260; Löchl
and Axhausen, 2010:42). Figure 3.6 below show how the spatial regression
process was conducted to identify the correct model that need to be
selected for the study. This procedure was conducted using GeoDa 3
software tool. It began by running the OLS regression. As shown in Figure
3.6 below, firstly, Lagrange Multiplier (LM) diagnostics was examined
once the OLS regression was initiated using the GeoDa software. If no
significant exist to any LM-Error or LM-Lag test estimation, this study
would proceed with the OLS result. Otherwise, if any of its value was
significant, then the designated spatial error model or spatial lag model
would be processed (Anselin, 2005). However, if both tests were
significant, then it would proceed to the next step of using robust LM
diagnostics. Secondly, similarly to the above steps, if any of the robust LM-
Error or robust LM-Lag was significant, then the designated spatial error
model or spatial lag model would be initiated. Thirdly, there would be a
rare case in which both robust LM tests were significant and if this happen,
the study would choose the model with the largest value for the test statistic
(Anselin, 2005).
3
GeoDa software was developed by GeoDa centre for Geospatial Analysis and Computation which was
founded by the new School of Geographical Sciences and Urban Planning Director Luc Anselin while at
the University of Illinois
70
Source: Adapted from Anselin (2005)
Figure 3.6: DFD of spatial regression decision process
71
3.4 Model Performance Assessment
After the models were tested, the performance of the models must be
assessed. Assessments were conducted for OLS, GWR and if necessary the
spatial regression model. This is to ensure the models were able to
represent the property value in the area compared with the present or actual
value.
3.4.1 Model assessment tools

The adjusted R-Squared values were used as measurement of model
performance for both OLS and GWR with possible values range from ±0.0
to ±1.0 (Taher Buyong, 2006). The model with adjusted R-squared’s value
near to 0 exhibited bad accuracy, while value near to 1 depicted good
accuracy. For the spatial regression model, the R-squared was used for
model performance measurement as this was the only tool provided by the
model output. Although R-squared is not as accurate as the adjusted R-
squared but it is still good enough for model performance measurement as
suggested by McCluskey and Borst (2011), Wheeler (2010) and Huang et
al. (2010).
$QRWKHUWRRO IRUDVVHVVPHQWWKHFRHIILFLHQWȕUHIOHFWHGWKHVWUHQJWKDQG

type of relationship for each independent variable (Taher Buyong, 2006).
The strength was measured based on the value of the coefficient as higher
value means higher the influence. While the positive and negative sign,
shows the type of relationship of the independent variables to the
dependent variable as the positive value increase the dependent value but
the negative value would decrease the dependent value.
3.4.2 Model comparison

To assess the goodness of fit and residual of the model, the comparison
between different regression models were examined with the Akaike
Information Criterion (AIC) measurement. Comparison of spatial model
would be examined with the model having the lowest AIC will be the better
model provided that the differences in value is more than 3 (ESRI, 2013).
However, this test is not an absolute measure of goodness of fit, but it is
useful for comparing models with different independent variables as long
as they apply to the same dependent variable (Charlton and Fotheringham,
2009). The AIC estimation would only be consulted if the model was free
from error especially the spatial autocorrelation error. If the spatial
autocorrelation was present in the model, then it must be corrected. But if
the problem persists, the spatial regression model would be selected.
72
3.5 Implementing and visualizing the findings
After the assessment and comparison, the estimated property rating could
now be displayed in a form of value map. This would assist the valuer
greatly in decision-making especially when involved many properties in
certain area. At the same time, it would showed the clustered area of high
and low values of the property rating in that area which would also benefits
to the valuer in their daily work by providing some rough estimation of the
property rating value. Point map would be utilized for vizualization and
would involve plenty of property value maps depending on the number of
models produced and chosen.
3.6 Conclusion
This chapter described the modelling methodology to be adopted in
developing the residential property valuation model using the spatial
statistics modelling of global and local model. By producing both global
and local models, the performances were compared to determine which
model would be better suited to be applied in the study area. In both models
however, a series of steps in variables selection and diagnostic tests were
conducted. Diagnostic tests in spatial statistics were conducted to detect
modelling problems such as spatial autocorrelation, multicollinearity and
heteroscedasticity which can lead to model misspecification, model bias
and measurement error. This problem needs to be rectified to obtain a
reliable and error free model. This chapter also elaborated some ways to
perform model assessment and compared it with the current data in the
study area to measure the general performance of the model. In the end, a
reliable and error free models were produced that could be implemented
and visualised for the authority to use.
73
CHAPTER 4
STUDY AREA AND DATA PREPARATION
4.1 Introduction
Having discussed the theoretical part, the study continued with the
empirical investigation. This chapter consist of two stages of the study and
is organised as follows. The first stage discusses the study area in which
several theoretical and practical issues were considered before the
particular area was chosen. The area selected was also justified based on
the overview of the Malaysian housing market. After that, the data
gathering of the study area could then be conducted which involved
identification of the data requirements, investigation of the data availability
and data quality checking. The second stage involved data preparations that
consist of data verification, data cleaning and data format conversion. In
addition to that, the preparation of location factor variable that shows the
distance from the property location to the location factor was prepared
using GIS tool.
4.2 Study Area

Kota Kinabalu, the capital of Sabah state, formerly known as Jesselton, was
renamed on 30th September 1968 after the majestic Mt. Kinabalu. It is also
the capital of the West Coast Division of Sabah. The city is located on the
northwest coast of Borneo facing the South China Sea (Figure 4.1) with
coordinates between 6°7’20”N and 5°54’43”N latitude and 116°2’0”E and
116°12’10”E longitude from top-left to bottom-right. Kota Kinabalu is one
of the fastest growing cities in Malaysia as currently; it is one of the major
industrial and commercial centres of East Malaysia and also the
international gateway to many countries and attractions in the island.
74
The city covers approximately 349.65 km2, with population made up of
Malay, Chinese, Indian and other 31 local ethnic groups including
Kadazan, Murut, Bajau, Kedayan, Sulu, Bisaya, Rumanau, Minokok and
Rungus. Modern and resorts Kota Kinabalu City with the multiple mix of
customs and cultures and its fast expanding cityscape, it is strikingly up to
date, hastening and happening here. Post-war reconstruction has altered the
city coastline, land area and skyline. Indeed, most of Kota Kinabalu city is
built on reclaimed land (Wah, 2010). Kota Kinabalu also has a population
of 462,963 while the larger urban area has an estimated population of
900,000. It is the largest urban centre in Sabah and the sixth largest in
Malaysia.
Figure 4.1: Location of Kota Kinabalu in Sabah
4.2.1 Justification of study area selection

There are three reasons for choosing Kota Kinabalu as study area. Firstly,
from the overall perspective in Malaysia, Sabah came up top recently as the
highest in property price index throughout the year 2011 until the mid-year
75
of 2012. The property price index showed rapid changes in the prices and
measured the pulse of the property market which was very useful for
property investors and potential home buyers. As shown in Table 4.1,
throughout the year between 2011 and 2012, the property price index in
Sabah showed a rapid increase when compare to the rest of the states in
Malaysia and consistently among the highest.
Table 4.1: Property price index in Malaysia by State
Source: JPPH (2012)
Furthermore, the performance of the property terraced house price index in

Sabah by district also showed that Kota Kinabalu had the highest index
value of 57.9 as shown in Table 4.2. Other districts that had high index
were Tawau and Sandakan with the value 30.0 and 12.1 respectively
(JPPH, 2012).
Table 4.2: Property terraced house price index in Sabah by district
Source: JPPH (2012)
Secondly, Kota Kinabalu is experiencing rapid increased of property value.

Based on the report from Kota Kinabalu City Hall (DBKK, 2011), the
76
rating collection had shown steady increase of property value between
1998 and 2010 especially for residential properties. This value called the
rateable property and it was obtained based on the market rental value and
also using the valuation methods (Wong, 2011). Figure 4.2 and Figure 4.3,
for example, shows the rateable property value for the urban and sub-urban
area of Kota Kinabalu respectively. These figures illustrate that the area
experienced rapid increase of the rateable property value within short
period of time.
Source: DBKK (2011)

Figure 4.2: Total rateable properties in urban area of Kota Kinabalu from
1998 to 2010
Source: DBKK (2011)
77
Figure 4.3: Total rateable properties in sub-urban area of Kota Kinabalu
from 1998 to 2010
Finally, data availability is an important element towards completing GIS

project. In conducting property valuation purposes, data is often difficult to
obtain especially in the context of developing countries like Malaysia
(Dzurllkanian Daud, 1999; Suriatini Ismail, 2005; Taher Buyong, 2011).
However, data for Kota Kinabalu areas is obtainable with reliable accuracy
level from DBKK. DBKK is at present using computerised property
valuation database including GIS data (Wong, 2011). Therefore, data
would be made available by DBKK in order to develop advance property
valuation or mass appraisal model using GIS and spatial statistics which
potentially could be used by DBKK in conducting property valuation.
By using a local area (which means an area familiar to the researcher) in a

study, it can facilitate the construction of the relevant database particularly
in the task of populating the fields with data values that were as close as
possible with the real world situation (Daud, 1999). Watkins (1998) implies
that familiarity with the study area could help to verify the results and
findings. In this study, familiarity could assist in the construction of spatial
variables and in gaining better understanding of the Kota Kinabalu property
market, thus help verify the results of analysis. With the study area
selection clearly justified, the following discussion explains the background
of the rating activities implemented in DBKK.
4.2.2 Property rating in Kota Kinabalu City Hall (DBKK)

Dewan Bandaraya Kota Kinabalu or Kota Kinabalu City Hall is the city
council which administered the city and district of Kota Kinabalu in the
state of Sabah, Malaysia. This council was established after the city was
officially granted city status on February 2, 2000. Kota Kinabalu was
formerly administrated by Kota Kinabalu Municipal Council (MPKK). Her
jurisdiction covers an area of 351 square kilometres, encompassing the sub-
districts and towns of, among others, Tanjung Aru, Kepayan, Kota
Kinabalu city, Luyang, Inanam, Menggatal, Telipok, and Sepanggar
(DBKK, 2011). Rating area is the area in which the relevant local authority
imposed property rating to the property owners. Most developed area has
different rating zone. The rating area zones of Kota Kinabalu are shown in
figure 4.4 below.
The rating area in Kota Kinabalu is categorised by the DBKK into three
types of area which are the City, Urban and Sub-Urban. The rest of the area
78
is considered non-rating area. Each of the rating zones consists of different
way of rating calculating rate (DBKK, 2012). As stated by Local
Government Ordinance of Sabah 1961 (1997) under the provision of
section 72, DBKK is using gross annual rental value as its rateable value as
the rent at which any property might reasonably be expected to be at the
time of valuation. In addition to that, as to obtain the rateable value, be the
rent as herein before determined or a sum of five or ten percentum of the
market value of the house or building and land at the time of valuation. The
DBKK usually takes up the five percentum (5%) approach as its estimation
of the rateable value. The new rateable value that had been recognised and
approved by the parliament will then be used to impose tax to the property
owners for the next five years or until the next revaluation is done. This
approved rateable value list is called the tone of list or valuation list
(DBKK, 2012).
79
Source: Adapted from DBKK (2012)
Figure 4.4: Rating zone area of Kota Kinabalu District
Recently, the DBKK was unable to obtain an approved revaluation, thus

the valuation list of the property in the Kota Kinabalu district was
considered outdated which goes way back to the 1960s except for the new
rating area (DBKK, 2012). This is shown in Figure 4.5 below.
80
Source: DBKK (2012)
Figure 4.5: Valuation list of DBKK based on year of implementation
The valuation lists for old rating areas are implemented in 1969 and 1975
while the valuation list for the new rating area was conducted in 1995.
However, the rateable values in these two valuation lists in the old rating
area were arbitrarily increased by 41% in 1981 to reflect the current market
value at that time (DBKK, 2012). Furthermore, another adjustment had
been undertaken based on the valuation made by an outsource company,
Smiths and Gore, in year 1997.
This study used the adjustment rateable values of 1997 because it showed a
much more appropriate value to reflect the current market value. This
adjustment value had also currently been used by DBKK for taxation
purpose and thus, it became the sample for the property value modeling
used in this study (DBKK, 2012).
There are two types of rates applied in DBKK for the Kota Kinabalu
District which are the General Rate and the Sewerage Rate. Based on the
DBKK annual rates order, each area of the Kota Kinabalu district has been
imposed with different rate (percentage from the rating value) which were
described in Table 4.3 below.
Table 4.3: DBKK Annual Rates order

Area Property Usage General Rate Sewerage Rate
City All Property except 24% (Connected with 1%
81
commercial and public sewerage)
residential 18% (Not connected
with public sewerage)
Commercial & 26% (Connected with
Residential public sewerage)
20% (Not connected
Urban and Commercial 21% (Connected with 1%
Sub-urban public sewerage)
15% (Not connected
Residential 13% (Connected with
public sewerage)
7% (Not connected
All undeveloped 5%
land ownership
except Native Land
that has been used
for agriculture
purpose
Source: DBKK (2012)
Due to data constraint, only the selected zones in city and urban area were
used for modelling purpose which includes Kota Kinabalu, Luyang,
Luyang Timur, Teluk Likas, Sembulan, Tanjung Aru, Damai, Kolam,
Ridge, Kepayan, Dah Yeh and Signal Hill as shown in Figure 4.6 below.
As stated in the scope of the study, this study only covered the residential
properties involves terrace, semi-detached, detached, and townhouse to
ensure manageable size of area to finish this study.
82
Figure 4.6: Selected zones for the study area in Kota Kinabalu
The process of valuation involved various stages before the rating value
can be endorsed to be implemented to the public (as shown in Figure 4.7).
The process begins by identifying the valuation case before the said
property was inspected and its value analyzed. The activities of searching
and selecting the relevant influence factors were conducted at this stage to
come out with the best value for the property. Afterwards, the value would
be certified and preceded to the billing stage in which the property owner is
required to pay the rating amount stated in the bill (DBKK, 2013).
However, the value can still be changed as any objection from the property
83
owner will be given a chance to appeal the rating amount as stipulated in
section 142 and 145 of Local Government Act 1976 (Act 171) (Malaysia,
2006). The final value can only be endorsed after the appeal period is over.
Source: Adapted from DBKK (2013)

Figure 4.7: Stages involved in valuation process
Normally, the valuation process from the pre-inspection to the valuation

report required a lot of effort and time especially when it involved many
properties. Therefore, a systematic approach in residential property
valuation was needed in order to overcome time consuming, tedious and
costly valuation process (Tretton, 2007).
As there are many data involved in property rating in DBKK with more
than 30,000 residential properties in the area, human error or the nature of
the data itself could cause some problem to the valuation data. The
following section discussed the cause of this issue.
4.2.3 Problems in DBKK valuation data

Currently, the property valuation in DBKK was conducted using manual
valuation method. As mentioned earlier, the number of properties in Kota
Kinabalu has grown very fast and this would require a lot of manpower to
conduct the valuation. Therefore, there would be a problem in the data due
to human error or because of the complexity of the property itself. This was
supported by Mr. Lifred Wong as the director of property valuation in
DBKK and an explanation of this error was obtained based on the personal
discussion with him which was summarized as follows.
84
4.2.3.1 Record problems
Despite of the different in the type of building structure, the property was
identified under the same category. For example, the structure of a
detached house can be temporary, semi-permanent or permanent but the
category of that house was still taken as mere detached house.
Inconsistency in the recording of the type of structure would contribute to
the error in the valuation data.
In other case, some residential properties were used for personal business
purpose has made the model confused as although the size of the area is big
but low in value or small area size but high in value. These residential
properties were mainly used either as play school or showroom cum office.
Although this was legal but it was not recorded properly in the valuation
database. Therefore, it was difficult to be detected and cleaned.
4.2.3.2 Rating value adjustment

DBKK also adopted a rating value adjustment approach in arriving at the
rateable value. Usually the assessor or valuer will produce property rates
equally or at least above the property rates within the same vicinity. Equal
rates means if the prevailing property rates in that area are high, the
tendency is the rest of property rates would be increased as well. This is
due to time factor especially when revaluation was not conducted for a long
time.
In some cases, in order to keep up with the current value, inflation rate
factor was also taken into account by DBKK. Too depending with the old
tone of list would make the rateable value of property far outdated.
Other than that, quality neighbourhood, newer design and major renovation
have led to a higher rateable value of property that has been re-built.
Therefore, any incoming refurbished houses in the same housing estate will
tend to be assessed with higher rateable value as the comparable used will
be among those properties recently assessed. As a result, spatial
dependence exists.
Based on the discussion on the background of the study area, the following
section focused on data gathering undertake in this study.
4.3 Data gathering

Empirical data was the most important element to have once a property
modelling study has been formulated. Data gathering activities started with
85
the identification of data requirement, investigation of data availability and
data quality. The following sub-sections describe identification of data
requirement, data availability and data quality investigation carried out in
this study.
4.3.1 Identification of data requirement

Identification of data was undertaken based on 5 factors that influence the
property value namely the physical structure factor, geography factor,
economic factor, government policies and location factor (Millington,
2001; Appraisal Institute, 1992; Ring, 1970; Scarret, 2008). Physical
structure and geography factor were needed to provide better explanation
of the model; however, the main factor that was needed in property value
modelling was the location factor (Scarret, 2008; Daly et al., 2003; Abdul
Hamid, 2002; Pearson, 1991). In this study, the economic factor and
government policies were not applied since its data were uniformed across
the study area and these factors were unable to produce variation that
needed in a regression modelling to make an impact to the property value.
Only variables which produced variation distribution can be used in a
regression modelling be it in OLS, GWR or SRM as it can distort
relationships and significance tests (Osborne and Waters, 2002:1).
Since location factor becomes the main factor in this study, GIS analytical
operations played important role to generate the attributes of the variables
especially those involved distance or time. The location factors in this
study consist of accessibility measure from the said property to any
important landmark and neighbourhood characteristics that include the
socioeconomic characteristics as well as the environmental characteristics
of the area.
4.3.2 Data sources and data availability

This study performed a spatial statistics analysis or modelling. Therefore,
two types of data components were involved namely the spatial component
and attribute component (Taher Buyong, 2006). Figure 4.8 shows the type
of data acquired for this study. The sources of data were mainly obtained
from the DBKK which provided both the spatial and residential property
attributes of the area. The other source of data included in this study was
acquired from Jabatan Penilaian & Pengurusan Harta Tanah (JPPH) that
provided the residential property transaction which was part of the property
value.
86
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ƚƚƌŝďƵƚĞ
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ŽŶĞ ŝƐƚƌŝĐƚ ĂĚĂƐƚƌĂů
&ĂĐƚŽƌ >ŽĐĂƚŝŽŶ sĂůƵĞ &ĞĂƚƵƌĞƐ &ĞĂƚƵƌĞƐ
Figure 4.8: Type of data in the study
The spatial data consists of zone boundary, district boundary and cadastral
map which were represented in a form of polygon. While the location
factor and residential location was represented as point. Location factors
involved popular or hotspot location such as tourism centres, public
institutions, public recreations, public facilities, commercial areas,
government offices and religious centres.
The property attributes consists of property values, structural features and

surrounding features. The property values involved rating value and
transaction price. While the structural features represented the property
type, number of rooms, floor area size, land area size, lot shapes,
topographies, frontage and building quality. For the surrounding features, it
consists of neighbourhood qualities, flood prone, road accessibilities, site
preparations, sewerage facility and sanitation type. These data were shown
in detailed as in Table 4.4 in section 4.4.1.
4.3.3 Data quality

