Search results

This paper criticises the ‘rational’ model of valuation propounded by McIntosh and Sykes in their two papers in the Journal of Valuation. It concludes that, in the case of freehold investments with a standard pattern of income flow, the years' purchase method of valuation (adopting a single capitalisation rate) is likely to be more appropriate, and in the case of short leasehold investments a full discounted cash flow approach is preferable. Only in the case of long reversions or non‐standard short reversions may the ‘rational model’ prove optimal, but in these cases it seems merely a sensible application of conventional DCF techniques rather than a new valuation method.

A preceding paper by Baum examined the valuation of reversionary freehold interests, distinguishing between conventional and modern approaches. This paper applies the same approach to the valuation of leaseholds, and falls into two parts. Part 1 examined conventional leasehold valuations and the criticisms that may be made, concluding that both dual rate and single rate conventional valuations should be abandoned except in limited circumstances. Part 2 identifies three alternative modern approaches — real value, rational model and DCF — and compares their use in three general variations of leasehold valuation. The results are compared, and recommendations for their use are made. Finally an overview of the application of modern approaches to investment property valuation is presented.

Provides an indication of the results of a large‐scale survey of the application of investment valuation techniques to the reversionary freeholds in UK practice. Identifies trends in the use of methods in practice for both market valuation and analysis of worth/price purposes. Concludes the use of growth explicit techniques is confined to the analysis role and that the conventional term and reversion approach to market valuation is being supplanted by equivalent yield and layer methods.

It is important to question the suggestion that there is no distinction between inflation and growth. An illustration of the applications will show that the hybrid between the real value and equated yield approaches enables valuers to place the right ‘type’ of yield on differing types of income or capital value, ie high yields when rents are unable to be reviewed, low yields when rents are able to be reviewed continually and moderate yields when the income in partially proofed.

Examines the valuation difficulties that have arisen as a result of the falls in rental value in the UK property market during the early part of the 1990s. Considers overage cases being caused by the rent passing being above rental value on a normal rent review pattern because of a letting on an abnormal review pattern. Comments on the straightforward case of a fall in rental value since the last rent revision. Concludes that the growth explicit model is a better and more consistent methodology for the market valuation of investment property.

Reconsiders the double sinking fund problem by looking at each of the common methods used. Investigates the underlying assumptions and the residual errors or inconsistencies. Notes that the use of traditional dual rate valuations results in a mathematical error within the valuation and an under‐valuation of the interest. Concludes that the Double Sinking Fund Method must be recommended in preference to Pannell′s Method.

This paper considers the valuation in 1982 of the freehold interest in an industrial estate. The freeholder has granted a ground lease to a developer who has over a period of years constructed and let a number of factory and warehouse units. The ground rent is geared to a percentage of the rack rents on review every seven years. The majority of the occupation leases of the units on the estate are on a five‐yearly rent review basis with one unit on a three yearly rent review basis.

A preceding paper by Baum examined the valuation of reversionary freehold interests, distinguishing between conventional and modern approaches. This paper applies the same approach to the valuation of leaseholds, and falls into two parts. Part 1 examines conventional leasehold valuations and the criticisms that may be made, concluding that both dual rate and single rate conventional valuations should be abandoned except in limited circumstances. Part 2 identifies three alternative modern approaches — real value, rational model and DCF — and compares their use in three general variations of leasehold valuation. The results are compared, and recommendations for their use are made. Finally an overview of the application of modern approaches to investment property valuation is presented.

The purpose of this paper is to examine a device used in leasehold enfranchisement valuations known as the graph of relativity, which shows the percentage of the freehold value of a dwelling that a lease of a given unexpired term comprises. There are a number of such graphs in existence put forward by practitioners based on their experience and as a result of research but they contain different values. The paper explores why this might be the case and how this issue can be resolved.

The paper examines the literature on graphs of relativity and the various graphs that have been published and critically examines the methodologies behind them to see if these account for the differences between them.

There are different methodologies that have been employed in producing the graphs, including transaction evidence, the opinions of practitioners, and tribunal decisions, and these may account for some of the differences. Many of the graphs are based upon relatively small samples, particularly at specific points on the graphs, so there are likely to be differences as a result of sampling errors. The graphs mix together properties with different characteristics, which could be a further source of variability.

Further research is needed to produce a more definitive graph of relativity based on a larger sample of properties and that reflects the differences between properties.

The paper challenges the notion that there is a single graph of relativity in which the length of the lease term remaining is the only significant variable and argues that there are likely to be multiple graphs of relativity that reflect the risks associated with investing in leasehold property.