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Article
Publication date: 1 April 1988

ALISTAIR MACLEARY

Capital Gains Tax (or an equivalent charge to Corporation Tax) applies to any profit derived from the disposal of any interest in property. Any gain accruing on disposal…

Abstract

Capital Gains Tax (or an equivalent charge to Corporation Tax) applies to any profit derived from the disposal of any interest in property. Any gain accruing on disposal (or other chargeable event) is computed under specific and detailed rules provided for in taxation legislation. Because of the variety of circumstances which can arise on the disposal of an asset (transactions otherwise than at arm's length, certain deemed disposals, disposals involving the receipt of premia etc), special problems can be encountered in assessing the amount of tax due. Such a problem is the assessment of capital gain for taxation purposes on assets whose lives have limited duration. These are known as wasting assets and include leasehold interests in property which are terminable interests with (usually) zero residual value. This paper examines the problems connected with the valuation of short leaseholds (ie, leases with less than a 50‐year term to run) and demonstrates that the specific and detailed rules for the valuation of these interests for the purpose of assessing capital taxation are at best inadequate and potentially inequitable.

Details

Journal of Valuation, vol. 6 no. 4
Type: Research Article
ISSN: 0263-7480

Keywords

Article
Publication date: 1 August 1995

David Gane

Advances an alternative method of analysing the market price ofleasehold investments for use when assessing the market price of acomparable investment. The method can be…

1963

Abstract

Advances an alternative method of analysing the market price of leasehold investments for use when assessing the market price of a comparable investment. The method can be adapted to evaluate investment worth by substituting rental growth forecasts for those implied by market price levels. Baum and Crosby highlighted the inadequacy of current dual rate valuation methods for leasehold investments and the problems associated with the contemporary approach. Their work is used as the basis for this article. A discounted cash flow (DCF) approach is developed using an analysis of target returns. The all risks yield (ARY) and target return are first assessed on the basis that the investment is freehold but otherwise identical. The implied annual growth rate in CRV is then calculated using the equated yield formula. It is then argued, that because this growth in CRV arises from the location and quality of the building, it is equally applicable to a leasehold interest in that building. This leaves only the target return for the leasehold interest to be established, for a DCF valuation to be possible. Market transactions in leasehold properties are analysed in terms of target return to illustrate how statistical evidence of market sentiment can be accumulated. This evidence is based on the “extra return” required for leasehold investments over comparable freeholds. It will be shown that this “extra return” requirement is not materially affected by the freehold target return initially selected in order to carry out the analysis. The method accordingly appears reliable.

Details

Journal of Property Valuation and Investment, vol. 13 no. 3
Type: Research Article
ISSN: 0960-2712

Keywords

Article
Publication date: 1 April 1986

ANDREW BAUM and DEREK BUTLER

The valuation of short leasehold investments has become a subject of debate over the past few years. Concern has been centred upon the suitability of conventional…

Abstract

The valuation of short leasehold investments has become a subject of debate over the past few years. Concern has been centred upon the suitability of conventional valuation techniques, the unique nature of the short leasehold investment and its affinity with gilts rather than the mainstream property market. This paper is the result of a seminar at ISVA headquarters in late 1985 to which Butler and Baum contributed, and examines the nature of short leaseholds as investments, the market for short leaseholds, characteristics affecting values and both principles and practice of short leasehold investment valuations. Three case studies are presented in illustration.

Details

Journal of Valuation, vol. 4 no. 4
Type: Research Article
ISSN: 0263-7480

Article
Publication date: 1 March 1985

ANDREW BAUM and YU SHI MING

A preceding paper by Baum examined the valuation of reversionary freehold interests, distinguishing between conventional and modern approaches. This paper applies the same…

Abstract

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.

Details

Journal of Valuation, vol. 3 no. 3
Type: Research Article
ISSN: 0263-7480

Article
Publication date: 1 May 2006

Eric C.K. Ho

The purpose of paper is to investigate the institutional features of the leasehold system of Hong Kong, which is predicated on the freedom of contract as an institutional…

1585

Abstract

Purpose

The purpose of paper is to investigate the institutional features of the leasehold system of Hong Kong, which is predicated on the freedom of contract as an institutional arrangement for land management and planning that promotes sustainable development.

Design/methodology/approach

The approach is analytical, using concepts of property rights informed by Coasian neo‐institutional economics and the ideas of Yu et al. on the Schumpeterian process in innovation.

Findings

It was demonstrated that the post‐contractual imposition of statutory planning control on the leasehold land management system in Hong Kong has adversely affected and adaptability of the leasehold system in achieving sustainability.

Research limitations/implications

This paper encourages a reinterpretation of statutory zoning in areas with a leasehold system and the reception of the land lease as a basis for innovations that help promote sustainable development.

Practical implications

This paper warns against legislative activism in planning controls as that can destroy or erode the basis for innovations that help promote sustainable development.

Originality/value

Using the idea of innovations of Yu et al. and Lai and Lorne, this paper further develops Lai theory of “planning by contract” as an alternative to “planning by edict”.

Details

Property Management, vol. 24 no. 3
Type: Research Article
ISSN: 0263-7472

Keywords

Article
Publication date: 26 August 2014

Richard Grover

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…

Abstract

Purpose

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.

Design/methodology/approach

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.

Findings

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.

Practical implications

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.

Originality/value

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.