Data quality offers quantitative and qualitative adequacy for supporting
estimation of values (Daud, 1999). Broadly speaking, the quality of data
used in a study can be represented by their (original) purpose of collection,
assumptions behind collection, geographical coverage, institutional
coverage and currency.
In this study, most of the spatial data (obtained from DBKK) had a scale of
1:500 which include the layers of Zone, Location Factors, Road, Property
Points, Housing Park and Cadastral. Except the data of cadastre which was
updated in year 2007, the rest of the layers were updated in year 2012. All
spatial data obtained covers the area of DBKK in urban area.
87
The attribute valuation data of DBKK were based on the year 1997 when
the last revaluation exercise was conducted by DBKK. Most of the main
data were incomplete therefore it was gradually updated using JPPH data in
year 2012 to fulfil the modelling requirement. Although the property rating
value of 1997 data were maintained, other important variable or factor were
updated to complete the missing value such as the main floor area,
neighbourhood quality and building quality.
4.4 Data Preparation

After identification of all the empirical data available from the secondary
sources were undertaken, data preparation was conducted. This process
involved data verification, data cleaning and data conversion as described
below.
4.4.1 Data verification

Data verification was undertaken, firstly, to eliminate unsuitable data for
this study by doing a thorough checking of the datasets gathered and
secondly, to identify data that needs format conversion. For example, data
preparation involved preparing data for applications such as SPSS, ArcGIS
and GWR. This study relied heavily on the DBKK valuation and the
property characteristics data. Table 4.4 shows the description of 64
variables of the DBKK Valuation dataset as originally obtained.
88
Table 4.4: Property Information (Attribute)
Variable Name Type Measurement Description
PID Number Scale Property ID
Postcode Text Nominal Postcode Number
House No Text Nominal House Number
Jln_Lorong Text Nominal Name of road or alley
Tmn_Kg Text Nominal Name of housing area or village
Lot No Text Nominal Lot Number
Blok No Text Nominal Block Number
Floor No Text Nominal The house unit floor number
Unit No Text Nominal Property unit number
Title No Text Nominal Property title number
Gazette No Text Nominal Property gazette number
Zone Text Nominal Zone name
Subzone Text Nominal Subzone name
Prop_type Text Nominal Property type
Bld_type Text Nominal Building type
Bldg_grp Text Nominal Building group
No_storey Number Scale Number of storey in the building
No_room Number Scale Number of room in the building
Floor_Level Number Scale Level of floor the property locate
Mezzne Text Nominal Mezzanine area
Mfa Number Scale Main floor area
Afa Number Scale Ancillary floor area
RCA Number Scale Reduced Covered Area Estimation
Ext_build Text Nominal Availability of building extension
Manval Number Scale Manual Valuation
Rateable_v Number Scale Rateable value
Oldrat Number Scale Old rating value
Transact Number Scale Property Transaction Price
Appeal Text Nominal Appeal received
Appdat Text Nominal Appeal Date
Cvalue Number Scale Compute Value
Planno Text Nominal Plan Number
Division Text Nominal Division Name
Source: DBKK (2012)
89
Table 4.4: (Continued)
Variable Name Type Measurement Description

Extuse Text Nominal External Use
Subuse Text Nominal Sub use
Commnt Text Nominal Comment
Bldq Text Scale Building Quality
Spfaci Text Nominal Special Facilities
Contrv Text Nominal Contravene
Occup_type Number Nominal Type of Occupant
Family Number Scale Number of family member
Car Number Scale Number of car in possession
Tenant Number Scale Tenant Available
Race Text Nominal Type of Race
Bldpln Text Nominal Building Plan
Ocdate Text Nominal Date of OC approved
Qaflg Text Nominal
Fvalue Number Scale Force Value
Land_area Number Scale Land area estimation
Prop_usage Text Nominal Property Usage
Sewerage Text Nominal Sewerage facility available
Assessment Text Nominal
Status Text Nominal
Id_stamp Text Nominal
Date_stamp Text Nominal
Time_stamp Text Nominal
Topo Text Nominal Land Topography
Sitepr Text Nominal Site Preparation
Access Text Nominal Access to main road
Flood Text Nominal Flood Prone Area
Ltshp Text Nominal Lot Shape
Frontage Text Nominal Property frontage to road
Sanitn Text Nominal Type of Sanitation
NhoodQ Number Ordinal Neighbourhood quality
Source: DBKK (2012)
90
Based on the recommendation from the previous studies (Scarrett, 2008;
Appraisal Institute, 1992; and Millington, 2001), 21 variables from the list
in Table 4.4 were suitable to be included in the model. In which, there were
19 structural features namely, number of rooms, number of storey, floor
level, availability of special facilities, availability of mezzanine, availability
of sewerage, main floor area, ancillary floor area, reduced coverage area,
land area, building quality, building type, property type, topography, access
to main road, site preparation, lot shape, sanitation type and property
frontage. While two variables reflected the surrounding features which
were neighbourhood quality and flood prone.
For the location factors, the variables were derived using GIS analysis
based on the location of the location factors. These analysis involved
Euclidean distance from the property to the location factors, which would
be described in section 4.5 below.
GIS was used to perform the analysis and visualized the results in maps.
There were 10 spatial data layers obtained from DBKK at 1:500 scales as
shown in Table 4.5. Data obtained included zones, sub-zone, roads,
cadastral, housing park, property, building outline, landuse and location
factors. The location factors consists of public institutions, public facilities,
main office building, cemetery and public hotspots such as shopping
complex, famous restaurants, sport complex, sport club and entertainment
club.
Table 4.5: Spatial Data

Name Type Source Scale
Zones Polygon DBKK 1:500
Road Line DBKK 1:500
Cadastral/Parcel Polygon DBKK 1:500
Housing Park Polygon DBKK 1:500
Rating Division Polygon DBKK 1:500
Property Point DBKK 1:500
Building Outline Polygon DBKK 1:500
Location Factors Polygon DBKK 1:500
91
The graphical outputs of the spatial data mentioned above were also shown
in the Figures 4.9, 4.10, 4.11, 4.12, 4.13, 4.14 and 4.15 below. Figure 4.9
illustrates the residential property location, housing park and cadastral map.
While Figure 4.10 displays the data for DBKK zone and district boundary.
Other than that, the road and building outline are shown in Figure 4.11. The
location factors of religious centre, commercial centre and tourism are
displayed in Figure 4.12 and 4.13 respectively. Other location factor of
public facilities, public recreations and public institutions are shown in
Figure 4.14 and 4.15 respectively.
Figure 4.9: Residential property location, housing park and cadastral

mapping.
92
Figure 4.10: DBKK zone and district boundary
Figure 4.11: Road and building outline
93
Figure 4.12: Location factors of religious centre
Figure 4.13: Location factors of commercial centre and tourism
94
Figure 4.14: Location factors of public facilities
Figure 4.15: Location factors of public facilities, recreations and

institutions
Some of the data listed in Table 4.4 were not included for modelling
process, but the land area, floor area and building quality are compulsory in
95
the valuation model (Goodman and Thibodeau, 1998; Fletcher et al., 2000;
Berry et al., 2003; and Stevenson, 2004). The floor area could not be used
since it has missing data and the available records were not sufficient to
perform the modelling process. However, the Reduced Covered Area
(RCA) had sufficient records to replace the floor area. The RCA which is
also called as gross external area, is the basis measurement for council tax
to all houses and bungalows. It measured the external area of the building
at each floor level (RICS, 2007). The following Table 4.6 illustrates the
areas that are included and excluded in RCA calculation.
Table 4.6: Area included and excluded in RCA

Included in RCA Excluded in RCA
x Perimeter wall thickness' and x Open balconies
external projections x Open fire escapes
x Areas occupied by internal walls x Open sided covered ways
(whether structural or not) and x Open vehicle parking areas,
partitions terraces and the like
x Columns, piers, chimney breasts, x Minor canopies
stairwells, lift wells x Any area with a headroom of less
x Lift rooms, plant rooms, tank than 15m (except under stairways)
rooms, fuel stores, whether or not x Any area under the control of
above roof level service or other external authorities
x Open-sided covered areas (should
be stated separately
Source: RICS (2007)
However, the final selection of variables for modelling purpose would only
be known once the modelling had been processed as it is subjected to the
model’s test result and this would be explained in chapter 5. The following
section discussed data cleaning.
4.4.2 Data cleaning

Data cleaning stage, involved excluding the unsuitable data or recoding the
data in the original dataset to ensure that the dataset contains only
representative observations variables were in a format suitable for model
regression in ArcGIS, GWR 3.0, Geoda and SPSS software. The procedure
started with a simple examination of the dataset by carefully browsing
through the dataset where missing important data would be detected and
edited. In addition, hardcopy was produced to identify error as strange
output might be observed. Furthermore, as the majority of the data were
from year 1997, the data had to be consistent with that year. So data other
than year 1997 produced had to be removed as it would create error during
96
interpretations or findings. Thus, the first part of data cleaning was to
remove non-year 1997 data, non-residential use, and suspected error in data
entry or odd residential property information.
Originally, the study collected 14520 observations for the whole area of
DBKK through selection of residential property valuation data excluding
apartments, flats and condominiums within the urban area. Further
cleanings finally retained the data of 5625 records for the analysis after
removing of invalid residential property data. This data was then included
in the modeling process. However, as the study unable to cover the whole
data in the area, the usage of GWR was not possible as it only capable to
estimate area with complete data.
The details of the data availability based on zones are summarised in Table
4.7, which represented about 38.74% of the residential property data
recorded for 1997 by the DBKK (2012). This in line with the requirement
needed for sampling to be valid for statistics analysis as stated by Krejcie
and Morgan (1970:607-610). The following section discussed data
recoding process.
97
Table 4.7: Data availability based on zones in Kota Kinabalu
Zones No. of Data Availability %
BUKIT PADANG 838 402 47.97
DAH YEH 1628 814 50.00
DAMAI 836 299 35.77
FUNG YEE TING 251 72 28.69
KEPAYAN 1181 273 23.12
KOLAM 2159 937 43.40
LIKAS 509 81 15.91
LUYANG 1178 310 26.32
LUYANG TIMUR 1560 576 36.92
RIDGE 2930 1271 43.38
SEMBULAN 354 205 57.91
SIGNAL HILL 87 1 1.15
TANJUNG ARU 168 62 36.90
TELUK LIKAS 841 322 38.29
ALL ZONES 14520 5625 38.74
4.4.3 Data scaling

Data scaling was then undertaken on the categorical or ordinal type of
variables for the 5625 records. This is important because categorical
variables were not suitable to be used in regression modelling as it only
accepts numeric variable with interval or ratio scale data for estimation
(Taher Buyong, 2006:164; Brace et al., 2002:208). Using dummy variable
was very limited since it posed problems for the local GWR modelling
analysis as multicollinearity most likely to occur (Rosenshein et al., 2011;
ESRI, 2013). Data scaling in this study was applied for variables with
nominal or ordinal measurement such as for topography, building quality,
lot shape, frontage, neighbourhood quality, road access, flood prone, site
preparation, sanitation and building type.
For each variable mentioned above, data scaling was conducted using
questionnaire which was distributed to the valuers in DBKK which consists
of Valuation Director, Valuation Officer and Valuation Assisstant. The
example of this questionnaire was shown in Appendix A. There were 5
respondents obtained for this study and each respondent required to provide
98
input based on scale 1 to 5 for each attribute of the variable. This scale is
adopted based from Likert Scale. The scale 1 to 5 was described as in Table
4.8 as follows:
Table 4.8: Description of each scale to measure the variable’s attribute

ranking
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ϯ ^ŽŵĞǁŚĂƚŝŶĐƌĞĂƐĞ
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ϱ ǆƚƌĞŵĞůǇŝŶĐƌĞĂƐĞ
Low scale was given for low value while high scale was given for high
value. Once all the respondents had provide the scale input for each of the
variable’s value, the mean score of the scale 1 to 5 can then be estimated to
identify which value is the lowest or the highest for the variable. For
example, the ‘neighbourhood quality’ variable with the value of ‘poor’ was
given the lowest scale of ‘1’as it has the lowest mean score of 1.4. While its
value of ‘exclusive’ was given the highest scale of ‘4’ as it has the highest
mean score of 4.6.
The scaling for the relevant variables was shown in Table 4.9. Based on
that table, low ranking was given for small mean score. While high ranking
was given for big mean score. Once data scaling was undertaken, then
format conversion activity was conducted and explained in the following
topic.
Table 4.9: Mean Score for each variable value
Variable Value Mean Score

Swamp (1) 1
Steep (2) 1.8
Topography
Undulating (3) 2.2
Level (4) 4.4
Low Cost (1) 1.8
Basic (2) 2.4
Average (3) 2.6
Building Quality
Good (4) 4
Excellent (5) 4.8
Superior (6) 5
99
No (1) 1.2
Site Preparation
Yes (2) 3.6
Irregular (1) 1.8
Lot Shape Eccentric (2) 2
Compact (3) 3.6
Nil (1) 1.4
Uniformed road reserved (2) 3.4
Frontage
Main Road (4) 3.6
Secondary Road (3) 3.8
Poor (1) 1.4
Average (2) 2.8
Neighbourhood Quality
Good (3) 4
Exclusive (4) 4.6
Yes (2) 1.4
Flood Prone
No (1) 4
No Access (1) 1.4
Bridge (2) 1.4
Road Access Earth (3) 3.2
Gravelled (4) 3.4
Sealed (5) 4.8
None (1) 1.2
Septic Tank (2) 3.6
Sanitation Treatment Plant Private (3) 4
Treatment Plant DBKK (4) 4
Public Sewer (5) 4.2
Variable Value Mean Score

Kampung House (2) 2
Walk-Up Apartment (3) 3.2
Town House (7) 4
Building Type Intermediate Terrace (4) 4.6
Corner Terrace (6) 4.6
Detached (8) 4.6
Semi-Detached (5) 5
100
4.4.4 Data format conversion
Integration or joining of the data was required to enable it to be used by the
selected tools to carry out the property modelling tasks. Various softwares
were used to perform modelling function. SPSS 16.0 was used to undertake
classical regressions, ArcGIS 9.3 was used to perform OLS and to measure
distances as well as for general data management, GWR 3.0 software was
used to run the GWR local analysis and as an additional tool for GWR
model testing and Geoda was used to run the SRM. This means that the
5625 observations data need to be in the .sav, the .shp and the .txt formats
respectively. The workflow diagram for the format conversion activity is
shown in Figure 4.16. Apparently the data were ready for analysis, but
those data were separated and in different format. The majority of the
attribute data was from DBKK in MS Access database .mdb format and
some from JPPH in MS Excel .xls spreadsheet, while the spatial data is in
ArcGIS .shp format.
Based on Figure 4.16, the main source of database for this study was the
DBKK property attribute which was stored in MS Access (.mdb) format.
Most of the variables used for property valuation were included. The other
property attribute obtained from JPPH which was stored in MS Excel.(.xls)
format was used as an additional source to update any missing data or old
data in the main database. Once the data was updated, verified, cleaned and
recoded, the data were integrated with the spatial data that provide the
location of each residential property involved. The data were joined with
shapefile (.shp) format to be prepared for GIS analysis which involves
measuring the distance from the residential property location to the nearest
location factor. After the GIS analysis process, the data were also converted
to .sav and .txt to perform the property valuation modelling.
101
Figure 4.16: Workflow for the data format conversion process
The distance measurement using GIS analysis was the last step for data
pre-processing before the modelling was performed. This was explained
further in the next section.
4.5 Distance measurement for the location factor

One of the most important elements to be included in the property
valuation model is the location factor (Scarret, 2008; Daly et al., 2003;
Abdul Hamid, 2002; Pearson, 1991). However, in the empirical property
valuation modelling, locational factors defined in various ways (Kauko,
2003; Hening, 2003; Orford, 1999; Ring, 1970). This study adopted
methods proposed by Hening (2003), Gonzalez et al. (2002) and Orford
(1999) as it reflects fluently with the available data. However, instead of
setting the distance with ordinal range scale, this study used continous
range distance measurement from the residential property to the location
factor which was similar with the study conducted by Gonzalez et al.
(2002).
The location factors obtained from this study are categorized as tourism
centres, public institutions, public recreations, public facilities, commercial
102
areas, government offices and religious centres. The individual location
factor that included in each category mentioned above is shown in Table
4.10 below.
Table 4.10: Location factor in this study based on category and individual
factor
Category of Location Factor Individual Location Factor
Tourism centres Market
Public institutions School
Public recreations Sports area, Field, Park
Public facilities Bank, Hall, Hospital, Post Office, Police Centre,
Cemetery
Commercial areas Shopping Mall, Supermarket, Commercial Centre
Government offices Government administration office
Religious centres Church, Mosque, Chinese temple, Hindu Temple
By using the location factors mentioned in Table 4.10, GIS analytical

functions were used to measure distance to the location factors from the
residential properties as shown in the workflow diagram in Figure 4.17
below. Based on Figure 4.17, the location factor distance of tourism
centres, public institutions, public recreations, public facilities, commercial
areas, government offices and religious centres were calculated separately
to show their influence on the property value. The distance was calculated
using NEAR Tool in ArcGIS 9.3 sofware. For example, if the property
were located near the school, the NEAR function estimated the distance (in
meter) and showed it in the attribute table’s field. Once all the distance had
been measured, it would join with the other property characteristics
attribute to be analyzed using spatial statistics analysis to produce a
residential property value model.
103
Source: Adapted from Hening (2003)
Figure 4.17: Workflow diagram of the location factor distance analysis
4.6 Identifying spatial data pattern

Once the number of data was identified, the study can the mapped the
pattern of the original property rateable value. This was conducted using
Moran I tool to determine whether the spatial data pattern indicated spatial
autocorrelation error. Figure 4.18 shows the general display of the property
rateable value pattern from the 5625 data. The map in that figure clearly
shows that spatial autocorrelation error was present based on the
distribution of the property rateable value. This was also supported from
the output of Moran I in figure 4.19 which shows that the Morans Index
was estimated as 0.179 which indicated that the data pattern was clustered.
104
Figure 4.18: Distribution of property rateable value in RM for the 5625 data
105
Figure 4.19: Morans I output for the 5625 data
The distributions of the original property rateable value based on

building type were also mapped to identify the pattern of the data. Based
on figure 4.20 to 4.23, the entire pattern for each building type indicated
spatial autocorrelation error. This was supported by Moran I output in
figure 4.24 to 4.27 with index value for intermediate terrace (0.797),
semi detached (0.884), corner terrace (0.497) and detached (0.271)
clearly shows the spatial autocorrelation exists with clustered
distribution pattern. Therefore, the usage of OLS and GWR was not
valid as only SRM was suitable to be applied in the study area. However,
the OLS was still estimated to be used as benchmarking and for
comparison purpose.
106
Figure 4.20: Distribution of property rateable value in RM for intermediate terrace building type
107
Figure 4.21: Distribution of property rateable value in RM for semi-detached building type
108
Figure 4.22: Distribution of property rateable value in RM for corner terrace building type
109
Figure 4.23: Distribution of property rateable value in RM for detached building type
110
Figure 4.24: Morans I output for the intermediate terrace building type
Figure 4.25: Morans I output for the semi detached building type
111
Figure 4.26: Morans I output for the corner terrace building type
Figure 4.27: Morans I output for the detached building type
Therefore, since the nature of the data shows that spatial autocorrelation
error was presents, the study able to decide that the usage of GWR was
112
not feasible as it unable to eliminate the error. Therefore, only the OLS
and SRM method were conducted for this study. The OLS was used as
the bases of comparison while the SRM as the solution to overcome the
spatial autocorrelation error.
4.7 Conclusion
This chapter described the study area of Kota Kinabalu City Hall
(DBKK) and data preparation for the property value model for rating
purpose. Data gathering and preparation procedures were undertaken to
produce datasets suitable for modelling purpose. This chapter also
discussed the generation of factors influencing property values which
included the distance analysis to measure the distance from each
residential location to the nearby location factor using GIS. Lastly, the
distribution of the property rateable value was mapped to identify the
data pattern for spatial autocorrelation error. This procedure was
undertaken using Moran I tool and it indicated that spatial
autocorrelation exists in the study area which prompts the study to use
the OLS and SRM method for modelling. The OLS was needed for
comparison and benchmarking purpose. However, the GWR was not
used for this study as it is unable to estimate an incomplete data with no
dependent value and incapable to eliminate spatial autocorrelation error.
The modelling of OLS and SRM would then be conducted and explained
in chapter 5 and chapter 6.
113
CHAPTER 5
DEVELOPMENT AND DIAGNOSTIC OF OLS MODEL
5.1 Introduction
This chapter discusses the empirical stage of the study by presenting the
development of the global OLS model based on 5625 observation data of
1997. It started with the OLS model developed for this study and
addressed the variable selection by investigating the multicollinearity
that could contribute to the modelling error. Then diagnostic test of the
OLS model would be discussed to identify the error and accuracy of the
OLS model for the overall and based on building type of the study.
5.2 Model Development

