Showing papers in "Journal of Property Valuation and Investment in 1996"
TL;DR: In this paper, the effect of both proximity and size of shopping centres on surrounding residential property values, using hedonic modelling, was examined using a subset of some 4,000 single-detached, owner-occupied housing units transacted all over the Quebec Urban Community territory between January 1990 and December 1991.
Abstract: Focuses on the effect of both proximity and size of shopping centres on surrounding residential property values, using hedonic modelling. States that the data bank consists of a subset of some 4,000 single‐detached, owner‐occupied housing units transacted all over the Quebec Urban Community territory between January 1990 and December 1991. Tests several functional forms and uses up to 60 descriptors. Reveals that in line with previous studies, findings indicate that shopping‐centre size exerts a positive contributory effect on values; they also tend to confirm the non‐monotonicity of the price‐distance function. Concludes that, in that respect, resorting to the gamma function for distance variables yields most interesting results and provides consistent estimates of optimal distances for various shopping‐centre size categories.
119 citations
TL;DR: An attempt to predict the value of private properties in the Stafford area from information typically available about the properties’ physical characteristics and location is described, showing a significant improvement on the location‐blind model.
Abstract: Describes an attempt to predict the value of private properties in the Stafford area from information typically available about the properties’ physical characteristics and location. Discusses the factors influencing property values, including the complicating effect of location, and attempts to build a predictive model using the statistical technique of multiple regression analysis, based on physical characteristics only and ignoring the effect of location. Makes further refinements to the predictions produced by incorporating an additional location effect modelled by means of surface‐fitting techniques within a geographical information system. The results, many of which are presented graphically, are shown to be a significant improvement on the location‐blind model. Offers suggested directions for further research and development of the technique.
91 citations
TL;DR: In this article, a behavioural analysis using an independent sample of buyers and valuers operative in the Belfast residential market indicates that there are statistically significant differences between the two sample groups in the scoring and ranking of variables.
Abstract: The comparative method of valuation is based on valuers interpreting prices agreed in the open market to arrive at an opinion of value. This requires the consideration of a diverse range of variables and an assessment of their relative impact. Behavioural analysis using an independent sample of buyers and valuers operative in the Belfast residential market indicates that there are statistically significant differences between the two sample groups in the scoring and ranking of variables. In particular valuers are shown to place a greater emphasis on environmental or neighbourhood effects. Discusses the outcome of this empirically‐based research and analyses whether differences in the treatment of variables between the valuer and buyer samples are reflected in different price and value distributions. The results indicate that valuation accuracy to within 5 per cent of transaction price is not upheld; rather it is argued that a 10 per cent threshold has greater credibility.
80 citations
TL;DR: In this article, the authors present results of an investigation into the rate of rental and capital obsolescence in the City of London office market, using a theoretical approach based on a "vintage model" of capital investment and data from the IPD database.
Abstract: Presents results of an investigation into the rate of rental and capital obsolescence in the City of London office market. Using a theoretical approach based on a “vintage model” of capital investment and data from the IPD database, assesses the historic rate of obsolescence in the City and draws comparisons with previous studies, finding similar rates of rental obsolescence (1.2 per cent p.a.), but lower rates of capital obsolescence (1.6 per cent p.a.). Considers the potential for an acceleration in the rate of obsolescence resulting from the introduction of new working practices and the emergence of an endemic over‐supply in the market.
62 citations
TL;DR: In this paper, the authors present a survey of the range of valuations which a group of qualified valuers operating in the same market and using the same basic assumptions would produce in their estimation of price.
Abstract: Addresses the issue of valuation variation. The fundamental research question is to establish the range of valuations which a group of qualified valuers operating in the same market and using the same basic assumptions would produce in their estimation of price. It significantly extends the approach adopted by Hager and Lord and draws conclusions about different market sectors, locations and size of firms. The results of the survey show a wide variation in value across both rack rented and reversionary interests. In terms of the former over 80 per cent of all valuations produced a variation from the mean of less than 20 per cent with a corresponding figure of over 90 per cent for the reversionary investments. These levels of accuracy fall short of the contention that valuers can value to within 5‐10 per cent of market value.
