Complex Land Valuation in current times Short review

Complex Land Valuation in current times Short review of the methods

Contents • Comparison Approach Overview • Data • Pros & Cons • Sources of uncertainty • Residual Method Overview • Data • Pros & Cons • Sources of uncertainty • Case study of complex valuation • Comparison Approach Available Data • Comparison Approach Outcome • Residual Method Data • Residual Method Outcome • Conclusions

Comparison Approach • Is applicable for similar properties • Requires a functional market with data availability • Using adjustments to determine value • Data used: • Transactions with similar properties • Property listings • Market information (micro & macro economics) • Property specific data Pros + • Valuer’s experience • Direct measurement • Simple and straightforward • Easy to verify • Excellent for typical properties - Cons • Sensitive to the quality of information • Involves subjectivity • Not suitable for distinctive properties

Comparison Approach (3) Sources of Uncertainty • subjectivity in estimating adjustments (location, physical features, etc) • incomplete/ wrong information • adjustments for non straight-forward features (development potential)

Residual Method • Is applicable for complex properties • Multidisciplinary • Complex and requiring extensive experience • Data used: • Transactions with end-product properties • Construction market, Financing market, Consultancy market data • Market information (micro & macro economics) • Property specific data Pros + - Cons • Valuer’s experience • Flexible and adaptive to • Complex and requiring properties from simple experience to very complex • Verification is not • Multidisciplinary straightforward • Allows a more • Allows manipulation thorough view on the • Too demanding to be risk of a property used in simple cases

Residual Method (3) Sources of Uncertainty • Development specific information (profit rate, financing rate, etc. ) • Sensitivity to quick market movements • Future projection

Case Study – Semi central development land plot

Conclusions • Difference in approach could lead to deal-breaking situations • Residual method indicates the maximum achievable values if extremes values are used, otherwise indicates averages • Lender will always look into the pragmatic side of facts, developer will target best deal • A decision should be made looking carefully into both outcomes • Lenders/ Valuers should be aware of the pros and cons of each method before considering any of them • Land value reflects its potential, not the physical existence/ features • The potential of the land plot is not always properly revealed using direct comparison • The residual approach does not forecast the take up of the project, it is an assumption