The Ordinary Least Square (OLS) model used in the study is written
using equation 5.1 as follows (Charlton and Fotheringham, 2009):
‫ݕ‬௜ ൌ ߚ଴ ൅ ߚଵ ‫ݔ‬ଵ௜ ൅ ߚଶ ‫ݔ‬ଶ௜ ൅ ‫ ڮ‬൅ ߚ௡ ‫ݔ‬௡௜ ൅ ߝ௜
for i = 1 … n (5.1)
Where;
y is the vector of observed values
ߚመ is the vector of estimated parameters,
x is the design matrix which contains the values of the independent
variables,
İis the model error value
Although the dependent variable of y was already known as the property

rate value, the independent variables of x were chosen from GIS
database developed, and then the model error of İ would be acquired.
This following section discussed variable selection to be used for
modelling process.
114
5.3 Variable Selection
In order to ensure suitable variables were chosen for the study, the
regression model developed for this study was ensure to be free from any
model error in order to prevent any model bias and mislead or incorrect
interpretation. Therefore, this study adopted the pairwise correlation
matrix and variance inflation factor (VIF) to conduct this task. This
processed was conducted continuously by experimented the variables to
ensure that no modelling problems presented in the model. These were
conducted by adding, removing or adjusting the available variables from
the model. The workflow of this task could be visualized in Figure 5.1
below in which, firstly, it started by conducted manual selection from the
availability of the variables that relevant for the model (Millington,
2001; Appraisal Institute, 1992; Scarrett, 2008). Secondly, stepwise
procedure was then applied for the chosen variables in which any non-
significant variable of level higher than 0.1 was removed to eliminate
multicollinearity. Thirdly, another multicollinearity test was conducted
using VIF in which any multicollinearity error were also removed or
adjusted before the final selection of variables with no multicollinearity
error obtained to proceed to the next task of modelling.
Figure 5.1: Workflow of the variable selection process
115
As discussed in Chapter 4, variables for the model could be divided into
property characteristics and location factors. Property characteristics
were divided into 21 factors. However, due to a large number of missing
data, some of the variables were removed. Finally, there were 12
variables describing property characteristics used (Table 5.1). In
addition, location factors involved 19 variables that measures distances
in unit meter (Table 5.2) were included. All these variables were then
combined and processed for multicollinearity checking as explained in
sub-topic 5.3.1 and 5.3.2.
116
Table 5.1: Property Characteristics Variables
Variable Name Measurement Description
Bld_type* Scale Building type (e.g. Terrace, Detached)
No_storey Scale Number of storey in the building
No_room Scale Number of room in the building
Floor_Level Scale Level of floor the property locate
Mfa Scale Main floor area
Afa Scale Ancillary floor area
RCA* Scale Reduced Covered Area Estimation
Ext_build Scale Availability of building extension
Extuse Scale External Use
Subuse Scale Sub use
Bldq* Scale Building Quality
Spfaci Scale Special Facilities
Land_area* Scale Land area estimation
Topo* Scale Land Topography
Sitepr* Scale Site Preparation
Access* Scale Access to main road
Flood* Scale Flood Prone Area
Ltshp* Scale Lot Shape
Frontage* Scale Property frontage to road
Sanitn* Scale Type of Sanitation
NhoodQ* Scale Neighbourhood quality
Note: ‘*’ Indicate the variables chosen without the problem of missing data
117
Table 5.2: Location factor variables
Variable Name Measurement Description
Market Scale Place for buying and selling of goods
with offered price
School Scale Education centre
Sports area Scale Place for sports activities
Bank Scale Centre for finance activities
Shopping Mall Scale Large place for various stores, business
and restaurant
Government Office Scale Various Government activities
Church Scale Place of worship for Christians
Mosque Scale Place of worship for Muslims
Hindu Temple Scale Place of worship for Hindus
Chinese Temple Scale Place of worship for Chinese
Commercial Centre Scale Place of various commerce activities
Police Centre Scale Police station including
Post Office Scale Provide postal service and bill payment
Hospital Scale Large medical centre
Hall Scale Public hall for gathering, sports or
entertainment
Park Scale Recreation area
Field Scale Open space area
Supermarket Scale Large stores that sells variety of food
and household items
Office Centre Scale Place for business activities
5.3.1 Stepwise procedure

In developing global OLS model, stepwise regression technique was
employed to produce the best combination of independent variables
which consists of 31 property characteristics and locational factors that
could better estimate the property rating value. This technique was also
used from the previous studies such as Theriault et al. (2003), Suriatini
Ismail (2005) and Lin (2010). The stepwise procedure was set to accept
variables that are significant at least at the 0.1 level and any variable that
produced higher than that will be removed (Suriatini Ismail, 2005). If a
pair of multicollinear variables is included by the stepwise procedure, a
variable with better level (that is, smaller value) of significance would be
pragmatically selected to remain in the final model.
118
Based on the output of the stepwise regression as shown in Appendix B,
the best result would be the model with the highest adjusted R2 which
consists of 18 independent variables. Nonetheless, this study also relies
on the VIF values of the independent variables as a check in selecting the
final variables as now discussed.
5.3.2 Variance Inflation Factor (VIF)

The 18 variables that passed the correlation test above were tested again
using Variance Inflation Factor (VIF) to find out if multicollinearity still
exists in the OLS global model. Based on the literature mentioned in
Chapter 2, a cut-off value of 7.5 was adopted in detecting suspicious
variables regarding multicollinearity as more than 7.5 value indicates
explanatory variable redundancy (Rosenshein et al., 2011). Any variable
which exceeded the cut-off value would require certain variable to be
dropped and re-analyze until eventually the entire variables pass the test.
Apparently, some data from the 18 variables produced more than 7.5
VIF value. Therefore, certain variables were dropped and re-analyze was
conducted. Finally, the study manages to obtain a model which was free
form multicollinearity error with 15 variables as stated in Table 5.3. The
result shows that all the following independent variables consist of
property physical characteristics and location factors that passed the test
by producing VIF value of less than the cut-off point of 7.5.
Table 5.3: Multicollinearity Test Result for the Model’s 15 Variables

sĂƌŝĂďůĞ s/&
Land Area 1.166
Build Quality 1.254
ShopMall 2.278
PoliceCtr 6.001
PostOffice 7.423
OfficeCtr 4.368
Field 4.710
Bank 3.919
ChinTemple 4.879
HindTemple 1.307
RCA 1.265
TopoG 1.063
FloodP 1.112
Sanitation 1.147
Build Type 1.073
Note: Large VIF (> 7.5, for example) indicates explanatory variable redundancy.
119
5.3.3 Final selection of model variables
As previously stated, initially there were 40 variables or valuation factors
that involved 21 property characteristics and 19 location factors used.
However, after removing some variables in which had missing data and
multicollinearity error, a total of 15 independent variables had been
selected to estimate the dependent variable (rateable value). The
measurement values for each variable were based on questionnaire’s
mean score, metric unit and currency as shown in Table 5.4.
Table 5.4: Final selection of variables

Variable Measurement Source
Rateable Value Ringgit (RM) DBKK
Reduce Coverage SqFeet DBKK
Area (RCA)
Land Area SqFeet DBKK
Building Type Mean Score DBKK
Building Quality Mean Score DBKK
Sanitation Mean Score DBKK
Flood Prone Mean Score DBKK
Topography Mean Score DBKK
Chinese Temple Meter GIS Analysis
(Proximity Near)
Police Centre Meter GIS Analysis
(Proximity Near)
Office Centre Meter GIS Analysis
(Proximity Near)
Shopping Mall Meter GIS Analysis
(Proximity Near)
Post Office Meter GIS Analysis
(Proximity Near)
Hindu Temple Meter GIS Analysis
(Proximity Near)
Bank Meter GIS Analysis
(Proximity Near)
Field Meter GIS Analysis
(Proximity Near)
The measurement for the rateable value was based on currency scale in
Ringgit Malaysia (RM). The property rating value was obtained from the
1997 DBKK mass revaluation exercise. Although the property
revaluation was conducted quite long ago, the value was still valid and
currently applied in DBKK (DBKK, 2012). It was used to estimate and
produce an updated value for the current year using inflation rate
calculation. For the Reduced Coverage Area (RCA) and Land Area, the
value was also obtained directly from the revaluation exercise taken in
year 1997. Both variables were measured using square feet unit. As
explained in chapter 3, RCA which was considered as an important
120
element for property valuation in DBKK, represents the main floor area
of the property but was recalculated to be better suited for valuation
purpose. Next, the location factor variable consists of Hospital, Office
Centre, Shopping Mall, Post Office, Hindu Temple and Field was
obtained based on the GIS analysis conducted as mentioned in chapter 4
and the measurement was based on meter unit from the property location
to the nearest location factor. As for the building type, building quality,
sanitation, frontage, flood prone and topography, the value was also
obtained from the revaluation exercise but it was change from
categorised to scale measurement using mean score based from the
questionnaire’s feedback.
Table 5.5 shows the statistical summary of the independent and

dependent variables of the OLS model. The table illustrates the
minimum and maximum values, which reflect the lowest and highest
value of each variables, the mean shows the average value for each
variable and lastly, the standard deviation represent the range of data for
each variable.
Table 5.5: Statistical summary of the 16 selected variables

N Minimum Maximum Mean Std. Deviation
LandAr_Ft 5625 178.20 46607.73 3603.7961 2871.59680
ShopMall 5625 16 3196 1140.24 517.175
PoliceCtr 5625 12 3242 1080.04 706.924
PostOffice 5625 94 2875 1628.32 711.273
OfficeCtr 5625 7 2651 931.98 636.593
Field 5625 149 4126 2014.92 880.703
Bank 5625 451 4360 2720.64 676.459
ChinTemple 5625 14 3652 1055.51 663.231
HindTemple 5625 240 6326 1916.10 762.124
RCA_Ft 5625 327.00 29282.00 1879.7282 1544.96531
TopoG 5625 1.80 4.40 4.3225 0.40587
BuildQ 5625 1.80 4.80 2.8164 0.63504
FloodP 5625 1.40 4.00 3.4125 1.08744
Sanitation 5625 1.20 4.20 4.0755 0.29860
Build_Type 5625 4.00 5.00 4.7524 0.19563
Rate_Value 5625 250 61910 2864.1184 1679.2601
Once the OLS model was produced, the study continued with the OLS
diagnostic or model error detection for the overall or based on building
types as explained in the following section.
121
5.4 OLS model diagnostic
In conducting OLS model, diagnostic tests need to be conducted to
check whether or not the model’s residuals were normally distributed,
identify spatial autocorrelation, examine the model non-stationarity
pattern and assess the significance of the model. All these tests were
needed to ensure the OLS model fulfilled the criteria to become an
accurate and acceptable property valuation model in estimating the
residential property rating value in the study area.
Table 5.6 below shows the diagnostic output produced from the OLS
model. The value from the Jarque-Bera statistics (JB) was used to
identify the model’s normal distribution, while the Moran’s I statistic or
Z-score examined the spatial autocorrelation pattern of the model. Next,
the Koenker (BP) statistic was used to examine non-stationarity pattern
and lastly, based on the result of the Koenker (BP) statistic, the Joint-
Wald or Joint-F statistic would be chosen to measures the overall model
significance. The discussion of these tests would be explained in the
following sections 5.4.1 to 5.4.4
Table 5.6: OLS Diagnostic

OLS Diagnostic Value
Jarque-Bera Statistic: 26110925.918414
Probability: 0.000000
Moran’s I Statistic (Z-score): 45.857027
Koenker (BP) Statistic: 762.072905
Joint Wald Statistic: 4955.108491
Joint F-Statistic: 382.093996
Akaike Information Criterion 95578
(AIC)
5.4.1 Investigating OLS model for spatial autocorrelation

In order to produce the OLS model regression with reliable result, the
spatial autocorrelation significant test was conducted towards the
regression residual. Graphically, the residuals were displayed in the GIS
map and the spatial autocorrelation can be identified by looking at its
122
pattern. Figure 5.2 shows the locations where both positive and negative
residuals occurred.
As chapter 2 indicated, positive spatial autocorrelation occurs if residuals

of the same sign cluster together while negative spatial autocorrelation
occurs if residuals of different signs cluster together. It is easier to detect
the former as the latter is less obvious. It can be confused with a random
geographical distribution of the residuals. This implies that location
display for spatial autocorrelation though useful, is indefinite and
subjective.
To test the spatial autocorrelation formally, this study adopted the spatial
statistics of Moran’s I to determine the existence of significant spatial
autocorrelation. Figure 5.3 and the previous Table 5.6 shows the results
from the spatial autocorrelation tests of Moran’s I undertaken on the
OLS model developed in this study. This test enables identification of
the two forms of spatial autocorrelation, of positive or negative. Moran’s
I value from the Table 5.6 and Figure 5.3 indicates positive spatial
autocorrelation (Z score = 45.857, p-value = 0.00) meaning that similar
residuals cluster together. This means that it is more likely for the spatial
autocorrelation detected to occur out of missing variables for important
property characteristics. The Moran Index value for overall OLS data
residual of 0.062 however, was smaller compared to Moran Index value
for overall current value with 0.179. This shows that the spatial
autocorrelation was reduced when using OLS.
123
Figure 5.2: Geographical distributions of the positive and the negative residuals of the OLS’s overall model
124
Figure 5.3: Spatial autocorrelation for OLS residual model indicate
clustered pattern
Similar outcome also obtained from previous studies that showed the
presence of significant spatial autocorrelation despite using rich dataset
(Des Rosiers et al., 2000; Theriault et al., 2003; and Suriatini Ismail,
2005). Most studies do not address the problem. However, as suggested
by Theriault et al. (2003), spatial autocorrelation can be more severe
because it could cause heteroscedasticity. Suriatini Ismail, (2005) for
example conducted further analysis and stated that there was no
straightforward relationship between spatial autocorrelation and number
of observations but it provides obvious association with geographical
aggregation, flat properties and density of dwellings.
This study was then proceeding to the next test to determine the
stationarity pattern of the model which was conducted in the following
section.
5.4.2 Investigating OLS model for normal distribution

Jarque-Bera (JB) statistics test was used to investigate model bias by
determining whether or not the residuals are normally distributed (Jarque
and Bera, 1980). A normal distribution means a classic bell curve
depicted the residuals in a graphs was achieved. Otherwise, model
misspecification or some important variable missing from the model
would occur if non-normal distribution among the residual was
produced. This type of error is also called heteroscedasticity.
125
When the p-value (probability) for the JB test was high in which it
achieved more than 95% confidence level, it indicated normal
distribution among the residuals and the model was usable. However, the
JB test was mentioned to have size distortion problem (Chen and Kuan,
2003) and furthermore it has zero breakdown of value as even a single
outlier can make the test worthless (Brys et al., 2004).
Based on the result presented in Table 5.6, the value of the JB test
indicated that the residuals appeared to be a non-normal distribution as
the p-value produced smaller than 0.05 confidence level. Although,
reselection from the available variables was conducted, the error was still
there. The study conducted by Charlton and Fotheringham (2009) also
had similar problem where it failed the JB test. This could probably
occur because of non-stationarity pattern exists in the residual.
Therefore, stationarity test was conducted as discussed in the following
sub-topic.
5.4.3 Investigating OLS model non-stationarity

pattern
To investigate the non-stationarity relationship, the Koenker (BP)
Statistic (Koenker's studentized Bruesch-Pagan statistic) was used. The
null hypothesis for this test is that the model is stationary. If p-value
attains 95% confidence level or probability smaller than 0.05, it indicates
statistically significant heteroscedasticity or non-stationarity model.
When results from this test are statistically significant, the robust
coefficient standard errors and probabilities were consulted to assess the
effectiveness of each explanatory variable. Regression models with
statistically significant non-stationarity are especially good candidates
for GWR analysis (Leung, 2000a; ESRI, 2013).
Based on the output in Table 5.6, the probability for Koenker (BP)
Statistics obtained for this test was smaller than 0.05 indicates
statistically significant heteroscedasticity or non-stationarity for this
model. This shows that a key variable is missing from the model or not
suitable for global model. This shows that the study need to use the
robust coefficient and robust probabilities estimation.
5.4.4 Investigating OLS model significance

As mentioned in chapter 3, there are 2 types of measures of overall
model statistical significance which are the Joint F-Statistic and Joint
Wald Statistic. The Joint F-Statistic was used if the Koenker (BP)
Statistic indicated non-statistically significant. Otherwise, the Joint Wald
Statistic was used. In this case the Koenker (BP) Statistic was proven to
126
be significant. This leads to the usage of the Joint Wald Statistic
measurement. Based on the output in Table 5.6, the p-value (probability)
of Joint Wald Statistic achieved is smaller than 0.05 for a 95%
confidence level indicates a statistically significant model.
5.5 Assessing the Performance of the OLS Model

Once the model tests had been performed, the model performances could
then be assessed to identify the accuracy and the acceptability of the
model. An accurate and acceptable property value model would provide
an accurate property rating value estimation of the study area. There
were 2 types of model performance measurement used which were the
adjusted R2 and the OLS model coefficients. The assessment was
conducted for the overall and each building type model. The literature
suggests that subdivision of the area need to be conducted if large data
was acquired as potential high model performance can be achieved
(McCluskey and Borst, 2011; Suriatini Ismail, 2005). In this case, the
subdivision of the study area was conducted by zones. Although, the
variable selection and the models tests were only conducted for the
overall model, but the same variables were applied for building type
model to maintain consistency.
5.5.1 The Performance of the OLS Model

The formula for the OLS model with the inclusion of the selected
variables in Table 5.4 and the value of each variable’s coefficient were
constructed as follows:
Rate_Value = ȕ0 + B1(X1) + ȕ2(X2) + ……..+ ȕ15(X15) İ (5.2)