Details

Journal of Property Investment & Finance, vol. 32 no. 6
Type: Research Article
ISSN: 1463-578X

Keywords

Article
Publication date: 3 April 2019

Kwasi Gyau Baffour Awuah and Frank Gyamfi-Yeboah

Although several factors influence property value determination depending on the market, relevant studies in sub-Saharan Africa (SSA) often fail to analyse the impact of…

Abstract

Purpose

Although several factors influence property value determination depending on the market, relevant studies in sub-Saharan Africa (SSA) often fail to analyse the impact of factors, such as unexpired term of leasehold interest and ground rent, which are also germane to market transactions and value determination. This study aims to examine the effect of unexpired term of leasehold interests and ground rent on the valuation of residential properties in Ghana.

Design/methodology/approach

A questionnaire instrument was used to collect the views of a sample of professional real estate valuers on the relevance of these and other factors that affect value. In addition, the valuers were tasked to value a residential property located in Accra, Ghana. Ordinary least squares and quantile regression models were thereafter used to analyse the data to determine the effect of the subject variables on value.

Findings

The study finds a significant relationship between valuers’ views on the relevance of unexpired term of leasehold interest and the value placed on residential properties. Further, the respondents who viewed ground rent as an important factor in estimating values placed significantly lower values than those who viewed it as less important.

Research limitations/implications

The findings suggest that the respondents may have split opinion on the existing anecdotal evidence that market participants ignore the unexpired term of leasehold interest, an issue that should be settled in theory. The findings also highlight the diversity of opinion on some of the fundamental factors that affect value and the need to build consensus to prevent excessive variation in value estimates among valuers.

Originality/value

The study makes a significant contribution in terms of extending the existing literature by analysing the impact of unexpired term of leasehold interests and ground rent on residential property values based on empirical data, issue(s) which have often been ignored by existing studies. Findings from the study also provide insights into additional possible causes of valuation errors in Ghana and SSA, which are useful for policy formulation and practice.

Details

International Journal of Housing Markets and Analysis, vol. 12 no. 3
Type: Research Article
ISSN: 1753-8270

Keywords

Article
Publication date: 3 August 2015

Richard Irumba

– The purpose of this paper is to investigate the impact of land tenure on housing values in metropolitan Kampala.

Abstract

Purpose

The purpose of this paper is to investigate the impact of land tenure on housing values in metropolitan Kampala.

Design/methodology/approach

A hedonic model is used to test the relationship between housing prices, land tenure and housing attributes using a cross-sectional dataset of transaction prices for 590 newly built houses sold in 2011.

Findings

Public leaseholds in Kampala offer a premium of 23 per cent in housing values compared to freeholds. This could be due to a lack of formal systems for the assessment of leasehold premium and ground rent charges, an arrangement which can offer utility to the lesse at the expense of lessor, thereby making leaseholds popular on the market, or the developers’ lack of information on the benefits of freehold causing them to value leaseholds higher than freeholds. Similarly, private mailo tenure offers a 12 per cent premium in housing values compared to freeholds. There is no significant impact of Kabaka’s mailo tenure on housing values. When compared to private mailo, public leaseholds offer an 11 per cent premium in housing values.

Practical implications

There is a need to advance leasehold as the urban land tenure for Uganda, disentangle multiple-layers of ownership on mailo land and roll out the land fund to enhance growth of the housing market in Kampala.

Originality/value

This paper is the first of its kind to empirically examine the impact of mailo land tenure on housing values. Findings provide useful insights for investors and policymakers in the housing sector in Uganda.

Details

International Journal of Housing Markets and Analysis, vol. 8 no. 3
Type: Research Article
ISSN: 1753-8270

Keywords

Article
Publication date: 8 February 2008

David Mackmin

The purpose of this paper is to review the historic evolution of dual rate valuation practice in the UK from the nineteenth century to the present time.

2439

Abstract

Purpose

The purpose of this paper is to review the historic evolution of dual rate valuation practice in the UK from the nineteenth century to the present time.

Design/methodology/approach

The paper is based on a review of published books, articles and letters dating from 1852.

Findings

The study establishes the fact that single rate was the only method in use in the nineteenth century and notes the overlap of two methodologies and beliefs in the first half of the twentieth century. It confirms that by the late 1930s dual rate had replaced single rate and an “establishment opinion” on the essential need to value leaseholds dual rate on the basis of a set of commandments had emerged without any apparent disagreement. This position, with some debated refinements for the effect of tax and treatment of variable profit rents, is shown to continue through the twentieth century and is reaffirmed in standard textbook teaching at the start of the twenty‐first century. The review touches on the criticisms noted by academics in the latter part of twentieth century. It identifies as a key issue the continuing persistent misconception amongst UK valuers that there is a reinvestment assumption in the present value of £1 per annum.

Originality/value

Dual rate principles are shown in the paper to be untenable and the profession is advised to remove the method from future training of valuers and to cease to make any use of the method in the valuation of leasehold investments.

Details

Journal of Property Investment & Finance, vol. 26 no. 1
Type: Research Article
ISSN: 1463-578X

Keywords

Article
Publication date: 1 January 1983

ANDREW BAUM

Leasehold valuations are, as ever, an area of controversy. The 1980 Interim Report of the RICS Research Project into Property Valuation Methods can be seen as the climax…

Abstract

Leasehold valuations are, as ever, an area of controversy. The 1980 Interim Report of the RICS Research Project into Property Valuation Methods can be seen as the climax of systematic and prolonged attacks upon the dual rate approach to leasehold valuation which have met with little or no resistance. In that report it was recommended ‘that the theoretical weaknesses of the conventional dual rate method be emphasised to all practitioners’.

Details

Journal of Valuation, vol. 1 no. 1
Type: Research Article
ISSN: 0263-7480

1 – 10 of 852