54 citations
TL;DR: In this article, a system for the dissemination of property data for valuation and other property-related procedures, namely, a National Land Information Service (NLIS), is proposed, which is developed using geographical information system technology.
Abstract: Property valuers in England and Wales face a difficult task; they must collect and assimilate data from a variety of sources which differ widely with regard to quality, currency and coverage. This is because of legislative restrictions on access to public sector data sources and organizational constraints on access to property data within the private sector, such as confidentiality and commercial secrecy. Proposes a system for the dissemination of property data for valuation and other property‐related procedures, namely, a National Land Information Service (NLIS). Suggests that a NLIS should be developed using geographical information system technology. Describes a methodology which shows how a spatial analysis technique available on a GIS was used to examine the influence of accessibility on property value.
54 citations
TL;DR: In this paper, the authors address the issues raised and develop and extend the organizations of the original paper, in particular: definitions of certain concepts; the determination of value; the need for explicit valuations; price formation in the property market; and the influence of valuation on price.
Abstract: Responds to “A note on ‘The initial yield revealed: explicit valuations and the future of property investment’” published in an earlier issue of the Journal of Property Valuation & Investment. Addresses issues raised and develops and extends the organizations of the original paper, in particular: definitions of certain concepts; the determination of value; the need for explicit valuations; price formation in the property market; and the influence of valuation on price. Reiterates the purposes of the original worked example of valuations; produces a corrected version; and in an appendix presents extended solutions and a fuller discussion of the central issues.
50 citations
TL;DR: In this article, the authors look at the philosophy of valuation, explaining the distinction between "worth" and "price" and attempt to explain traditional techniques of assessing price, and conclude that there must be more openness with clients about valuation risks and issues so that they can make informed judgements.
Abstract: Looks at the philosophy of valuation, explaining the distinction between “worth” and “price”. Attempts to explain traditional techniques of assessing price. Looks at the development of discounted cash flow and its applications in valuations and calculations of worth. Concludes that there must be more openness with clients about valuation risks and issues so that they can make informed judgements.
36 citations
TL;DR: The notion of market integration/segmentation across the economy is of central importance as mentioned in this paper and the need to understand and measure market integration is recognized, and research has focused on techniques to do this.
Abstract: Conventionally, between 5 and 20 per cent of a portfolio is invested in real estate. Whether this is prudent diversification or not depends on whether property and other financial assets markets are integrated. The notion of market integration/segmentation across the economy is of central importance. Disturbances in market fundamentals in a given market generate movements of capital into and out of the affected market. If various markets are well integrated, then it is expected that a high degree of asset substitution will take place, such substitution having a significant impact on price fluctuations in the relevant market. On the other hand, if markets are not integrated, then this has significant implications for portfolio investment where managers seek to develop well‐diversified portfolios as a means of risk reduction. Recent literature has recognized the need to understand and measure the degree of market integration, and research has focused on techniques to do this. Studies have attempted to measure the degree of integration in money and bond markets, real assets markets and among international real estate investment trusts. Uses cointegration techniques to examine the extent to which physical real estate markets and financial assets markets are integrated. Tends to support the notion of market segmentation and, by default, supports the conventional wisdom of diversification between real estate and other financial assets.
30 citations
TL;DR: In this paper, the authors proposed the incorporation of the analytical hierarchy process (AHP) to translate expert judgement into accurate and meaningful market forecasts, which facilitates communication of expert judgement and at the same time provides feedback for the expert.
Abstract: Property investment requires accurate market forecasts. The use of judgemental forecasting to predict property market performance is well established and widely practised. However, the need to deal with a large number of variables and to assess the impact of structural, exogenous and policy changes makes forecasting an inextricably difficult task, given the limitations of holistic forecasting. Proposes the incorporation of the analytical hierarchy process (AHP) to translate expert judgement into accurate and meaningful market forecasts. Such an approach facilitates communication of expert judgement and at the same time provides feedback for the expert. Provides a 12‐month forecast of the Singapore residential property market to illustrate the expert judgemental‐AHP approach.
29 citations
TL;DR: In this article, the authors argue that there is no type of public property for which the question of asset value is unimportant, and also that the information provided by aggregate values and a traditional balance-sheet is small.