Where;
Rate_Value is Rateable Value.
ȕ0 is constant.
ȕ1 – ȕ15 is coefficients for each associated independent variables.
X1- X15 is the independent variables that consists of land area, RCA,
building type, sanitation, flood prone, topography, building quality and
location distance of shopping mall, police centre, office centre, post
office, field, bank, chinese temple and hindu temple.
İis the model error value.
Once the model significance had been obtained, the measurement of

adjusted R-Squared values was consulted to assess the model
performance as shown in Table 5.7. The adjusted R-Squared achieved a
value of 0.504 indicated that the OLS model explains approximately
50.4% of the variation in the dependent variable. This value was
127
considered average but it is still acceptable. To determine the most
influence of the independent variables towards the dependent variable,
the beta coefficient for each of the independent variable were measured.
Table 5.7 shows the coefficient value of each independent variable in the
model including its probability and robust probability measurement.
Since the OLS model obtained significant value in Koenker (BP)
Statistic, hence, the robust probability (Robust_Pr) was consulted.
Therefore, only the beta coefficients with significant robust probability
were valid and can be used for measurement.
The beta coefficient for POLICE_CTR, FIELD and POSTOFFICE and

gave high value with 0.521, 0.579 and 0.493 respectively. In contrast,
SANITATION, flood prone (FLOODP) and topography (TOPOG)
produced the least influence as it produce the lowest beta coefficient
value of 0.037, 0.05 and 0.06 respectively. The positive and negative
sign in the beta coefficient was not relevant. However, the output of this
model was not valid to be used for interpretation as this model produce
spatial autocorrelation error.
128
Table 5.7: Summary of the OLS Model Output for DBKK Rating
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129
Based on table 5.7 also, all variables were statistically significant at 95%
confidence level based on the Robust_Probability measurement except
the building type. The non-significant of building type was probably due
to inconsistency of certain building type with the rating values.
However, this shows that the building type might be suitable to be used
as model segmentation or multiple OLS model that would represent the
property rating better. This would be discussed in the following section.
5.5.2 The performance of the OLS Model with building type

The estimation of OLS model based on building type repeated the same
procedure of the above OLS model. However, the estimation of the
models adopted the same equation as the OLS model minus the building
type. Therefore, there are only 14 independent variables that were used
to produce the OLS model based on building type.
There were 8 types of building type listed in the DBKK database for
rating purpose in the area that consists of Kampung House, Walk-Up
Apartment, Intermediate Terrace, Semi-Detached, Corner Terrace, Town
House and Detached. However, the data in the study is limited to 5 types
of building type as it only focused on housing in urban area and non-
apartment/flat type. The 5 types of building that were used to categorise
the property rating model are Intermediate Terrace, Semi-Detached,
Corner Terrace, Town House and Detached. The total number of
property for each building type is shown in Table 5.8 as follows:
Table 5.8: Number of record for each building type in the study
Building Type Value
Intermediate Terrace 2160
Semi-Detached 2150
Corner Terrace 773
Town House 5
Detached 537
Total 5625
Although there is considerable amount of property for most of the

building type, the town house only have 5 properties in the study area.
Therefore, the town house has to be removed from the analysis as OLS
unable to do the modelling for small dataset. The intermediate terrace
and corner was separated as two building type as there was no dara of
building position in DBKK database list. It would produce model error if
combined as one building type.
130
Table 5.9 summarises the estimated parameters for each property rating
valuation in DBKK based on building type of Intermediate Terrace,
Semi-Detached, Corner Terrace and Detached. Table 5.9 shows that for
the four building types, adjusted R2 ranges from 49.3% to 58.1% with
intermediate terrace obtained the lowest and semi-detached as the
highest. The difference of 7.7 percentage between the semi-detached and
the overall OLS model indicates a marginal improvement in the
explanatory power brought about by the OLS modelling based on
building type.
Each building type also have different significant variables that influence
its value. Although intermediate terrace has all 14 independent variables
significant, the semi detached and corner terrace has 13 significant.
While the detached building has only 9 variables that significant to it.
Based on the table, the beta coefficient for POLICE_CTR, FIELD and
POSTOFFICE gave high value for all three building type of intermediate
terrace, semi detached and corner terrace. The POLICE_CTR, FIELD
and POSTOFFICE produce magnitude range from 0.398 to 0.636, 0.475
to 0.915 and 0.449 to 0.854 respectively to the three building type. The
detached produce slightly different outcome as the variables of Land
Area (LANDAR_FT), POLICE_CTR and POSTOFFICE gives the
highest beta coefficient value with 0.384, 0.381 and 0.325 respectively.
In contrast, LANDAR_FT provide the lowest influence for intermediate

terrace and semi detached with 0.078 and 0.058 respectively. TOPOG
provide lowest influence for corner terrace with 0.046 while Chinese
Temple (CHINTEMPLE) was the lowest for detached with 0.126.
However, similar with overall, the output of this model was not valid to
be used for interpretation as this model had spatial autocorrelation error
present.
131
Table 5.9: Summary OLS model output based on building type
/ŶƚĞƌ ZŽďƵƐƚͺ ZŽďƵƐƚͺ ZŽďƵƐƚͺ ĞƚĂ
dĞƌƌĂĐĞ sĂƌŝĂďůĞ ŽĞĨĨŝĐŝĞŶƚ ^ƚĚƌƌŽƌ ƚͲ^ƚĂƚƐ WƌŽď ^ ƚ Wƌ ŽĞĨĨ
ZϮс
ϰϵ͘ϳй /ŶƚĞƌĐĞƉƚ Ͳϳϴϳ͘ϲϳϵ ϯϭϱ͘Ϯϲϰ ͲϮ͘ϰϵϴϰ Ϭ͘ϬϭϮϱΎ ϯϴϳ͘ϯϮϲ ͲϮ͘Ϭϯϯϲ Ϭ͘ϬϰϮϭΎ
Ěũ͘ZϮс
ϰϵ͘ϯй ^,KWD>> ͲϬ͘ϯϯϯϬϳ Ϭ͘ϬϯϳϬϰ Ͳϴ͘ϵϵϬϳ Ϭ͘ϬϬϬϬΎ Ϭ͘ϬϰϭϬϯ Ͳϴ͘ϭϭϲϱ Ϭ͘ϬϬϬϬΎ ͲϬ͘Ϯϲ
WK>/dZ ͲϬ͘ϲϮϭϵϴ Ϭ͘Ϭϰϳϵϲ ͲϭϮ͘ϵϲϳ Ϭ͘ϬϬϬϬΎ Ϭ͘ϬϱϬϭϬ ͲϭϮ͘ϰϭϯ Ϭ͘ϬϬϬϬΎ ͲϬ͘ϲϯϲ
WK^dK&&/ Ϭ͘ϴϯϳϰϴϰ Ϭ͘ϬϱϮϳϱ ϭϱ͘ϴϳϱϭ Ϭ͘ϬϬϬϬΎ Ϭ͘Ϭϱϱϲϲ ϭϱ͘ϬϰϱϮ Ϭ͘ϬϬϬϬΎ Ϭ͘ϴϱϰ
K&&/dZ ͲϬ͘ϰϬϭϭϮ Ϭ͘ϬϰϮϬϯ Ͳϵ͘ϱϰϯϬ Ϭ͘ϬϬϬϬΎ Ϭ͘Ϭϰϳϭϰ Ͳϴ͘ϱϬϴϴ Ϭ͘ϬϬϬϬΎ ͲϬ͘ϯϱϵ
&/> Ϭ͘ϱϬϰϬϵϵ Ϭ͘Ϭϯϰϱϱ ϭϰ͘ϱϴϴϴ Ϭ͘ϬϬϬϬΎ Ϭ͘ϬϯϰϲϮ ϭϰ͘ϱϱϵϳ Ϭ͘ϬϬϬϬΎ Ϭ͘ϲϱϴ
E< Ϭ͘ϮϬϮϵϬϲ Ϭ͘Ϭϯϲϳϯ ϱ͘ϱϮϯϴϯ Ϭ͘ϬϬϬϬΎ Ϭ͘Ϭϯϳϱϭ ϱ͘ϰϬϵϬϰ Ϭ͘ϬϬϬϬΎ Ϭ͘ϭϴϱ
,/EdDW> Ϭ͘ϭϯϰϬϬϴ Ϭ͘ϬϰϱϬϳ Ϯ͘ϵϳϮϴ Ϭ͘ϬϬϮϵΎ Ϭ͘ϬϱϱϬϭ Ϯ͘ϰϯϱϲϱ Ϭ͘ϬϭϰϵΎ Ϭ͘ϭϯ
,/EdDW> ͲϬ͘ϭϰϬϭϲ Ϭ͘ϬϮϭϮϲ Ͳϲ͘ϱϵϭϴ Ϭ͘ϬϬϬϬΎ Ϭ͘ϬϮϲϯϭ Ͳϱ͘ϯϮϲϳ Ϭ͘ϬϬϬϬΎ ͲϬ͘ϭϯ
Zͺ&d Ϭ͘ϬϮϳϬϰϴ Ϭ͘ϬϬϳϴϴ ϯ͘ϰϯϭϭϭ Ϭ͘ϬϬϬϲΎ Ϭ͘ϬϬϴϵϴ ϯ͘ϬϬϴϵϰ Ϭ͘ϬϬϮϳΎ Ϭ͘Ϭϱϵ
>EZͺ&d Ϭ͘ϬϯϴϮϱ Ϭ͘ϬϬϳϱϴ ϱ͘Ϭϰϯϯϱ Ϭ͘ϬϬϬϬΎ Ϭ͘Ϭϭϳϵϳ Ϯ͘ϭϮϳϵϰ Ϭ͘ϬϯϯϰΎ Ϭ͘Ϭϳϴ
dKWK' ͲϭϮϬ͘ϴϱϮ ϯϰ͘ϯϵϳϴ Ͳϯ͘ϱϭϯϯ Ϭ͘ϬϬϬϰΎ Ϯϯ͘ϵϭϲϴ Ͳϱ͘Ϭϱϯ Ϭ͘ϬϬϬϬΎ ͲϬ͘Ϭϱϴ
h/>Y ϮϮϯ͘ϭϱϴϳ Ϯϯ͘ϵϴϬϳ ϵ͘ϯϬϱϳ Ϭ͘ϬϬϬϬΎ Ϯϯ͘ϬϮϳϭ ϵ͘ϲϵϭϭϮ Ϭ͘ϬϬϬϬΎ Ϭ͘ϭϱϲ
&>KKW ϲϯ͘ϵϬϬϲϭ ϭϭ͘Ϭϭϭϵ ϱ͘ϴϬϮϴϰ Ϭ͘ϬϬϬϬΎ ϭϭ͘ϰϱϯϭ ϱ͘ϱϳϵϯϮ Ϭ͘ϬϬϬϬΎ Ϭ͘Ϭϵϳ
Ê/dd/KE ϯϬϱ͘ϯϯϭϯ ϲϴ͘ϰϭϮϯ ϰ͘ϰϲϯϭϬ Ϭ͘ϬϬϬϬΎ ϵϱ͘Ϯϰϯϰ ϯ͘ϮϬϱϳϵ Ϭ͘ϬϬϭϰΎ Ϭ͘Ϭϵϯ
^Ğŵŝ ZŽďƵƐƚͺ ZŽďƵƐƚͺ ZŽďƵƐƚͺ ĞƚĂ
ĞƚĂĐŚĞĚ sĂƌŝĂďůĞ ŽĞĨĨŝĐŝĞŶƚ ^ƚĚƌƌŽƌ ƚͲ^ƚĂƚƐ WƌŽď ^ ƚ Wƌ ŽĞĨĨ
ZϮ
сϱϴ͘ϰй /ŶƚĞƌĐĞƉƚ ϮϱϱϬ͘ϬϴϯϬ ϯϲϭ͘ϴϴϮ ϳ͘ϬϰϲϳϮ Ϭ͘ϬϬϬϬΎ ϯϱϳ͘ϵϭϮ ϳ͘ϭϮϰϴϳ Ϭ͘ϬϬϬϬΎ
Ěũ͘ZϮс
ϱϴ͘ϭй ^,KWD>> ͲϬ͘ϳϯϱϱϬϰ Ϭ͘ϬϲϬϮϲ ͲϭϮ͘ϮϬϰ Ϭ͘ϬϬϬϬΎ Ϭ͘ϬϲϰϮϯ Ͳϭϭ͘ϰϱϬ Ϭ͘ϬϬϬϬΎ ͲϬ͘ϮϵϮ
WK>/dZ Ͳϭ͘Ϭϭϯϱϵϵ Ϭ͘ϬϱϳϰϬ Ͳϭϳ͘ϲϱϳ Ϭ͘ϬϬϬϬΎ Ϭ͘ϬϲϮϵϴ Ͳϭϲ͘Ϭϵϭ Ϭ͘ϬϬϬϬΎ ͲϬ͘ϱϰϯ
WK^dK&&/ ϭ͘ϰϳϮϭϮϴ Ϭ͘Ϭϲϯϳϰ Ϯϯ͘Ϭϵϱϲ Ϭ͘ϬϬϬϬΎ Ϭ͘Ϭϲϵϰϱ Ϯϭ͘ϭϵϰϯ Ϭ͘ϬϬϬϬΎ Ϭ͘ϴϰϳ
K&&/dZ ͲϬ͘ϰϱϱϬϭϮ Ϭ͘Ϭϱϴϱϯ Ͳϳ͘ϳϳϯϭ Ϭ͘ϬϬϬϬΎ Ϭ͘Ϭϲϭϲϰ Ͳϳ͘ϯϴϭϲ Ϭ͘ϬϬϬϬΎ ͲϬ͘Ϯϰϱ
&/> ϭ͘ϯϲϵϳϲϰ Ϭ͘Ϭϰϯϵϱ ϯϭ͘ϭϲϭϮ Ϭ͘ϬϬϬϬΎ Ϭ͘ϬϰϱϮϬ ϯϬ͘ϯϬϬϭ Ϭ͘ϬϬϬϬΎ Ϭ͘ϵϭϱ
E< ͲϬ͘ϮϰϴϭϮϲ Ϭ͘ϬϱϰϴϬ Ͳϰ͘ϱϮϳϳ Ϭ͘ϬϬϬϬΎ Ϭ͘Ϭϱϵϭϱ Ͳϰ͘ϭϵϰϴ Ϭ͘ϬϬϬϬΎ ͲϬ͘ϭϯϰ
,/EdDW> ͲϬ͘ϮϳϯϰϬϵ Ϭ͘ϬϯϬϴϬ Ͳϴ͘ϴϳϰϳ Ϭ͘ϬϬϬϬΎ Ϭ͘ϬϰϮϭϰ Ͳϲ͘ϰϴϳϱ Ϭ͘ϬϬϬϬΎ ͲϬ͘ϭϲϵ
Zͺ&d Ϭ͘ϭϬϯϵϱϰ Ϭ͘Ϭϭϰϰϲ ϳ͘ϭϴϱϵ Ϭ͘ϬϬϬϬΎ Ϭ͘ϬϮϬϲϯ ϱ͘Ϭϯϴϱϰ Ϭ͘ϬϬϬϬΎ Ϭ͘ϭϭϮ
>EZͺ&d Ϭ͘ϬϮϴϲϮϰ Ϭ͘ϬϬϳϬϯ ϰ͘ϬϳϬϲ Ϭ͘ϬϬϬϬΎ Ϭ͘ϬϭϭϳϬ Ϯ͘ϰϰϱϲϵ Ϭ͘ϬϭϰϱΎ Ϭ͘Ϭϱϴ
dKWK' ͲϱϮϲ͘ϬϲϬϱϯ ϰϱ͘Ϭϭϱϳ Ͳϭϭ͘ϲϴϲ Ϭ͘ϬϬϬϬΎ ϱϰ͘Ϯϵϲϱ Ͳϵ͘ϲϴϴϮ Ϭ͘ϬϬϬϬΎ ͲϬ͘ϭϴϯ
h/>Y ϰϳϵ͘ϴϲϱϰϴ Ϯϴ͘ϰϱϳϱ ϭϲ͘ϴϲϮϱ Ϭ͘ϬϬϬϬΎ Ϯϵ͘ϯϬϱϳ ϭϲ͘ϯϳϰϰ Ϭ͘ϬϬϬϬΎ Ϭ͘Ϯϳϯ
&>KKW ϲϵ͘ϭϰϯϬϲϳ ϭϱ͘ϲϯϮϯ ϰ͘ϰϮϯϬ Ϭ͘ϬϬϬϬΎ ϭϱ͘ϱϰϳϯ ϰ͘ϰϰϳϮϳ Ϭ͘ϬϬϬϬΎ Ϭ͘Ϭϲϲ
Ê/dd/KE Ͳϭϲϰ͘ϴϳϭϴϯ ϱϮ͘ϱϬϮϭ Ͳϯ͘ϭϰϬϮ Ϭ͘ϬϬϭϳΎ ϯϰ͘ϯϴϴϬ Ͳϰ͘ϳϵϰϰ Ϭ͘ϬϬϬϬΎ ͲϬ͘Ϭϰϳ
132
ŽƌŶĞƌ ZŽďƵƐƚͺ ZŽďƵƐ ZŽďƵƐƚ ĞƚĂ

