Property valuations Flashcards
(1 cards)
1
Q
Property valuations
A
- As with all investments , true market value Is only known when there is a transaction that
equates a willing buyer and seller - Happens frequently with stocks and shares
- However real property changes hands infrequently
- Indication of value can be taken from similar recent transactions but the uniqueness of
each property means that skill is needed to assess property market values
o Such values are regarded as matter of valuer’s opinion rather than fact - Ways of valuing property
o Discounted cashflow model
▪ Cashflows should be net of all outgoings-expenses ,tax, refurbishment costs
▪ Should make explicit allowance for step wise expected increases
▪ Discount rate used should depend on the riskiness of the investment and
could be based on - Yield on suitable bond
- Margins for factors such as risk and lack of marketability
- Factors to consider in determining suitable margin in discount rate
o Use – office , shop, factory or industry
o Size
o Location
o Nature of lease – term , rent reviews, full repairing and
insuring
o Quality of tenant
o Quality of building
o Alternative uses of property
o Development potentials
o Macro and micro economic factors – oversupply / low
economy
o Prospects for rental growth - Risk – default, void, volatility , and ,marketability
o Market consistent valuation of liabilities