Abstract: Notes an increasing interest in valuation of publicly owned real estate, and also controversy about the relevance of different concepts of value, especially for special purpose properties. Argues that it is important to distinguish between different contexts before taking a stand on this issue. Discusses three such contexts: external information, asset management and introduction of buyer‐provider models for real estate services within the public sector. Concludes that there is no type of public property for which the question of asset value is unimportant, and also that the information provided by aggregate values and a traditional balance‐sheet is small.
TL;DR: In this paper, a comparative study between Australian ten-year bond and the prime Sydney and Melbourne office yields was carried out to find out if there is a correlation between the two yields.
Abstract: Employs discounted cash flow analysis as a valid method for valuing future cash flows from property investments. The method has regard to the market participants’ investment behaviour and thus is able to encapsulate the economics of the investment decisions made; particularly by institutional investors. Observes, however, that there has always been serious concern about discounting property investment returns using discount rates that predicate long‐term bond yields. Reports on a comparative study between Australian ten‐year bond and the prime Sydney and Melbourne office yields which has been carried out to find out if there is a correlation. The relationship between the two yields for period March 1980‐March 1995 shows an inverse relationship, i.e. a negative correlation between the two yields. The result is consistent for both studies. The actual f‐value of 89 for Sydney office yields versus bond yields and 110 for Melbourne office yields versus bond yields, respectively, when compared with the table f‐value of 7.08 for the data set, indicate that the negative relationship is significant. Argues, in addition, that the achieved R2 of 60 and 65, respectively, indicates that the explanatory power of the model is acceptable. So a discount rate based on bond yields, in the rising bond market, will indicate a higher future return from the property investment. Concludes that the result is totally flawed, given the inverse relationship between bond and property yields, because the actual future return will be lower; and that, as a result, in the rising bond market the prospective property investors who ought to achieve higher future return will actually end up achieving a lower return. A converse flawed result will be achieved in the falling bond market. In this market the vendors using this method to calculate the exit value of their investments are actually accepting an incorrect lower price.
TL;DR: A survey of science park managers and directors in the last quarter of 1994 as mentioned in this paper found that public sector patronage and philanthropic motives remain high on the agenda of science parks but growing recognizance of the need to secure commercial viability may expedite the improvement of their potential investment profile.
Abstract: Reports reports the findings of a survey of science park managers and directors in the last quarter of 1994. The development of science parks in Britain has been heavily reliant on investment from public sector sources. A notable reluctance on the part of private sector investors has been a consistent feature. Science parks have, though, seen near continuous growth in their number, in total tenancies and in their rental and capital values; and have sustained relatively high average occupancy levels throughout their brief history. The findings of the survey, thus, draw attention to the various determinants of these apparent successes and highlight the manner in which these determinants may instil disquiet in private sector investors as to the prospects of science parks as investment opportunities. Finds that public sector patronage and philanthropic motives remain high on the agenda of science parks but growing recognizance of the need to secure commercial viability may expedite the improvement of their potential investment profile.
TL;DR: In this article, the authors conducted a survey of valuation practice in the UK in accordance with Recommendation 25 of the Mallinson Report and found that the majority of respondents spent more than 50 per cent of their time undertaking valuations, where the role of the valuer was to analyse the investment for a specific purpose for a particular client.
Abstract: Following the publication of the Mallinson Report in March 1994, the Royal Institution of Chartered Surveyors undertook a survey of Valuation Practice in the UK in accordance with Recommendation 25 of the report. In January 1995 questionnaires were sent out to a cross‐section of practitioners in the market. The responses represented a wide range of experience, geographical location and type of work. The majority of respondents spent more than 50 per cent of their time undertaking valuations. The questionnaire distinguished between valuations undertaken for pricing (asset valuations, sale/purchase advice, CPO, etc.) and calculations of worth, where the role of the valuer was to analyse the investment for a specific purpose for a specific client. Respondents were asked to indicate whether they tended to adopt a “traditional” model or a “DCF” model for the valuation of a number of different types of investment. These were rack‐rented freeholds, reversionary freeholds, over‐rented property, short leaseholds and long leaseholds. In the replies there was a consensus opinion that, when undertaking calculations of worth, the DCF method should be used as the principal method but tempered with the use of traditional techniques alongside. Conversely, when pricing property the traditional method was considered to be the appropriate tool, although many respondents said that they would also use DCF techniques on the more “unusual” interests such as over‐rented. With regard to the actual method adopted, most valuers using traditional methods favoured the use of an all‐risk/equivalent yield approach using layered income flows. Those using DCF preferred the short‐cut approach with a reversion to a sale price after the first change of income. Clearly suggests that there is a greater understanding of explicit techniques than anecdotal evidence had previously suggested.