dĞƌƌĂĐĞ sĂƌŝĂďůĞ ŽĞĨĨŝĐŝĞŶƚ ^ƚĚƌƌŽƌ ƚͲ^ƚĂƚƐ WƌŽď ^ ƚͺƚ ͺWƌ ŽĞĨĨ
ZϮсϱϮ͘ϴй /ŶƚĞƌĐĞƉƚ Ͳϭϯϵϰ͘Ϭϵ ϱϰϰ͘ϭϰϰϮ ͲϮ͘ϱϲϭϵϴ Ϭ͘ϬϭϬΎ ϱϲϯ͘Ϯϭϯ ͲϮ͘ϰϳϱ Ϭ͘ϬϭϯϱΎ
Ěũ͘ZϮс
ϱϭ͘ϵй ^,KWD>> ͲϬ͘Ϯϰϯϭ Ϭ͘ϬϳϭϭϮϳ Ͳϯ͘ϰϭϳϳϲ Ϭ͘ϬϬϬΎ Ϭ͘ϬϳϮϱϳ Ͳϯ͘ϯϰϵ Ϭ͘ϬϬϬϴΎ ͲϬ͘ϭϲ
WK>/dZ ͲϬ͘ϰϭϵϲϯ Ϭ͘ϬϵϬϱϭϰ Ͳϰ͘ϲϯϲϬϵ Ϭ͘ϬϬϬΎ Ϭ͘ϬϵϱϵϮ Ͳϰ͘ϯϳϰ Ϭ͘ϬϬϬϬΎ ͲϬ͘ϯϵϴ
WK^dK&&/ Ϭ͘ϱϭϬϰϰϴ Ϭ͘ϭϬϮϯϴϰ ϰ͘ϵϴϱϱϵϵ Ϭ͘ϬϬϬΎ Ϭ͘ϭϬϱϮϵ ϰ͘ϴϰϳ Ϭ͘ϬϬϬϬΎ Ϭ͘ϰϰϵ
K&&/dZ ͲϬ͘Ϯϴϵϯϳ Ϭ͘Ϭϳϵϴϰϰ Ͳϯ͘ϲϮϰϭϱ Ϭ͘ϬϬϬΎ Ϭ͘ϬϴϬϵϴ Ͳϯ͘ϱϳϯ Ϭ͘ϬϬϬϯΎ ͲϬ͘ϮϮ
&/> Ϭ͘ϰϬϵϳϵϱ Ϭ͘Ϭϲϲϱϰϯ ϲ͘ϭϱϴϯϮϭ Ϭ͘ϬϬϬΎ Ϭ͘Ϭϲϲϲϲ ϲ͘ϭϰϳ Ϭ͘ϬϬϬϬΎ Ϭ͘ϰϳϱ
E< Ϭ͘ϰϵϭϲϯϳ Ϭ͘ϬϲϴϲϴϮ ϳ͘ϭϱϴϭϱϴ Ϭ͘ϬϬϬΎ Ϭ͘Ϭϲϱϰϴ ϳ͘ϱϬϳ Ϭ͘ϬϬϬϬΎ Ϭ͘ϯϴϴ
,/EdDW> ͲϬ͘ϮϰϮϳϳ Ϭ͘ϬϰϬϴ Ͳϱ͘ϵϱϬϭϳ Ϭ͘ϬϬϬΎ Ϭ͘ϬϰϬϰϴ Ͳϱ͘ϵϵϲ Ϭ͘ϬϬϬϬΎ ͲϬ͘ϭϵ
Zͺ&d Ϭ͘Ϭϱϵϯϲϱ Ϭ͘Ϭϭϵϲϱϲ ϯ͘ϬϮϬϭϵϳ Ϭ͘ϬϬϮΎ Ϭ͘ϬϮϱϯϬ Ϯ͘ϯϰϲ Ϭ͘ϬϭϵϮΎ Ϭ͘Ϭϴϯ
>EZͺ&d Ϭ͘Ϭϲϲϲ Ϭ͘ϬϭϱϱϬϱ ϰ͘Ϯϵϱϯϯϯ Ϭ͘ϬϬϬΎ Ϭ͘ϬϮϵϯϯ Ϯ͘ϮϳϬ Ϭ͘ϬϮϯϰΎ Ϭ͘ϭϬϵ
dKWK' Ͳϭϭϭ͘ϯϱϭ ϲϰ͘ϴϬϲϭϭ Ͳϭ͘ϳϭϴϮϭ Ϭ͘Ϭϴϲϭ ϰϯ͘ϲϬϰϳ ͲϮ͘ϱϱϯ Ϭ͘ϬϭϬϴΎ ͲϬ͘Ϭϰϲ
h/>Y ϯϳϳ͘ϳϳϯϵ ϰϱ͘ϭϲϭϭ ϴ͘ϯϲϱϬϯ Ϭ͘ϬϬϬΎ ϰϯ͘ϭϳϰϰ ϴ͘ϳϰϵ Ϭ͘ϬϬϬϬΎ Ϭ͘Ϯϯϲ
&>KKW ϱϰ͘ϴϳϳϰϭ ϭϵ͘ϴϭϬϰϰ Ϯ͘ϳϳϬϭϮϲ Ϭ͘ϬϬϱΎ ϮϬ͘ϯϮϵϵ Ϯ͘ϲϵϵ Ϭ͘ϬϬϳϭΎ Ϭ͘Ϭϳϰ
Ê/dd/KE ϯϱϯ͘ϯϵϵϭ ϭϭϮ͘ϯϲϭϴ ϯ͘ϭϰϱϭϴϵ Ϭ͘ϬϬϭΎ ϭϯϭ͘ϱϱϰ Ϯ͘ϲϴϲ Ϭ͘ϬϬϳϯΎ Ϭ͘ϭϬϮ
ZŽďƵƐƚͺ ZŽďƵƐ ZŽďƵƐƚ ĞƚĂ
ĞƚĂĐŚĞĚ sĂƌŝĂďůĞ ŽĞĨĨŝĐŝĞŶƚ ^ƚĚƌƌŽƌ ƚͲ^ƚĂƚƐ WƌŽď ^ ƚͺƚ ͺWƌ ŽĞĨĨ
ZϮсϱϮ͘ϲй /ŶƚĞƌĐĞƉƚ ͲϰϴϴϬ͘ϴϭ ϭϵϬϴ͘ϲϴϭ ͲϮ͘ϱϱϳϭϳ Ϭ͘ϬϭϬΎ ϮϭϲϮ͘ϭϳ ͲϮ͘Ϯϱϳ Ϭ͘ϬϮϰϯΎ
Ěũ͘ZϮс
ϱϭ͘ϯй ^,KWD>> Ͳϭ͘ϳϯϵϲϮ Ϭ͘ϮϵϱϵϮϯ Ͳϱ͘ϴϳϴϲϰ Ϭ͘ϬϬϬΎ Ϭ͘ϮϴϯϲϮ Ͳϲ͘ϭϯϯ Ϭ͘ϬϬϬϬΎ ͲϬ͘ϮϮϳ
WK>/dZ Ͳϭ͘ϴϰϱϴϭ Ϭ͘ϯϭϯϳϬϴ Ͳϱ͘ϴϴϯϴϱ Ϭ͘ϬϬϬΎ Ϭ͘ϯϱϭϵϱ Ͳϱ͘Ϯϰϰ Ϭ͘ϬϬϬϬΎ ͲϬ͘ϯϴϭ
WK^dK&&/ ϭ͘ϴϭϳϱϯϵ Ϭ͘ϯϲϮϳϰϴ ϱ͘ϬϭϬϰϳϯ Ϭ͘ϬϬϬΎ Ϭ͘ϯϰϬϭϭ ϱ͘ϯϰϯ Ϭ͘ϬϬϬϬΎ Ϭ͘ϯϮϱ
&/> ϭ͘ϯϳϳϳϭϵ Ϭ͘ϮϮϬϭϯϲ ϲ͘Ϯϱϴϰϴϰ Ϭ͘ϬϬϬΎ Ϭ͘Ϯϰϯϵϭ ϱ͘ϲϰϴ Ϭ͘ϬϬϬϬΎ Ϭ͘ϯϬϰ
E< Ϭ͘ϳϳϬϴϳϴ Ϭ͘Ϯϱϵϳϯϴ Ϯ͘ϵϲϳϵϬϱ Ϭ͘ϬϬϯΎ Ϭ͘ϮϬϲϯϰ ϯ͘ϳϯϱ Ϭ͘ϬϬϬϮΎ Ϭ͘ϭϳϱ
,/EdDW> Ϭ͘ϳϱϰϭϭϰ Ϭ͘Ϯϴϵϴϭϴ Ϯ͘ϲϬϮϬϮϳ Ϭ͘ϬϬϵΎ Ϭ͘ϯϬϰϰϳ Ϯ͘ϰϳϲ Ϭ͘ϬϭϯϱΎ Ϭ͘ϭϮϲ
,/EdDW> ͲϬ͘ϰϴϰϮϲ Ϭ͘ϭϭϱϵϳϮ Ͳϰ͘ϭϳϱϳϭ Ϭ͘ϬϬϬΎ Ϭ͘ϭϲϳϵϱ ͲϮ͘ϴϴϯ Ϭ͘ϬϬϰϭΎ ͲϬ͘ϭϰϵ
>EZͺ&d Ϭ͘ϯϮϱϭϳϵ Ϭ͘ϬϮϲϱϳϯ ϭϮ͘Ϯϯϳϭϯ Ϭ͘ϬϬϬΎ Ϭ͘ϭϭϰϬϯ Ϯ͘ϴϱϭ Ϭ͘ϬϬϰϱΎ Ϭ͘ϯϴϰ
h/>Y ϲϯϳ͘Ϭϳϵϵ ϭϳϵ͘ϭϱϰ ϯ͘ϱϱϲϬϰϳ Ϭ͘ϬϬϬΎ ϭϲϯ͘Ϭϲϯ ϯ͘ϵϬϲ Ϭ͘ϬϬϬϭΎ Ϭ͘ϭϮϭ
133
5.6 Conclusion
This chapter explained the global modelling process of Ordinary Least
Square (OLS). The process started with the variable selection by
removing variables which were affected by multicollinearity error. The
study managed to obtain 15 independent variables that were cleaned
from the error. Unfortunately, the OLS model failed in the next test of
normality and the spatial residual distribution in which the study
detected non-normal distribution and spatial correlated clustered residual
pattern. This depicts the model was misspecified and some variables
were missing from the OLS model. Since it has been tested significantly
for spatial autocorrelation error, therefore, the data need to be analysed
using SRM as an alternative solution. The performance of the OLS
model was average with only 50.4% adjusted R-Square value achieved.
The performance of OLS model based on building type manages to
improve the model with the highest from semi-detached with 58.1%. A
bit improvement also comes from Corner Terrace and Detached with
51.9% and 51.3% respectively. This shows that model segmentation
capable to improve the model’s accuracy. In the explanatory power of
the independent variables, POLICE_CTR and FIELD consistently
provide as one of the most influence towards property value for all
models. Ultimately, average performance in adjusted R-square value and
failure in the normality and spatial autocorrelation test indicated that
there is a need to conduct the modelling approach using SRM as an
alternative solution for this problem.
134
CHAPTER 6
SPATIAL REGRESSION MODELLING AND MODEL

COMPARISON
6.1 Introduction
The existence of spatial autocorrelation in OLS model as discussed in
chapter 5 ultimately lead to the development of spatial regression model.
As discussed earlier, the spatial autocorrelation error was unable to be
removed even though other measures such as work around the model
variables or subdivided the data into building type models were
performed. Although spatial heteroscedasticity also exists in the previous
model, addressing the spatial autocorrelation error, also can overcome
the heteroscedasticity problem (Theriault et al., 2003). Therefore, the
following section discusses the development of the spatial regression
model, where similar variables as those used in developing OLS model
were used to maintain consistency. Spatial Lag or Spatial Error of the
spatial regression model would be identified which best represent the
study area. Finally, the model comparison would then be conducted to
assess the model performance among OLS and Spatial Regression in
estimate property rating value in the study.
6.2 Spatial regression modelling (SRM) process

As mentioned in the literature, Lagrange Multiplier (LM) is a spatial
statistics method to carry out the spatial autocorrelation test and
subsequently modelling the spatial regression. The LM is capable to
examine the model misspecification and eventually specifying the spatial
regression model type of spatial lag or spatial error (Anselin, 1998).
Therefore, the LM was used as spatial autocorrelation test and modelling
was conducted for the overall and each building type within the study
area. The procedure of spatial regression modelling was conducted based
135
on the diagram in Figure 3.6 shown in chapter 3 which would be
explained in the following section.
6.2.1 Spatial regression modelling for the overall model

As mentioned in chapter 5, the OLS model for the overall exhibited
significant spatial autocorrelation of the residual data based on the
Morans I test conducted in the model. Thus, LM test was used in this
study to identify the error. Based on table 6.1, it shows that the p-value
of 0.000 was attained for both LM (Error) and LM (Lag) respectively. It
shows that both LM (Error) and LM (Lag) were significant. Hence, this
would require the consideration of a robust form of the statistics as
decision was unable to be made based on the previous result. However,
both robust LM (Error) and robust LM (Lag) also produced significant
result with both attained p-value of 0.000. As stated by Anselin (2005), if
both robust LM produced significant result in spatial autocorrelation, the
model with the higher value prevails. In this case, the robust LM (lag)
achieved higher value of 102.0393 compare to robust LM (error) with
99.06282. The spatial autocorrelation error detected shows that some
missing variables occurred from the model that were not included in the
model. The missing variables might come from the variables that had
been removed from the model because of missing records or due to
multicollinearity error. Therefore, the LM (lag) or Spatial Lag Model
would be used for this study as the overall residential property rating
valuation model for Kota Kinabalu area.
Table 6.1: Output from the LM spatial autocorrelation test on the spatial
model
Lagrange Lagrange Robust Lagrange Robust Lagrange
Multiplier Multiplier Multiplier Multiplier
(Error) ( Lag) (Error) ( Lag)
Value 1135.3641 1138.3406 99.06282 102.0393
Probability 0.0000 0.0000 0.0000 0.0000
6.2.2 Spatial regression modelling based on building type

Similar with the OLS, this study also attempted to use segmentation
approach based on building type to conduct spatial regression modelling.
The spatial regression modelling would be a better alternative as the
property rating valuation model if the OLS model failed in its spatial
autocorrelation test (Can and Megbolugbe, 1997; Wilhelmsson, 2002;
Suriatini Ismail, 2005; Kulczycki and Ligas, 2007). The SRM analysis
for townhouse was unable to be conducted due to insufficient data as
only five records available.
136
The spatial regression model was identified for each building type by
following the same procedure with the overall SRM modelling. The
result of this analysis is shown in table 6.2 below. The table shows that
the intermediate terrace, corner terrace and detached exhibits LM (lag) or
spatial lag model while semi-detached produced LM (error) or spatial
error model. The spatial lag model was selected as it produced higher
value of 67.99 and 24.9 in robust LM Lag for intermediate terrace and
corner terrace compared to robust LM error with value of 24.55 and
13.92 respectively. The spatial lag model also selected for detached as it
was significant with lower than 0.05 level compared to spatial error.
Meanwhile, the spatial error model was selected for semi-detached as it
produced higher value of 142.35 in robust LM error compared to 62.75
in robust LM lag.
The building type which indicate spatial autocorrelation with LM (error)

was occurred out of missing variables for important property
characteristics, while the building type with LM (lag) produced
interdependence among property value (Suriatini Ismail, 2005).
Table 6.2: Results from the LM spatial autocorrelation test based on

each building type spatial model
BUILDING TYPE LM (Error) LM (Lag) Robust LM (Error) Robust LM (Lag)

INTERMEDIATE
TERRACE
Value 2528.8877 2572.3249 24.5527 67.9899
Probability 0.0000 0.0000 0.0000 0.0000
CORNER TERRACE
Value 498.0653 509.0468 13.9192 24.9006982
Probability 0.0000 0.0000 0.0000 0.0000
SEMI DETACHED
Value 2179.0477 2099.4485 142.3479 62.7487
Probability 0.0000 0.0000 0.0000 0.0000
DETACHED
Value 2.8334 4.4201 0.0048 1.5915
Probability 0.0923 0.0355 0.9446 0.2071
137
6.3 The performance of SRM’s property rating
As the suitable type of spatial regression models were known to
represent the overall and building type based model, the performance of
the models can then be examined. Table 6.3 shows the summary of SRM
output which based on the overall and each building type within the
DBKK area. The output was produced from the Geoda software in which
the coefficient, standard error, z-value and probability were used as the
variable’s performance measurement. However, only the coefficient’s
value was used to measure the strength and type of the relationship
between the independent variable to the estimated property rating value.
If a coefficient is zero (or very near zero), the associated explanatory
variable has very little impact on the model or in other words, the
variable unable to contribute (Rosenshein et al., 2011; Taher Buyong,
2006). For example, if the coefficient value within range of -100 to 100,
it shows that the variable strength is low. If the coefficient’s value is
more than 100, it shows strong positive influence while coefficient’s
value less than -100 shows strong negative influence. The standard error
of z-value and probability were used to determine the usability of the
variables. If the probability indicates within 0.00 to 0.05, it shows that
the variable’s coefficient can be used (Charlton and Fotheringham,
2009).
Based on table 6.3, the SRM for overall model manage to achieve fair
result with R2 of 59.2%. Although 15 independent variables were used to
estimate the property rating value in overall SRM model, only 12 were
significant as the variables of FLOODP, SANITATION and
BUILD_TYPE was not valid for interpretation. The removal of
BUILD_TYPE was similar with the OLS model and it proves that the
usage of this as independent variables was not suitable.
Similarly with OLS, the POLICECTR, FIELD and POSTOFFICE

provided the highest beta coefficient value with 0.292, 0.281 and 0.263
achieved respectively for the overall SRM spatial lag model. On the
other hand, Chinese temple (CHINTEMP) and TOPOG produced the
least influence with beta coefficient value of 0.038 and 0.041
respectively.
Table 6.3 also summarises the estimated parameters for property rating
valuation in DBKK based on building type of Intermediate Terrace,
Semi-Detached, Corner Terrace and Detached. The four building types
produced R2 ranges from 52.9% to 84.3% with detached obtained the
lowest and semi-detached as the highest. The difference of 25.1
percentage between the semi-detached and the overall SRM model
138
indicates a big marginal improvement in the explanatory power brought
about by the SRM modelling based on building type. Each building type
model also have different significant variables that influence its property
rating value. Intermediate terrace has 9 independent variables significant,
semi detached has 10 significant, corner terrace has 8, while the detached
building has 10 variables that significant to it. POLICECTR produced
the highest influence for the property rating value in intermediate terrace
and corner terrace building type with 0.104 and 0.150 respectively.
While FIELD provide the highest influence for semi detached with 0.804
and LANDAR_FT for detached with 0.374. In contrast, HINDTEMPLE
produce the least influence for intermediate terrace building type with
beta coefficient value of 0.035. TOPOG for corner terrace with 0.041
and LANDAR_FT for semi detached with 0.033. While CHINTEMPLE
and BUILDQ produce the least influence with similar value of 0.116
towards detached building type.
139
Table 6.3: Summary of SRM’s overall and each building type output
KǀĞƌĂůů sĂƌŝĂďůĞ ŽĞĨĨŝĐŝĞŶƚ ^ƚĚƌƌŽƌ ǌͲǀĂůƵĞ WƌŽďĂďŝůŝƚǇ ĞƚĂŽĞĨĨ
ZϮсϱϵ͘Ϯй KE^dEd ͲϭϮϰϬ͘ϬϬϲ ϰϲϭ͘ϭϭϱϯ ͲϮ͘ϲϴϵϭϰϰ Ϭ͘ϬϬϳϭϲϯϲ

^,KWD>> ͲϬ͘ϯϯϮϳϳϵϰ Ϭ͘ϬϰϯϵϱϵϱϮ Ͳϳ͘ϱϳϬϭϯϯ Ϭ ͲϬ͘ϭϬϮ
WK>/dZ ͲϬ͘ϲϵϮϵϯϲϵ Ϭ͘ϬϱϮϱϭϱϱϱ Ͳϭϯ͘ϭϵϰϴϵ Ϭ ͲϬ͘ϮϵϮ
WK^dK&&/ Ϭ͘ϲϭϴϯϰϴϱ Ϭ͘ϬϱϳϲϰϰϱϮ ϭϬ͘ϳϮϲϵϯ Ϭ Ϭ͘ϮϲϮ
K&&/dZ ͲϬ͘ϭϰϵϴϬϰ Ϭ͘Ϭϰϳϯϱϭϯϳ Ͳϯ͘ϭϲϯϲϲϵ Ϭ͘ϬϬϭϱϱϴϭ ͲϬ͘Ϭϱϳ
&/> Ϭ͘ϱϯϱϰϰϴϭ Ϭ͘ϬϯϵϱϮϮϵϲ ϭϯ͘ϱϰϳϳϳ Ϭ Ϭ͘Ϯϴϭ
E< Ϭ͘ϭϰϭϬϯϮϳ Ϭ͘Ϭϰϭϴϵϭϵϭ ϯ͘ϯϲϲϱϴϱ Ϭ͘ϬϬϬϳϲϭϮ Ϭ͘Ϭϱϳ
,/EdDW> Ϭ͘ϬϵϳϭϰϬϲϮ Ϭ͘Ϭϰϳϲϴϵϳϰ Ϯ͘ϬϯϲϵϮϵ Ϭ͘Ϭϰϭϲϱϳ Ϭ͘Ϭϯϴ
,/EdDW> ͲϬ͘ϮϯϲϰϭϯϮ Ϭ͘ϬϮϭϲϱϲϳϰ ͲϭϬ͘ϵϭϲϯϴ Ϭ ͲϬ͘ϭϬϳ
Zͺ&d Ϭ͘ϭϴϳϲϱϳϯ Ϭ͘ϬϭϬϰϵϵϳϴ ϭϳ͘ϴϳϮϱ Ϭ Ϭ͘ϭϳϯ
>EZͺ&d Ϭ͘ϭϲϮϳϭϱϵ Ϭ͘ϬϬϱϱϯϴϵϭ Ϯϵ͘ϯϳϲϴϴ Ϭ Ϭ͘Ϯϳϴ
dKWK' Ͳϭϲϴ͘ϯϮϮϱ ϯϲ͘ϰϭϭϬϵ Ͳϰ͘ϲϮϮϴϯϱ Ϭ͘ϬϬϬϬϬϯϴ ͲϬ͘Ϭϰϭ
h/>Y ϯϵϳ͘ϲϯϯϴ Ϯϲ͘ϭϲϭϴϭ ϭϱ͘ϭϵϵϬϮ Ϭ Ϭ͘ϭϱϬ
/ŶƚĞƌŵĞĚŝĂƚĞ
dĞƌƌĂĐĞ sĂƌŝĂďůĞ ŽĞĨĨŝĐŝĞŶƚ ^ƚĚƌƌŽƌ ǌͲǀĂůƵĞ WƌŽďĂďŝůŝƚǇ ĞƚĂŽĞĨĨ
ZϮсϴϯ͘ϴй KE^dEd Ͳϲϯϵ͘ϵϲϴϵ ϭϳϴ͘ϵϳϭϵ Ͳϯ͘ϱϳϱϴϬϳ Ϭ͘ϬϬϬϯϰϵϮ

WK>/dZ ͲϬ͘ϭϬϭϴϱϳϵ Ϭ͘ϬϮϳϴϭϬϰϳ Ͳϯ͘ϲϲϮϱϳϮ Ϭ͘ϬϬϬϮϰϵϴ ͲϬ͘ϭϬϰ
WK^dK&&/ Ϭ͘Ϭϵϰϰϯϱϲϱ Ϭ͘ϬϯϬϴϮϲϬϲ ϯ͘Ϭϲϯϱ Ϭ͘ϬϬϮϭϴϳϴ Ϭ͘Ϭϵϲ
&/> Ϭ͘ϬϱϮϳϯϰϭϰ Ϭ͘ϬϮϬϬϱϭ Ϯ͘ϲϯ Ϭ͘ϬϬϴϱϯϴϲ Ϭ͘Ϭϲϵ
E< Ϭ͘ϬϰϭϳϬϰϮϯ Ϭ͘ϬϮϭϬϮϳϬϳ ϭ͘ϵϴϯϯϱϵ Ϭ͘ϬϰϳϯϮϳϮ Ϭ͘Ϭϯϴ
,/EdDW> ͲϬ͘Ϭϯϴϭϲϯϴϰ Ϭ͘ϬϭϮϮϭϰϬϴ Ͳϯ͘ϭϮϰϱϳϲ Ϭ͘ϬϬϭϳϴϬϳ ͲϬ͘Ϭϯϱ
>EZͺ&d Ϭ͘ϬϭϴϴϵϳϬϭ Ϭ͘ϬϬϰϮϴϲϴϱϱ ϰ͘ϰϬϴϭϮϵ Ϭ͘ϬϬϬϬϭϬϰ Ϭ͘Ϭϯϴ
h/>Y ϱϳ͘ϳϬϲϲϵ ϭϯ͘ϲϲϯϯϰ ϰ͘ϮϮϯϰϲϵ Ϭ͘ϬϬϬϬϮϰϭ Ϭ͘ϬϰϬ
&>KKW Ϯϰ͘ϬϬϳϴϯ ϲ͘ϯϯϵϳϰϱ ϯ͘ϳϴϲϴϳϳ Ϭ͘ϬϬϬϭϱϮϲ Ϭ͘Ϭϯϳ
Ê/dd/KE ϭϱϲ͘ϵϰϯϰ ϯϵ͘ϭϲϴϵϴ ϰ͘ϬϬϲϴϯ Ϭ͘ϬϬϬϬϲϭϲ Ϭ͘Ϭϰϴ
ŽƌŶĞƌ
dĞƌƌĂĐĞ sĂƌŝĂďůĞ ŽĞĨĨŝĐŝĞŶƚ ^ƚĚƌƌŽƌ ǌͲǀĂůƵĞ WƌŽďĂďŝůŝƚǇ ĞƚĂŽĞĨĨ
ZϮсϳϱ͘ϳй KE^dEd ͲϭϮϮϬ͘ϵϱϲ ϯϴϲ͘ϳϱϵϱ Ͳϯ͘ϭϱϲϴϴϳ Ϭ͘ϬϬϭϱϵϰϴ

WK>/dZ ͲϬ͘ϭϱϳϵϱϲϰ Ϭ͘Ϭϲϱϭϵϱϴϳ ͲϮ͘ϰϮϮϳϵϳ Ϭ͘ϬϭϱϰϬϭϱ ͲϬ͘ϭϱϬ
E< Ϭ͘ϭϳϬϲϱϬϲ Ϭ͘ϬϱϬϵϰϱϬϮ ϯ͘ϯϰϵϳϬϭ Ϭ͘ϬϬϬϴϬϵϭ Ϭ͘ϭϯϱ
,/EdDW> ͲϬ͘ϬϵϭϴϲϮϳϮ Ϭ͘ϬϮϵϮϵϲϮϳ Ͳϯ͘ϭϯϱϲϰϱ Ϭ͘ϬϬϭϳϭϰϵ ͲϬ͘ϬϳϮ
Zͺ&d Ϭ͘ϬϱϯϴϮϱϬϳ Ϭ͘Ϭϭϯϵϱϭϰϴ ϯ͘ϴϱϴϬϮ Ϭ͘ϬϬϬϭϭϰϰ Ϭ͘Ϭϳϱ
>EZͺ&d Ϭ͘ϬϰϴϯϯϯϮϲ Ϭ͘ϬϭϭϬϮϵϱϲ ϰ͘ϯϴϮϭϱϵ Ϭ͘ϬϬϬϬϭϭϴ Ϭ͘Ϭϳϵ
dKWK' ͲϭϬϬ͘ϵϲϭ ϰϲ͘ϮϯϬϵϳ ͲϮ͘ϭϴϯϴϯϵ Ϭ͘ϬϮϴϵϳϰ ͲϬ͘Ϭϰϭ
h/>Y ϭϳϴ͘ϳϯϮ ϯϮ͘ϲϳϮϬϭ ϱ͘ϰϳϬϰϵϯ Ϭ Ϭ͘ϭϭϮ
Ê/dd/KE Ϯϲϱ͘ϯϱϰϰ ϴϬ͘Ϯϴϯϭϲ ϯ͘ϯϬϱϮϯϭ Ϭ͘ϬϬϬϵϰϵϭ Ϭ͘Ϭϳϲ
140
^ĞŵŝͲ
ĞƚĂĐŚĞĚ sĂƌŝĂďůĞ ŽĞĨĨŝĐŝĞŶƚ ^ƚĚƌƌŽƌ ǌͲǀĂůƵĞ WƌŽďĂďŝůŝƚǇ ĞƚĂŽĞĨĨ
ZϮсϴϰ͘ϯй KE^dEd ϱϰϭ͘ϲϰϲϭ ϱϭϱ͘ϱϲϴϲ ϭ͘ϬϱϬϱϴ Ϭ͘Ϯϵϯϰϱϭϲ
^,KWD>> ͲϬ͘ϵϴϬϴϴϬϰ Ϭ͘ϭϯϴϰϳϬϯ Ͳϳ͘Ϭϴϯϲϴϲ Ϭ ͲϬ͘ϯϵϬ
WK>/dZ ͲϬ͘ϱϱϳϭϴϵϳ Ϭ͘ϭϱϯϲϬϮϱ Ͳϯ͘ϲϮϳϰϳϵ Ϭ͘ϬϬϬϮϴϲϯ ͲϬ͘Ϯϵϴ
WK^dK&&/ ϭ͘ϮϳϲϬϭϳ Ϭ͘ϭϱϴϭϰϬϯ ϴ͘Ϭϲϴϴϵϯ Ϭ Ϭ͘ϳϯϱ
K&&/dZ ͲϬ͘ϱϵϳϮϬϱϱ Ϭ͘ϭϱϱϯϱϮϮ Ͳϯ͘ϴϰϰϮϬϰ Ϭ͘ϬϬϬϭϮϭ ͲϬ͘ϯϮϭ
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,/EdDW> ͲϬ͘ϯϬϰϱϮϵ Ϭ͘ϭϯϳϬϳϲϲ ͲϮ͘ϮϮϭϱϵϳ Ϭ͘ϬϮϲϯϭϬϰ ͲϬ͘ϭϱϱ
Zͺ&d Ϭ͘Ϭϲϯϳϯϳϲϯ Ϭ͘ϬϬϵϳϲϵϯϰϮ ϲ͘ϱϮϰϮϱ Ϭ Ϭ͘Ϭϲϵ
>EZͺ&d Ϭ͘Ϭϭϲϰϳϵϯϯ Ϭ͘ϬϬϰϴϳϭϲϵϱ ϯ͘ϯϴϮϲϲϵ Ϭ͘ϬϬϬϳϭϴ Ϭ͘Ϭϯϯ
h/>Y ϯϬϵ͘ϮϮϴϲ Ϯϱ͘Ϭϲϴϱϭ ϭϮ͘ϯϯϱϯϰ Ϭ Ϭ͘ϭϳϲ
&>KKW ϭϯϭ͘ϯϴϴϵ ϭϳ͘ϰϯϳϱ ϳ͘ϱϯϰϴϰϴ Ϭ Ϭ͘ϭϮϲ
ĞƚĂĐŚĞĚ sĂƌŝĂďůĞ ŽĞĨĨŝĐŝĞŶƚ ^ƚĚƌƌŽƌ ǌͲǀĂůƵĞ WƌŽďĂďŝůŝƚǇ ĞƚĂŽĞĨĨ
ZϮсϱϮ͘ϵй KE^dEd ͲϱϬϰϴ͘Ϭϰϳ ϭϴϴϰ͘Ϯϱϭ ͲϮ͘ϲϳϵϬϳϰ Ϭ͘ϬϬϳϯϴϮϳ
^,KWD>> Ͳϭ͘ϱϲϭϬϭϴ Ϭ͘ϯϬϴϱϱϭϮ Ͳϱ͘Ϭϱϵϭϴϴ Ϭ͘ϬϬϬϬϬϬϰ ͲϬ͘ϮϬϰ
WK>/dZ Ͳϭ͘ϳϭϳϬϲϯ Ϭ͘ϯϭϲϴϴϳϮ Ͳϱ͘ϰϭϴϱϮϵ Ϭ͘ϬϬϬϬϬϬϭ ͲϬ͘ϯϱϱ
WK^dK&&/ ϭ͘ϲϴϭϬϰ Ϭ͘ϯϲϱϮϲϳϯ ϰ͘ϲϬϮϮϭϵ Ϭ͘ϬϬϬϬϬϰϮ Ϭ͘ϯϬϭ
&/> ϭ͘ϮϮϲϵϴϭ Ϭ͘ϮϯϯϲϭϮϲ ϱ͘ϮϱϮϮϬϰ Ϭ͘ϬϬϬϬϬϬϮ Ϭ͘Ϯϳϭ
E< Ϭ͘ϲϵϵϳϳϯϲ Ϭ͘Ϯϱϳϴϳϭϰ Ϯ͘ϳϭϯϲϱϰ Ϭ͘ϬϬϲϲϱϰϳ Ϭ͘ϭϱϵ
,/EdDW> Ϭ͘ϲϵϯϴϳϬϮ Ϭ͘ϮϴϱϵϲϮϮ Ϯ͘ϰϮϲϰϰ Ϭ͘ϬϭϱϮϰϳϴ Ϭ͘ϭϭϲ
,/EdDW> ͲϬ͘ϰϯϵϰϳϱϴ Ϭ͘ϭϭϲϱϳϵϯ Ͳϯ͘ϳϲϵϳϱϵ Ϭ͘ϬϬϬϭϲϯϱ ͲϬ͘ϭϯϱ
Zͺ&d Ϭ͘ϱϭϬϬϴϰϱ Ϭ͘ϬϱϳϮϭϰϰϱ ϴ͘ϵϭϱϯϬϵ Ϭ Ϭ͘Ϯϴϱ
>EZͺ&d Ϭ͘ϯϭϲϲϬϵϭ Ϭ͘ϬϮϲϯϳϵ ϭϮ͘ϬϬϮϯϮ Ϭ Ϭ͘ϯϳϰ
h/>Y ϲϭϱ͘ϭϮϰϴ ϭϳϲ͘ϭϵϯϭ ϯ͘ϰϵϭϭϵϳ Ϭ͘ϬϬϬϰϴϭ Ϭ͘ϭϭϲ
141
6.4 Model comparison of OLS and SRM for the study area
Based on the results obtained from the two different modelling
procedures namely OLS and SRM used, the study then, compared its
performance in estimate the property rating values in DBKK. Although
the SRM was an obvious choice as all the OLS model exhibit spatial
autocorrelation error, but the performance of both methods still need to
be measured. The comparison was conducted based on the models
developed for the overall and based on building type in the DBKK area.
Morans I tool was used again to determine the presence of the spatial
autocorrelation error in the residual of the OLS model. The Akaike
Information Criterion (AIC) was used to compare the performance of
OLS and SRM model. Other tools such as the R2, was used for
measurement of goodness-of-fit of the model. It measures the accuracy
of the model’s estimation.
As shown in table 6.4, OLS models produced spatial autocorrelation

error for all models. This leads the study to use SRM to overcome the
spatial autocorrelation error. However, the Morans Index value for OLS
model residual of intermediate terrace (0.527), semi detached (0.421),
corner terrace (0.201) and detached (0.046) were lower compared to the
Morans Index value for current value distribution with 0.797, 0.884,
0.497 and 0.271 respectively.
Based on the output, the spatial regression in the form of spatial lag
model was used as property rating value model to represent the overall
which covers the whole study area in DBKK. This model also managed
to produce fair estimation by obtaining 0.592 or 59.2% in R2 value but it
still higher than the R2 of OLS with only 0.505 or 50.5% achieved. The
SRM also have lower AIC value with 94707 compared with OLS
(95578).
Similar result also applied for the property rating value based on building
type. As shown in table 6.4, the building type of intermediate terrace,
corner terrace and semi-detached indicated spatial autocorrelation for
OLS models. This was based on the Z-score that produced values which
were out of the range of ±1.96 in critical value of the Morans I statistics.
Therefore, the spatial regression model was suitable to represent these
models. The goodness of fit based on the R2 value shown by the SRM
was also higher than the OLS model for all building type. The SRM
produced the R2 for intermediate terrace, corner terrace, semi-detached
and detached with 0.838, 0.757, 0.843 and 0.529 respectively compared
to OLS with 0.497, 0.528, 0.584 and 0.526 respectively. The same goes
142
with the AIC performance as the SRM produced lower value for
intermediate terrace, corner terrace, semi-detached and detached building
type with 30962, 11586, 33075 and 10000 respectively compared to
OLS with 32989, 11994, 34768 and 10001 respectively. Unfortunately
for town house building type, the analysis using both modelling type of
OLS and SRM were unable to be conducted due to data limitation as
there was only five usable data for it.
Table 6.4: Summary output for model comparison between OLS and
SRM
Model Available OLS SRM Model
Data R2 AIC Moran’s I (Z- Residual R2 AIC Type
score, p-value) Pattern
OVERALL 5625 0.505 95578 45.857, p=0.000 Clustered 0.592 94707 Spatial
Lag
Intermediate 2160 0.497 32989 77.075, p=0.000 Clustered 0.838 30962 Spatial
Terrace Lag
Corner 773 0.528 11994 24.632, p=0.000 Clustered 0.757 11586 Spatial
Terrace Lag
Semi 2150 0.584 34768 84.987, p=0.000 Clustered 0.843 33075 Spatial
Detached Error
Detached 537 0.526 10001 3.596, p=0.000 Clustered 0.529 10000 Spatial
Lag
Townhouse 5 Unable to do to analysis because lack of data
Critical value for Moran I statistic is ±1.96.
Segmentation of the data also proved to be a good choice as it capable to

improve accuracy. This was evident based on the big marginal accuracy
differences of R2 achieved by the highest buiding type model with 84.3%
compared to the overall model with 59.2%.
Once the new property value was obtained based on the SRM model,
property rating value map was then produced to visualize the pattern in
the study area. This was discussed in the following section.
6.5 Visualizing and interpretation of property rating value

map
Property rating value map was important for the valuer as reference or
guideline to identify property value in the area. Figure 6.1 shows the
distribution pattern of the property rating value applied for the overall
area. The pattern indicates that the highest clustered values mostly
located in the Bukit Padang and Likas zone. Additionally, some amount
of high values can also be found in parts of Luyang zone. In the
opposite, low rating value experienced in parts of Ridge, Kepayan and
Sembulan zones. It is noted that most high values of the area were seen
near the outskirt or the boundary of the study area, while low values
mostly within or at the centre of the study area.
143
Based on the beta coefficient result in table 6.3 for SRM (spatial lag)
model that represented the overall area, the police centre, post office and
open space (field) provide the significantly major influence to the
property rating value. This shows that most of the residence in Kota
Kinabalu area chooses public facilities as their main consideration in
owning a residential property especially that can provide safe
neighbourhood. Topography factor and Chinese temple depicted as the
least influence factor for this model. The former even have a negative
magnitude in the unstandardized coefficient with -168.32 which
indicates that it reduced property value as steep landscape and swampy
area were definitely put off the interest to most of the potential owner of
the residential property.
Based on observations, the Bukit Padang and Tanjung Aru zones

experienced high values as the place of interest available in that area. For
example, the hilly recreational area contributed to the high property
values in Bukit Padang as it attracts people to go there for jogging and
sightseeing. For Likas area, high property values occurred as commercial
and light industrial buildings were developed in some parts of the area
(Wong, 2013). However, the zones of Kepayan and Ridge produced low
values in most parts of the area and this was due to different building
type developed in the same vicinity of the housing area (Wong, 2013).
The mixed building type caused an imbalance of high and low property
values in the same zones. Similar situation also occurred in Sembulan
zone.
144
Figure 6.1: New property rating map applied for overall model
145
This study then produced individual maps based on each building type
model to show property rating values in greater detail. All the maps
which represent the 4 building type models were shown in figure 6.2 to
6.5. In figure 6.2, the Intermediate Terrace model indicates that this
building type covered high values mostly in Bukit Padang area followed
by Kolam, Luyang Timur and Ridge at the bottom part of the study area.
The intermediate terrace property value in this area was much influenced
also due to police centre, post office and open space (field) as indicated
by SRM’s spatial lag in the output of table 6.3. However, the upper side
of the map displayed mostly low values for area such Luyang, Likas and
Fung Yee Ting.
The corner terrace model as shown in figure 6.3 displayed more or less
similar to intermediate terrace model. The concentration of high values
also focused at the bottom part of the study area especially in Dah Yeh,
Bukit Padang and Kolam. Based on SRM’s spatial lag in table 6.3, police
centre, bank and building quality were the main significant influence of
this building type. While the topography variable, was the least influence
to the property value.
Next, the semi-detached model offers a much more dispersed

distribution of high values in Likas, Bukit Padang, Dah Yeh, Kolam and
Sembulan area as shown in figure 6.4. Similarly with intermediate
terrace and corner terrace models, the low values also concentrated in the
centre parts of the study area for this model. According to table 6.3, the
SRM’s spatial error model that represents this building type also shows
that the post office and open space (field) becomes the main significant
influence to the property rating value. While the land area variable,
produced the least influence for this model.
Lastly, the detached property model also concentrated mostly in Bukit