TL;DR: In this paper, a constant quality price index for apartment buildings in Geneva and data pertaining to real estate mutual funds were used to re-examine the role played by real estate in Swiss mixed-asset portfolios.
Abstract: Aims to re‐examine the role that can be played by real estate in Swiss mixed‐asset portfolios. For this purpose, constructs a constant quality price index for apartment buildings in Geneva. Also uses data pertaining to real estate mutual funds. In real terms, and after taking into account the illiquidity of real estate, the results suggest that the optimal portfolio composition is 20 per cent for stocks, 53 per cent for bonds and 27 per cent for real estate. Real estate mutual funds could also be included in a small proportion in the portfolio.
TL;DR: In this paper, the authors examine the development of the Spanish non-residential property market over the last 20 years and in particular since the Boyer reform of 1985 and demonstrate that the legal prerequisites of a mature market form are now in place.
Abstract: Examines the development of the Spanish non‐residential property market over the last 20 years and in particular since the Boyer reform of 1985. Explores the legal framework of property interests to demonstrate that the legal prerequisites of a mature market form are now in place. Places legal change in the context of economic pressures for the creation of a modern property investment market. Considers the professional support for transacting property and the nature of the urban planning regime as factors which constrain and mould property market activity, but which may ultimately be transformed by it. Presents market data which show that the Spanish market has experienced one turn of the property cycle in its modern form. Demonstrates that it has proved highly susceptible to extremes of under‐ and over‐supply, arguably owing to the combined influence of an extremely open market and underdeveloped information provision.
TL;DR: In this paper, contaminated land valuation theory from the USA and the UK is reviewed, and the most suitable valuation and appraisal framework is found to be a cost-to-correct approach, detailing factors to be considered and methods employed.
Abstract: States that the issue of contamination can have a substantial impact on land and property values. Reviews contaminated land valuation theory from the USA and the UK. Describes methods employed to determine “best practice” valuation approaches for the valuation of contaminated land and property. Focuses on reversionary freehold investment properties and discusses issues which need to be considered and addressed in the process of valuing or appraising contaminated land or property. Notes that the most suitable valuation and appraisal framework is found to be a “cost‐to‐correct” approach. Presents a worked example, detailing factors to be considered and methods employed. Suggests improvements to professional guidance and the establishment of a “contaminated comparables” database.
TL;DR: In this article, the authors propose a method of valuing impaired properties, taking account of present and future costs of treatment, and discuss the question of stigma and describes a method for assessing the valuation impact.
Abstract: The valuation of properties affected by environmental impairment presents valuers with many problems, not least of which is the identification of those properties which may be so affected. Offers a list of land use activities, together with the types of contamination which may be found. Proposes a method of valuing impaired properties, taking account of present and future costs of treatment. Discusses the question of stigma and describes a method of assessing the valuation impact. Concludes with a proposal to establish an Environmental Impairment Databank, so as to assist valuers in the preparation of valuations and the advice which they provide to clients.
TL;DR: Turnover rents have become an accepted part of the retail property market, particularly in managed shopping centres, airports, motorway service stations and railway stations as discussed by the authors, and their relative merits have been a source of debate among retailers and property professionals.
Abstract: Turnover rents have become an accepted part of the retail property market, particularly in managed shopping centres, airports, motorway service stations and railway stations. Relates to their use for managed shopping centres. Their relative merits have been a source of debate among retailers and property professionals. However, the issue of valuation methodology for retail properties let on turnover leases has not been discussed. Examines the types of turnover lease in the UK and their investment characteristics. The limitations and problems of current valuation approaches are explored. The property market where retail turnover leases are most common ‐ the USA ‐ is also examined in order to assess whether any lessons can be learned. Concludes that turnover leases in the UK are likely to produce complex and varying income flows. Moreover, the usefulness of current valuation techniques will be limited, owing to a lack of comparables and the inherent inflexibility of the techniques themselves.