Padang zone area as shown in figure 6.5. Although small parts of
Tanjung Aru, Likas and Dah Yeh also produced high influence for this
model. Similarly with the other models, the low values also concentrated
in the centre of the study area which covers areas such as Damai, Teluk
Likas and Fung Yee Ting. As stated in table 6.3, variables of land area
produced a significantly major influence to the property rating value.
This shows that the property owner or buyer of this building type
consider highly the size of the property area as the bigger the size the
more likely for it to be owned.
146
Figure 6.2: New property rating map for intermediate terrace building type model
147
Figure 6.3: New property rating map for corner terrace building type model
148
Figure 6.4: New property rating map for semi detached building type model
149
Figure 6.5: New property rating map for detached building type model
150
6.6 Conclusion
By using the spatial regression modelling method, this study was able to
produce an error free property rating value model. The results obtained
for this study shows that most of the models for the overall and based on
building type models were best represented by SRM method. This was
due to the present of spatial autocorrelation error in all of the models. In
SRM, both LM error and LM lag model were present. The LM lag was
significant for the overall model. While for building type modelling, the
LM lag represent in three (3) models compared to LM error which
represent one (1) model. In comparison with the OLS model, the SRM
achieved better performance by producing higher R2 and lower AIC for
all models. Lastly, the models were applied to the study area and results
were presented as property rating value map. The maps were produced
for the overall and each building type of the study area. The maps were
useful for the local authorities to identify which value should be applied
for the property rating. Although the values were presented in ranges, it
was sufficient to provide rough estimation of the property value.
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CHAPTER 7
CONCLUSION AND RECOMMENDATION
7.1 Introduction
In this study, two types of property rating value models were developed
using spatial statistics methods namely SRM. The models were
developed to estimate the new residential property rating value of Kota
Kinabalu under the jurisdiction of Kota Kinabalu City Hall (DBKK).
The model was produced for the overall study area and based on
building types within the study area. These models were assessed to
identify whether the OLS or SRM is suitable to represent the study area.
Furthermore, it will be able to assist the valuer to understand the strength
and limitations of each model and therefore, make the right choice. The
following section discusses the findings of the study and followed by the
discussion of the originality of the research and subsequently the
limitations of the research which lead to the potential areas for future
research.
7.2 Main findings of the study

The study has developed residential property rating model using spatial
statistics which could assist valuers in DBKK to undertake revaluation
within shorter period and at low cost.
The nature of the data was at first tested by identifying the spatial pattern
of the current property value distribution in the area using Morans I tool.
The study found out that the data exhibits spatial autocorrelation error.
The error also exists even when the data was segmented based on
building type. This shows that the SRM method was more suitable to be
used as the model for the property rating in the study area as the OLS
and GWR were unable to eliminate the spatial autocorrelation error.
However, the OLS was still developed as the bases of model testing and
comparison in terms of performance. The OLS and SRM models were
152
developed for overall residential property and based on building type in
DBKK. The model is based on 15 independent variables to determine the
rating value as dependent variable. Furthermore, these models were
tested for model errors namely multicollinearity, heterosdasticity and
spatial heterogeneity or spatial autocorrelation.
Once the model was tested, it was then used to estimate property value
for the overall and based on building type in DBKK area. The result
indicated that OLS model only managed to produce 50.5% for the
goodness-of-fit in R2 for the overall model. The OLS model however,
indicated the presents of spatial autocorrelation. Therefore, SRM’s
Spatial Lag model was used in which it managed to obtain 59.2% in R2.
For model performance comparison, the AIC value obtained in SRM was
94707 compared to OLS (95578). This shows that the SRM performs
better as it obtained the lowest value in AIC measurement. The study
also produced model based on building type for intermediate terrace,
corner terrace, semi-detached and detached. The town house building
type was unable to be analysed due to data limitation as there was only
five usable data for it. For the model based on building type, SRM’s
spatial lag model was much more suitable to represent the intermediate
terrace, corner terrace and detached building type, while SRM’s spatial
error model best represent the semi-detached building type. It was noted
that all the SRM models based on building type performed better than
the OLS building type models. The SRM produced high R2 for
intermediate terrace, corner terrace, semi-detached and detached with
0.838, 0.757, 0.843 and 0.529 respectively compared to OLS with 0.497,
0.528, 0.584 and 0.526 respectively. The SRM also performed better
with lowest AIC value for intermediate terrace, corner terrace, semi-
detached and detached building type with 30962, 11586, 33075 and
10000 respectively compared to OLS with 32989, 11994, 34768 and
10001 respectively.
The study also found out that with data segmentation based on building
type, it was able to improve the model performance. This was evidence
based on the big marginal differences of R2 achieved by the highest
SRM buiding type model with 0.843 compared to the SRM overall
model with 0.592. Therefore, the segmentation of the data based on
building type was capable to improve the model’s performance.
Finally, each of the building type models produces different significant

variables that influence the property rating value. This was proven with
the output from the the SRM building type model as the intermediate
terrace model has 9 independent variables significant, semi detached
153
model has 10 significant, corner terrace model has 8, while the detached
model has 10 variables that significant to it.
7.3 Contribution of the study

Based on the objectives outlined in section 1.4, this study manages to
developed models for property rating valuation in DBKK area.
The parameter that was selected for the property rating model is reliable
as it was tested for multicollinearity, heterosdasticity and spatial
autocorrelation error. Other than that, expert judgement was also
included in the variable selection process to ensure that the data scaling
in each variable was valid and usable for modelling. This allowed the
model to be assessed based on Akaike Information Criterion (AIC) and
the adjusted R2 or the R2 to measure the model’s performance and
subsequently, represent the property rating in the area. Therefore, these
fulfill the requirement in producing a suitable property valuation model.
Ultimately, the SRM was proven as a suitable property rating model in

DBKK area compared to OLS because it reflected the nature of the data
better and identify the error based on the approach adopted by the
valuers in DBKK. As stated by Wong (2013), the valuation approach
conducted in DBKK such as producing equal rates to all properties in the
vicinity, property rates constantly updated and higher rate was enforced
to any refurbishment conducted to a property to keep up with the current
market value. These however, were conducted outside the valuation
process, which reflect the spatial autocorrelation error occurred to most
of the areas involved. In addition to that, human error such as
inconsistency in the recording of the valuation data also contributed to
the problem which was difficult to be detected in this study. Therefore, it
justified the reason of spatial error and spatial lag exists in the DBKK
dataset. Thus, for the building type model within the study area, SRM’s
spatial lag model suitable to represent the building type of intermediate
terrace, corner terrace and detached, while SRM’s spatial error model
best represents the semi-detached.
The decision to use segmentation approach also proves that each

building type model has it own significant variables that influence the
most of its value. This was proven based on the result obtained from the
models as police centre produced the highest influence for the property
rating value for intermediate terrace and corner terrace building type.
While near to open field provide the highest influence for semi detached
and bigger land area influence the most for detached building type.
154
Therefore, although the modeling of OLS and SRM had been used in
other countries, but it was not been officially implemented here by local
authorities in Malaysia. Eventhough Taher Buyong (2011) conducted
studies using all three of the models done in this study, but only small
dataset was used in which it eventually lead towards GWR model. The
differences can be clearly seen from this study as large dataset would
bring the modeling to SRM. Thus, this study best represents the scenario
of property rating valuation in Malaysia as it also involves large dataset
with 30% of the total data in the study area and this is valid based on
Krejcie and Morgan (1970:607-610). This is important as the local
authorities need to cover the valuation process for the whole property in
the area under its jurisdiction.
Previous study that uses these models also did not take into account to
incorporate or integrate all the tests as conducted in this study. With all
the error identified and rectified, this study was able to obtain the most
suitable model for the study area and at the same time be able to address
the problem regarding the valuation process conducted in DBKK.
Lastly, by having a reliable and valid model, this study produces a major
contribution towards improving revaluation exercise in such accurate
property rating could be obtained and at the same time cost, time and
manpower can be minimized even for large dataset.
However, the suitability of the model to represent the area involved can
still be improved if not because of the limitation faced by the study. This
limitation would be discussed in the following section.
7.4 Limitations of the study

Three issues were identified as the limitation of this study. The first issue
was the failure to eliminate the property rating model error of spatial
autocorrelation and heteroscedasticity in the OLS and GWR model. The
second issue was data limitation and lastly, the third issue was the
accuracy of distance measures of accessibility.
Spatial autocorrelation was unable to be eliminated in the OLS and

GWR model for most area in DBKK and this prompted the usage of
spatial regression model in this study. The existence of spatial
autocorrelation was clearly evidence in both OLS and GWR models. The
4 models produced based on building type model also failed to overcome
the spatial autocorrelation error. This error probably occurred because of
the relevant variables were not included into the model. The relevant
variables might be in the DBKK database list which was omitted due to
155
incomplete record because of human error (Wong, 2013). In addition, the
heteroscedasticity or normality error also existed in the model as the
residuals depicted non-normal distribution. This was also might have
occurred due to misspecification or missing important variables in the
model. However, by addressing the spatial autocorrelation error, it can
also overcome the heteroscedasticity problem (Theriault et al., 2003).
In the second issue, missing variables were unavoidable in this study due
to data limitation. Apart from the incomplete records from the existing
variables that needed to be filled-in (as mentioned above), other
unavailable but relevant variables were not included in the DBKK
database. These data were not obtainable for this study as it involves
volume of work which is not practical given the time constraint. The
unavailable variables that might be important are surrounding viewing
factor, depreciation of property structure, crime level, noise pollution
effect and valuation approach. Viewing factor is to measure the
surrounding scenery aspect from the property (Yu et al., 2005). In
addition, property structure depreciation would enable the study to
measure depreciation of the property value (Suriatini Ismail, 2005).
Crime level data can be used to measure the safety of the property
surrounding area (Lynch and Rasmussen, 2001; Tita et al., 2006). While
the noise pollution effect is to measure the loudness or deafening sound
of the area that can affect to those who intends to live in quiet
neighborhood. This is related to property located in nearby airport (Pitt
and Jones, 2000). Last but not least, the valuation approach applied by
DBKK that causes most of the spatial autocorrelation error in the study.
These data could reflect the property rating value of the area and would
probably be able to explain the model better if obtained and included in
the model.
Finally, the third issue regarding the location factors. The distance
measurement from the location factors to the nearby properties was
applied in this study using NEAR function in ArcGIS 9.3 sofware in
which 19 location factors were identified and used. Euclidiean distance
was calculated between the two points of the location factor to the
nearby properties using NEAR function. Unfortunately, the approached
used to calculate location factor did not take into consideration specific
travel elements such as mode of travel, time of travel, maximum speed
limit and traffic flow density. This information might be useful in
determining the accurate distance measurement of location factor that
could influence the property value.
156
7.5 Recommendation and direction of future study
Further research is needed to address issues mention in the previous
section. Spatial statistics model developed for property rating valuation
needs to take into account the data from DBKK where identified missing
variables detected by this study should be included in the future studies.
The study suggests that the variables which have incomplete data are
required to be filled-in. However, this requires massive digital data input
as most of the data are still on papers. The incomplete data variables
consist of main floor area, ancillary floor area, number of room, number
of storey, building age, building extension and external usage. These
variables are the main factor of influence to the property value (Taher
Buyong, 2011; Wong, 2011) and some of it could probably be the
missing variables that needed to overcome the model error. Other than
that, the measurement of available variables which were included in the
model may require to be updated. For example, the property type that
indicates detached house need to be updated as permanent structure
detached house and semi-permanent structure detached house. This
would probably solve the problem of spatial autocorrelation as depicted
in the study. Apart from that, other methods to test the error can be
explored such as by using Luc Anselin’s Local Morans I for local spatial
autocorrelation error (Anselin, 1995). This method was not conducted in
this study because of its complexity that may cause problems especially
when comparing with global model (Lloyd, 2007:3) but it may produce
different outcome if the study focused on local model only.
Next, in response to the second issue, there are various ways to acquire
the unavailability or missing data mentioned. Planning authority or the
Quantitity Surveyor (QS) is one of the sources that can provide the
information for property structure depreciation data. Based on its record,
it showed the year the buildings of the area were developed or obtained
the certificate of fitness (CF) and subsequently, the depreciation of the
building can be estimated to the present time with the assistance from the
QS. For the other variables, GIS analysis could be used to construct the
measurement influence of viewing factor, crime rate and noise level
index. However, this can only be done if sample data across the study
can be obtained. For example, the viewing factor could be obtained from
the groundwork of the area, crime level from the police authority and
noise pollution from the environmental department. For the
socioeconomic data, it can be acquired from the Department of
Malaysian Statistics. Those data might be costly and time consuming to
collect. Lastly and probably the most important, is the different valuation
approach by DBKK which needed to be included in the model. This is
critical as some area use different approach than the other area.
157
Therefore, a detailed personal discussion with the DBKK personnel is
needed to find ways on how it can be converted into suitable variables
which the model can represent the area better. This will help to reduce or
eliminate the spatial autocorrelation error thus avoid spatial lag and
spatial error to occur as the usage of other model such as GWR can
produce better estimation.
Finally, the recommendation for the third issue from this study is by
providing an accurate distance measurement of location factor by using
the road network in the area. Network analysis from GIS can be adopted
to estimate the distance based on the road network as it also can include
the time of travel, speed limit, road traffic and mode of travel in the area.
This information can be acquired from the Public Works Department
(JKR) or from any independent study. Although the data preparation for
this factor is very time consuming, but it has the potential to produce an
accurate distance measurement for the property rating model. Thus, this
would be a good approach for future studies to focus on.
7.6 Closing statements

In order to produce a cost effective, time saving and less manpower
method in residential property rating valuation in DBKK area, this study
has identified and applied various spatial statistics modelling. The
development of the model namely, OLS and SRM were conducted using
the available valuation data from the DBKK itself. Various modelling
tests were also adopted to produce a reliable and acceptable residential
property rating model. The finding shows that each modelling method
has its strength and limitation. At the same time, each building type in
the study area has different characteristics with different spatial
variation. Therefore, each building type was represented with different
model. Ultimately, this study contributes to literature by extends the
knowledge in providing an alternative approach in producing the
residential property rating model. It was proven in this study which also
verified with other property studies that different property dataset would
require different model as there is no unique model that can represent all
dataset.
158
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Appendix A
Designation: _________________________________________________
Please tick ( ¥ ) in one of the column for each variable based on your opinion that could increase the property value with the
following scale: 1 – No increase; 2 – Slightly Increase; 3 – Somewhat Increase; 4 – Very Much Increase; 5 – Extremely
Increase
Variable Value 1 2 3 4 5
Topography Swamp
Steep
Undulating
Level
Building Quality Low Cost
Basic
Average
Good
Excellent
Superior
Site Preparation No
Yes
Lot Shape Irregular
Eccentric
Compact
Frontage Nil
Uniformed road reserved
Secondary Road
Main Road
Neighbourhood Quality Poor
Average
Good
Exclusive
Flood Prone No
Yes
Road Access No Access
188
Bridge
Earth
Gravelled
Sealed
Variable Value 1 2 3 4 5
Sanitation None
Septic Tank
Treatment Plant Private
Treatment Plant DBKK
Public Sewer
Building Type Kampung House
Walk-Up Apartment
Intermediate Terrace
Semi-Detached
Corner Terrace
Town House
Detached
Building Structure Permanent
Semi-Permanent
Temporary
Building Position Corner
Intermediate
End Lot
Not Applicable
Property Category Residential
Commercial
Industrial
Vacant Land
Agriculture
Educational
Religious
Sport & Recreation
Government
Cemetery
189
Appendix B
Table B.1 : Stepwise Regression for 31 Variables