TL;DR: The BC Buildings Corporation was created in 1977 as the successor to the Ministry of Public Works in the province of British Columbia as mentioned in this paper, and over 22 million square feet of space, owned and leased, is managed by the Corporation.
Abstract: The BC Buildings Corporation was created in 1977 as the successor to the Ministry of Public Works in the province of British Columbia. Over 22 million square feet of space, owned and leased, is managed by the Corporation. Budgets for all space built by the Corporation are developed through market costing, valuation and economic analysis. Analyses two major development projects recently constructed and/or planned by the Corporation, namely: a residential land subdivision developed on a former correctional prison site, and a major office building. Offers a critique of the advantages and disadvantages of the residual approach to valuation in the context of the projects discussed. Outlines and comments on findings of a survey undertaken by the Corporation on the development and investment industries’ approach to economic analysis and valuation. Summarizes changes made to the Corporation’s approach to major development project analysis as a result of recent experience and the survey, and discusses the future role of valuation and the valuer in major developments.
TL;DR: In this paper, the authors present a model of the expected adjustment between gross and net rents, based on compensation for bearing the risks of the running costs, which is no more reliable than resorting to an arbitrary rule of thumb.
Abstract: In some circumstances, property valuers (appraisers) must compare net and gross rents. Suggests a number of ways in which this can be done and describes the difficulties of adjusting rents to reflect the liability for property operating costs. Outlines several reasons why the equivalent gross rent is often not the sum of the net rent and the operating costs (the principal reason being the unwillingness of either the landlord or the tenant to bear the uncertainty of these costs). There may also be difficulties in estimating expected operating costs over the period of the lease. Contends that the evidence of recent lettings will rarely enable the valuer to isolate the effect of the basis of leasing on the rents. The views of landlords and tenants on switching from gross to net rents are often unclear. Outlines a single‐period theoretical model of the expected adjustment between gross and net rents (based on compensation for bearing the risks of the running costs). However, there are grave dangers in the valuer adopting such a model which may not reflect market practice. It is no more reliable than resorting to an arbitrary rule of thumb. As well as rental valuations, counselling and advice on lease negotiations may require that the difference between gross and net tenancies is considered. With international comparisons of rental levels becoming more important to footloose businesses, there is a growing need for methods of adjusting rents to reflect the lease conditions that prevail in different countries. Appendices illustrate a theoretical model of rental adjustment and show adjustment methods in practice.
TL;DR: In this paper, the effect of the commercial property tax on the level of openly negotiated market rents was investigated in the UK and it was shown that changes in rates bills prompt changes in commercial property rents in the opposite direction.
Abstract: Notes that, in the UK, there has been little empirical research undertaken to consider the effect of the commercial property tax (more commonly known as non‐domestic rates) on the level of openly negotiated market rents. Seeks, through the analysis of a large set of panel data obtained from the Investment Property Databank and the Valuation Office Agency, to develop econometric models which can measure the effect that an increase in non‐domestic rates has on commercial rents and ultimately the effective incidence of non‐domestic rates. Draws a number of conclusions, the most significant being that changes in rates bills prompt changes in commercial property rents in the opposite direction. Notes that this conclusion may, in the longer term, have an effect on the type and indeed the timing of government assistance to business occupiers through transitional relief schemes.
TL;DR: In this article, an empirical investigation was conducted for the purposes of exploring the issue of unit selection and the sales comparison approach, and it was shown that when two common units of comparison are considered, both percentage and total valuation error were minimized through the use of price per acre rather than price per front foot.