Model Summary
Model R R Square Adjusted R Std. Error of the Estimate
Square
a
1 .468 .219 .219 1483.93985820987810
b
2 .542 .293 .293 1411.94415149230640
3 .596c .355 .355 1348.94823271935370
d
4 .620 .384 .383 1318.59382288546730
e
5 .643 .414 .413 1286.23211989033300
6 .663f .440 .440 1257.18116498700240
g
7 .672 .451 .451 1244.62376053175400
h
8 .676 .457 .456 1238.27951563046030
i
9 .682 .465 .464 1228.85581126377220
j
10 .689 .475 .474 1218.36952236683760
k
11 .696 .484 .483 1207.51289151356790
l
12 .699 .489 .488 1201.51873534755050
m
13 .699 .489 .488 1201.50417206641460
n
14 .704 .495 .494 1194.64054063306400
o
15 .704 .495 .494 1194.53686045634030
p
16 .704 .495 .494 1194.45203498831120
q
17 .703 .495 .494 1194.46961772199760
r
18 .706 .499 .498 1189.97887698181420
s
19 .708 .501 .500 1187.48479610459690
t
20 .709 .502 .501 1185.79641352350520
u
21 .710 .504 .502 1184.53337498420300
v
22 .710 .505 .503 1183.28118283613250
w
23 .711 .506 .504 1182.35312573499460
x
24 .712 .506 .505 1181.56405503562600
y
25 .712 .507 .505 1180.94548168040770
z
26 .712 .507 .506 1180.44114633419580
a
ANOVA
Model Sum of Squares df Mean Square F Sig.
b
Regression 3476917568.991 1 3476917568.991 1578.926 .000
1 Residual 12382281798.154 5623 2202077.503
Total 15859199367.145 5624
Regression 4651257262.006 2 2325628631.003 1166.555 .000c
2 Residual 11207942105.139 5622 1993586.287
Total 15859199367.145 5624
190
Regression 5630883005.602 3 1876961001.867 1031.489 .000d
3 Residual 10228316361.543 5621 1819661.335
Total 15859199367.145 5624
e
Regression 6087763423.141 4 1521940855.785 875.338 .000
4 Residual 9771435944.005 5620 1738689.670
Total 15859199367.145 5624
f
Regression 6563164727.956 5 1312632945.591 793.423 .000
5 Residual 9296034639.189 5619 1654393.066
Total 15859199367.145 5624
g
Regression 6979925189.527 6 1163320864.921 736.044 .000
6 Residual 8879274177.618 5618 1580504.482
Total 15859199367.145 5624
h
Regression 7157970356.387 7 1022567193.770 660.109 .000
7 Residual 8701229010.759 5617 1549088.305
Total 15859199367.145 5624
i
Regression 7247983499.156 8 905997937.395 590.867 .000
8 Residual 8611215867.989 5616 1533336.159
Total 15859199367.145 5624
j
Regression 7380063080.763 9 820007008.974 543.020 .000
9 Residual 8479136286.383 5615 1510086.605
Total 15859199367.145 5624
Regression 7525641386.062 10 752564138.606 506.974 .000k
10 Residual 8333557981.084 5614 1484424.293
Total 15859199367.145 5624
Regression 7674954885.404 11 697723171.400 478.519 .000l
11 Residual 8184244481.741 5613 1458087.383
Total 15859199367.145 5624
m
Regression 7757450880.098 12 646454240.008 447.792 .000
12 Residual 8101748487.047 5612 1443647.271
Total 15859199367.145 5624
n
Regression 7756203664.803 11 705109424.073 488.434 .000
13 Residual 8102995702.342 5613 1443612.275
Total 15859199367.145 5624
o
Regression 7849943655.475 12 654161971.290 458.364 .000
14 Residual 8009255711.671 5612 1427166.021
Total 15859199367.145 5624
p
Regression 7849906887.565 11 713627898.870 500.118 .000
15 Residual 8009292479.581 5613 1426918.311
Total 15859199367.145 5624
q
Regression 7849617630.080 10 784961763.008 550.188 .000
16
Residual 8009581737.066 5614 1426715.664
191
Total 15859199367.145 5624
r
Regression 7847955063.229 9 871995007.025 611.172 .000
17 Residual 8011244303.916 5615 1426757.668
Total 15859199367.145 5624
s
Regression 7909496196.046 10 790949619.605 558.561 .000
18 Residual 7949703171.100 5614 1416049.728
Total 15859199367.145 5624
t
Regression 7944195015.827 11 722199546.893 512.155 .000
19 Residual 7915004351.318 5613 1410120.141
Total 15859199367.145 5624
u
Regression 7968092457.312 12 664007704.776 472.229 .000
20 Residual 7891106909.833 5612 1406113.134
Total 15859199367.145 5624
v
Regression 7986296882.536 13 614330529.426 437.832 .000
21 Residual 7872902484.609 5611 1403119.316
Total 15859199367.145 5624
w
Regression 8004333420.706 14 571738101.479 408.339 .000
22 Residual 7854865946.439 5610 1400154.358
Total 15859199367.145 5624
x
Regression 8018047818.882 15 534536521.259 382.369 .000
23 Residual 7841151548.263 5609 1397958.914
Total 15859199367.145 5624
y
Regression 8029906367.764 16 501869147.985 359.481 .000
24 Residual 7829292999.382 5608 1396093.616
Total 15859199367.145 5624
z
Regression 8039496449.603 17 472911555.859 339.094 .000
25 Residual 7819702917.543 5607 1394632.231
Total 15859199367.145 5624
aa
Regression 8047567439.576 18 447087079.976 320.851 .000
26 Residual 7811631927.569 5606 1393441.300
Total 15859199367.145 5624
a
Coefficients
Model Unstandardized Coefficients Standardized t Sig.
Coefficients
B Std. Error Beta
(Constant) 1877.359 31.752 59.127 .000
1
LandAr_Ft .274 .007 .468 39.736 .000
(Constant) -67.447 85.636 -.788 .431
2 LandAr_Ft .232 .007 .397 34.291 .000
BuildQ 743.606 30.638 .281 24.271 .000
192
(Constant) -1706.337 108.088 -15.787 .000
LandAr_Ft .246 .007 .422 37.911 .000
3
BuildQ 708.520 29.310 .268 24.173 .000
Bank .620 .027 .250 23.203 .000
(Constant) -1832.536 105.942 -17.298 .000
LandAr_Ft .227 .006 .388 35.128 .000
4 BuildQ 613.166 29.248 .232 20.964 .000
Bank .656 .026 .264 25.032 .000
RCA_Ft .195 .012 .179 16.210 .000
(Constant) -1249.858 108.908 -11.476 .000
LandAr_Ft .226 .006 .386 35.748 .000
BuildQ 622.761 28.536 .236 21.824 .000
5
Bank .628 .026 .253 24.494 .000
RCA_Ft .214 .012 .197 18.164 .000
Spermarket -.651 .038 -.175 -16.952 .000
(Constant) -969.352 107.841 -8.989 .000
LandAr_Ft .226 .006 .387 36.676 .000
BuildQ 575.686 28.042 .218 20.530 .000
6 Bank .886 .030 .357 29.860 .000
RCA_Ft .236 .012 .217 20.354 .000
Spermarket -.832 .039 -.223 -21.260 .000
Hospital -.591 .036 -.200 -16.238 .000
(Constant) -943.906 106.790 -8.839 .000
LandAr_Ft .225 .006 .384 36.812 .000
BuildQ 632.471 28.263 .239 22.378 .000
Bank .888 .029 .358 30.220 .000
7
RCA_Ft .247 .012 .228 21.476 .000
Spermarket -.820 .039 -.220 -21.140 .000
Hospital -.528 .036 -.179 -14.464 .000
ChinTemple -.281 .026 -.111 -10.721 .000
(Constant) -881.790 106.555 -8.275 .000
LandAr_Ft .219 .006 .375 35.889 .000
BuildQ 608.851 28.287 .230 21.524 .000
Bank .725 .036 .292 20.076 .000
8 RCA_Ft .235 .012 .216 20.304 .000
Spermarket -.749 .040 -.201 -18.862 .000
Hospital -.410 .039 -.139 -10.379 .000
ChinTemple -.438 .033 -.173 -13.207 .000
Field .221 .029 .116 7.662 .000
(Constant) -890.175 105.748 -8.418 .000
9
LandAr_Ft .214 .006 .366 35.063 .000
193
BuildQ 615.324 28.080 .233 21.913 .000
Bank .717 .036 .289 20.013 .000
RCA_Ft .216 .012 .199 18.569 .000
Spermarket -.680 .040 -.182 -16.982 .000
Hospital -.163 .047 -.055 -3.442 .001
ChinTemple -.487 .033 -.192 -14.625 .000
Field .341 .031 .179 10.870 .000
ShopMall -.430 .046 -.133 -9.352 .000
(Constant) -1212.670 109.786 -11.046 .000
LandAr_Ft .215 .006 .368 35.592 .000
BuildQ 612.381 27.842 .232 21.995 .000
Bank .457 .044 .184 10.322 .000
RCA_Ft .220 .012 .203 19.068 .000
10 Spermarket -.489 .044 -.131 -11.072 .000
Hospital -.130 .047 -.044 -2.765 .006
ChinTemple -.481 .033 -.190 -14.559 .000
Field .521 .036 .273 14.457 .000
ShopMall -.501 .046 -.154 -10.855 .000
SportArea .348 .035 .152 9.903 .000
(Constant) -2075.378 138.229 -15.014 .000
LandAr_Ft .208 .006 .356 34.515 .000
BuildQ 674.651 28.272 .255 23.863 .000
Bank .461 .044 .186 10.506 .000
RCA_Ft .227 .011 .209 19.806 .000
Spermarket -.176 .054 -.047 -3.275 .001
11
Hospital -.083 .047 -.028 -1.772 .076
ChinTemple -.188 .044 -.074 -4.294 .000
Field .723 .041 .379 17.670 .000
ShopMall -.544 .046 -.168 -11.839 .000
SportArea .515 .039 .226 13.363 .000
PoliceCtr -.523 .052 -.220 -10.119 .000
(Constant) -2071.357 137.543 -15.060 .000
LandAr_Ft .208 .006 .356 34.696 .000
BuildQ 653.470 28.271 .247 23.115 .000
Bank .369 .045 .149 8.161 .000
RCA_Ft .225 .011 .207 19.712 .000
12
Spermarket -.239 .054 -.064 -4.419 .000
Hospital -.220 .050 -.075 -4.409 .000
ChinTemple -.044 .047 -.017 -.929 .353
Field .843 .044 .442 19.292 .000
ShopMall -.555 .046 -.171 -12.129 .000
194
SportArea .342 .045 .150 7.661 .000
PoliceCtr -.774 .061 -.326 -12.644 .000
PostOffice .423 .056 .179 7.559 .000
(Constant) -2123.546 125.559 -16.913 .000
LandAr_Ft .208 .006 .356 34.697 .000
BuildQ 654.445 28.251 .247 23.165 .000
Bank .373 .045 .150 8.264 .000
RCA_Ft .226 .011 .208 19.791 .000
Spermarket -.229 .053 -.061 -4.321 .000
13
Hospital -.236 .047 -.080 -4.998 .000
Field .848 .043 .445 19.570 .000
ShopMall -.553 .046 -.170 -12.103 .000
SportArea .343 .045 .150 7.691 .000
PoliceCtr -.815 .042 -.343 -19.409 .000
PostOffice .443 .051 .188 8.655 .000
(Constant) -1622.520 139.310 -11.647 .000
LandAr_Ft .206 .006 .353 34.543 .000
BuildQ 649.577 28.096 .246 23.120 .000
Bank .169 .051 .068 3.295 .001
RCA_Ft .238 .011 .219 20.787 .000
Spermarket -.010 .059 -.003 -.161 .872
14 Hospital .014 .056 .005 .256 .798
Field 1.059 .050 .555 21.038 .000
ShopMall -.618 .046 -.190 -13.388 .000
SportArea .051 .057 .022 .890 .374
PoliceCtr -1.060 .052 -.446 -20.559 .000
PostOffice .790 .066 .334 11.877 .000
HindTemple -.340 .042 -.154 -8.104 .000
(Constant) -1628.442 134.324 -12.123 .000
LandAr_Ft .206 .006 .353 34.677 .000
BuildQ 650.042 27.944 .246 23.262 .000
Bank .166 .046 .067 3.621 .000
RCA_Ft .238 .011 .219 20.789 .000
Hospital .020 .044 .007 .450 .653
15
Field 1.064 .040 .558 26.477 .000
ShopMall -.620 .044 -.191 -14.052 .000
SportArea .052 .057 .023 .911 .362
PoliceCtr -1.065 .043 -.448 -24.544 .000
PostOffice .791 .066 .335 11.980 .000
HindTemple -.343 .037 -.156 -9.195 .000
16 (Constant) -1641.727 131.034 -12.529 .000
195
LandAr_Ft .206 .006 .353 34.796 .000
BuildQ 649.300 27.894 .246 23.278 .000
Bank .172 .044 .069 3.945 .000
RCA_Ft .238 .011 .219 20.886 .000
Field 1.059 .039 .556 27.229 .000
ShopMall -.611 .039 -.188 -15.678 .000
SportArea .059 .055 .026 1.079 .280
PoliceCtr -1.061 .043 -.447 -24.850 .000
PostOffice .787 .065 .333 12.037 .000
HindTemple -.337 .034 -.153 -9.767 .000
(Constant) -1563.442 109.138 -14.325 .000
LandAr_Ft .206 .006 .353 34.799 .000
BuildQ 645.705 27.694 .244 23.315 .000
Bank .168 .043 .068 3.865 .000
RCA_Ft .239 .011 .220 20.981 .000
17
Field 1.067 .038 .560 27.908 .000
ShopMall -.606 .039 -.187 -15.656 .000
PoliceCtr -1.083 .038 -.456 -28.836 .000
PostOffice .841 .042 .356 19.989 .000
HindTemple -.364 .023 -.165 -15.819 .000
(Constant) -393.698 208.101 -1.892 .059
LandAr_Ft .205 .006 .350 34.595 .000
BuildQ 635.077 27.637 .240 22.979 .000
Bank .131 .044 .053 3.004 .003
RCA_Ft .239 .011 .220 21.105 .000
18 Field 1.090 .038 .572 28.497 .000
ShopMall -.598 .039 -.184 -15.500 .000
PoliceCtr -1.101 .038 -.464 -29.345 .000
PostOffice .889 .043 .376 20.894 .000
HindTemple -.369 .023 -.167 -16.076 .000
TopoG -263.558 39.979 -.064 -6.592 .000
(Constant) -388.931 207.667 -1.873 .061
LandAr_Ft .208 .006 .355 34.986 .000
BuildQ 624.809 27.657 .236 22.591 .000
Bank .260 .051 .105 5.130 .000
RCA_Ft .239 .011 .220 21.132 .000
19
Field 1.101 .038 .577 28.791 .000
ShopMall -.729 .047 -.225 -15.611 .000
PoliceCtr -.966 .046 -.407 -20.863 .000
PostOffice .809 .045 .343 17.834 .000
HindTemple -.368 .023 -.167 -16.052 .000
196
TopoG -248.350 40.013 -.060 -6.207 .000
GovtOffice -.260 .052 -.089 -4.961 .000
(Constant) -71.070 221.242 -.321 .748
LandAr_Ft .207 .006 .354 34.942 .000
BuildQ 631.285 27.662 .239 22.821 .000
Bank .170 .055 .068 3.076 .002
RCA_Ft .229 .012 .210 19.724 .000
Field 1.247 .052 .654 23.916 .000
20 ShopMall -.818 .051 -.252 -15.926 .000
PoliceCtr -.874 .051 -.368 -16.996 .000
PostOffice .808 .045 .342 17.833 .000
HindTemple -.407 .025 -.185 -16.414 .000
TopoG -261.220 40.078 -.063 -6.518 .000
GovtOffice -.226 .053 -.077 -4.272 .000
Market -.181 .044 -.107 -4.123 .000
(Constant) -348.783 234.069 -1.490 .136
LandAr_Ft .206 .006 .353 34.814 .000
BuildQ 624.886 27.690 .236 22.567 .000
Bank .196 .056 .079 3.519 .000
RCA_Ft .225 .012 .207 19.417 .000
Field 1.242 .052 .652 23.843 .000
ShopMall -.833 .051 -.256 -16.179 .000
21
PoliceCtr -.888 .052 -.374 -17.244 .000
PostOffice .800 .045 .339 17.662 .000
HindTemple -.396 .025 -.180 -15.864 .000
TopoG -243.887 40.323 -.059 -6.048 .000
GovtOffice -.246 .053 -.084 -4.624 .000
Market -.162 .044 -.095 -3.662 .000
FloodP 54.634 15.168 .035 3.602 .000
(Constant) -474.857 236.445 -2.008 .045
LandAr_Ft .207 .006 .354 34.934 .000
BuildQ 626.284 27.663 .237 22.639 .000
Bank .251 .058 .101 4.360 .000
RCA_Ft .225 .012 .207 19.404 .000
ChinTemple .171 .048 .067 3.589 .000
22
Field 1.268 .053 .665 24.135 .000
ShopMall -.917 .057 -.283 -16.214 .000
PoliceCtr -.977 .057 -.411 -17.112 .000
PostOffice .835 .046 .354 18.040 .000
HindTemple -.397 .025 -.180 -15.921 .000
TopoG -248.268 40.299 -.060 -6.161 .000
197
GovtOffice -.355 .061 -.121 -5.799 .000
Market -.166 .044 -.098 -3.766 .000
FloodP 61.292 15.265 .040 4.015 .000
(Constant) -717.019 248.589 -2.884 .004
LandAr_Ft .207 .006 .354 34.987 .000
BuildQ 619.693 27.722 .234 22.354 .000
Bank .271 .058 .109 4.683 .000
RCA_Ft .221 .012 .204 19.024 .000
ChinTemple .244 .053 .097 4.610 .000
Field 1.218 .055 .639 22.152 .000
ShopMall -.924 .057 -.285 -16.334 .000
23
PoliceCtr -1.082 .066 -.456 -16.338 .000
PostOffice .999 .070 .423 14.307 .000
HindTemple -.367 .027 -.167 -13.710 .000
TopoG -245.068 40.281 -.059 -6.084 .000
GovtOffice -.254 .069 -.087 -3.686 .000
Market -.125 .046 -.073 -2.705 .007
FloodP 68.489 15.425 .044 4.440 .000
OfficeCtr -.193 .061 -.073 -3.132 .002
(Constant) -68.560 333.495 -.206 .837
LandAr_Ft .205 .006 .351 34.554 .000
BuildQ 609.107 27.940 .230 21.800 .000
Bank .283 .058 .114 4.882 .000
RCA_Ft .220 .012 .203 18.928 .000
ChinTemple .221 .054 .087 4.116 .000
Field 1.205 .055 .632 21.876 .000
ShopMall -.915 .057 -.282 -16.159 .000
24 PoliceCtr -1.109 .067 -.467 -16.595 .000
PostOffice 1.019 .070 .432 14.536 .000
HindTemple -.357 .027 -.162 -13.250 .000
TopoG -245.831 40.254 -.059 -6.107 .000
GovtOffice -.241 .069 -.082 -3.482 .001
Market -.091 .047 -.054 -1.917 .055
FloodP 73.489 15.510 .048 4.738 .000
OfficeCtr -.206 .062 -.078 -3.339 .001
Sanitation -170.081 58.358 -.030 -2.914 .004
(Constant) -970.301 478.907 -2.026 .043
LandAr_Ft .207 .006 .353 34.669 .000
25 BuildQ 607.995 27.929 .230 21.769 .000
Bank .282 .058 .114 4.869 .000
RCA_Ft .221 .012 .203 19.001 .000
198
ChinTemple .219 .054 .086 4.086 .000
Field 1.205 .055 .632 21.891 .000
ShopMall -.910 .057 -.280 -16.071 .000
PoliceCtr -1.113 .067 -.468 -16.650 .000
PostOffice 1.022 .070 .433 14.585 .000
HindTemple -.359 .027 -.163 -13.313 .000
TopoG -252.395 40.311 -.061 -6.261 .000
GovtOffice -.237 .069 -.081 -3.432 .001
Market -.088 .047 -.052 -1.855 .064
FloodP 74.193 15.504 .048 4.785 .000
OfficeCtr -.206 .062 -.078 -3.342 .001
Sanitation -172.293 58.333 -.031 -2.954 .003
LotShp 258.113 98.430 .025 2.622 .009
(Constant) -1901.244 615.453 -3.089 .002
LandAr_Ft .206 .006 .352 34.571 .000
BuildQ 605.332 27.939 .229 21.666 .000
Bank .272 .058 .109 4.671 .000
RCA_Ft .221 .012 .203 18.980 .000
ChinTemple .226 .054 .089 4.207 .000
Field 1.203 .055 .631 21.849 .000
ShopMall -.908 .057 -.280 -16.038 .000
PoliceCtr -1.102 .067 -.464 -16.460 .000
26 PostOffice 1.024 .070 .434 14.609 .000
HindTemple -.362 .027 -.164 -13.429 .000
TopoG -252.271 40.294 -.061 -6.261 .000
GovtOffice -.248 .069 -.085 -3.584 .000
Market -.088 .047 -.052 -1.859 .063
FloodP 76.762 15.534 .050 4.942 .000
OfficeCtr -.203 .062 -.077 -3.299 .001
Sanitation -170.802 58.312 -.030 -2.929 .003
LotShp 257.654 98.388 .025 2.619 .009
Build_Type 201.058 83.542 .023 2.407 .016
a. Dependent Variable: Rate_Value
199

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OLIVER VALENTINE EBOY

Dedication and Acknowledgement ............................................................. ii

CHAPTER 2 – LITERATURE REVIEW

CHAPTER 3 – RESEARCH METHODOLOGY

CHAPTER 4 – STUDY AREA AND DATA

CHAPTER 5 – DEVELOPMENT AND DIAGNOSTIC OF

CHAPTER 6 – SPATIAL REGRESSION MODELLING

CHAPTER 7 – CONCLUSION AND

BIBLIOGRAPHY .................................................................................. 159

1. AIC Akaike Information Criterion

1.2 Research Background

Source: World Bank (2012)

Ultimately, this phenomenon would lead to economic effect of demand and

Source: Adopted from Lovewell (2009)

By knowing the property value, the place was able to be identified as

Mass appraisal or mass valuation has been defined as the systematic

Unfortunately, the usages of this approach have yet to be materialised in

1.3 Problem Statement

Table 1.2: The Number of Pending Revaluation Exercise by Local

Pending Revaluation (After Last Revaluation) Frequency Percentage (%)

Revaluation has not been conducted regularly since it is time consuming

Recent studies showed that an advance or a local version of OLS in a form

Although GWR is capable to produce a better model, it is still vulnerable

In Malaysian context, most property value modelling undertaken were in

Ultimately, this study attempts to assess the potential of spatial statistics

1.4 Aim of the study

1.5 Objective of the study

1.6 Scope of study

1.7 Summary of Research Methodology

The theoretical stage involves a theoretical overview and a literature

The final stage of evaluation involved a comparison of the performance of

RESULTS & FINDINGS

Figure 1.4: Research methodology flow chart

1.9 Book structure

Chapter 2 reviews the literature on property, property valuation, property

Chapter 3 discusses the conceptual framework of the study. It includes the

Chapter 5 discusses the development of OLS model and addressed the

Chapter 6 provide the development of SRM to accommodate the model

Finally, chapter 7 summarises the research according to the objectives. It

2.2 Property Market

However, at present, as the evolutions of internets and telecommunications,

In Malaysia, property market was commonly classified into five categories

2.3 Property Market Value

Based on the definition above, market value was stated as estimation by

2.4 Property Valuation

2.5 Property Tax

In Malaysia context, states authorities were entitled to collect a form of

Revenue obtained by local authorities from rates would be used to provide

2.6 Property Rating in Malaysia

2.6.1 Brief history of Rating in Malaysia

2.6.3 Rate of Tax

Table 2.1: Rate of Tax

2.6.4 Valuation List

2.7.1 Main methods in residential property valuation

In addition to comparable method that is commonly used in Malaysia

!

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WŚǇƐŝĐĂů 'ĞŽŐƌĂƉŚǇ ĐŽŶŽŵŝĐ 'ŽǀĞƌŶŵĞŶƚ

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