Abstract: Reports the results of an empirical investigation conducted for the purposes of exploring the issue of unit selection and the sales comparison approach. The proximate motivation of this study was in determining how non‐reinforcing appraisal estimates may be addressed. The investigation proceeds by exploring two possible criteria through which the reliability of appraisal estimates may be measured. The first involves the percentage error made in price per unit of comparison (UOC), while the second concerns the total valuation error in the appraisal of real property. Results involve the utilization of the coefficient of variation and the Markov inequality, and may assist appraisers when different units of comparison yield non‐reinforcing estimates of value. It is shown that maximum confidence in guaranteeing that the percentage error between the estimated and actual price per UOC lies within a tolerance level chosen ex‐ante obtains through choosing the UOC with the minimum coefficient of variation. Total valuation error is minimized as a function of the standard deviation for the price per UOC, the sample size, and the UOC’s value for the real property being appraised. While minimum per unit percentage error may be obtained utilizing a particular UOC, the minimization of total valuation error may imply the utilization of an alternative unit. It is shown for the empirical analysis conducted, that when two common units of comparison are considered ‐ acreage and front footage ‐ both percentage and total valuation error were minimized through the use of price per acre rather than price per front foot.
TL;DR: In this paper, the authors review some of the more significant changes to the processes of district revaluations and valuation roll maintenance in New Zealand, in particular the influence of changing measurement and accountability mechanisms.
Abstract: Reviews some of the more significant changes to the processes of district revaluations and valuation roll maintenance in New Zealand, in particular the influence of changing measurement and accountability mechanisms. Explains changes to established processes and outlines new measurement criteria for evaluating performance against a background of important wider reforms and developments in New Zealand’s public and private sectors. Provides a rationale for the new emphases on public sector accountability, and the concomitant need for increased and improved information; current governmental thinking on how performance measurement should be conducted; the focus on customer perspectives and satisfaction; and the steps taken to secure ISO accreditation. Gives an account of Valuation New Zealand’s part in the development of a Crown land information system and concludes by considering the advantages of VNZ’s executive information and electronic data exchange systems.
TL;DR: In the past, the profit from property investments was always higher than that from other assets, because of the expectation of high rates of increase in land prices as discussed by the authors. But as Japan′s economic growth has been slowing down, these circumstances for property investments have changed.
Abstract: In the past, the profit from property investments was always higher than that from other assets, because of the expectation of high rates of increase in land prices. However, as Japan′s economic growth has been slowing down, these circumstances for property investments have changed. The income yield rate of commercial property investments in Tokyo decreased sharply from 1982 to 1987 because of the sharp increase in land prices. Though commercial land prices in Tokyo have decreased since 1992, the income yield rate is too low because of decrease of office rents. If the income yield rate does not increase, demand for commercial property investments will not recover because a high rate of increase in land prices cannot be expected in the future.
TL;DR: In this article, the authors present theoretical and methodological considerations and techniques which bear directly on the valuation of retail properties in Australia and, to lesser extents, the UK and the USA.
Abstract: Presents theoretical and methodological considerations and techniques which bear directly on the valuation of retail properties in Australia and, to lesser extents, the UK and the USA. Surveys the Australian retail sector in terms of its overall significance for the national economy as well as the relative performance of the sector’s constituents. Considers the current domination of the sector by the regional and local shopping centres and the correlative decline in importance of retail outlets in traditional shopping streets. Contends that the dominance of shopping centres has produced an oligopolistic situation with regard to the supply of retail space in regional shopping centres because of the high regard in which such centres are held by major investing organizations. Despite the ability of shopping centres to produce income flows with apparently substantial year‐by‐year increases, this trend has been bucked in recent years by below replacement cost sale prices achieved by a number of shopping centres. Raises the crucial question of which factors should be considered most influential by valuers in assessing the capital worth of retail properties. Provides exemplary calculations by which realistic assessments are achievable. Casts a critical eye over entrenched “axioms” of the trade, such as that retail tenants can pay increased rents annually regardless of economic considerations and irrespective of the actual profitability of their retail activities. Considers the difficulties which now beset the position of specialty retailers in relation to the shopping centres in which they rent space. Argues for the importance of partnership relationships between landlords and tenants and predicts that the constant quest to maximize the rentals of individual retail outlets within shopping centres may seriously threaten the long‐term security of those centres. Presents recommendations for improving the prospects of successful trading by shopping centres against a consideration of potential developments of other purchasing means (warehouse retailing, TV retailing and catalogue shopping). Concludes that many shopping centres currently regarded as prime investments may appear less attractive when reconsidered in the light of the developments here outlined.