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The aim of this Real Estate Insight is to comment upon the UK leasehold system, particularly focussing on new-build homes. This paper sheds light on the controversy surrounding this practice, public perception and the impact of a proposed ban on the housing and the impact, thereof, on property investment.

This Real Estate Insight, through the lens of investment principles, dissects the rationale behind the initial pricing in the leasehold system and how potential future costs and benefits shape this mechanism. The nature of the “Insights” briefings means that this is a personal view of the author.

With the recent outcry over perceived unfair practices, the paper scrutinises whether the problem lies within the system itself or in the consumers' comprehension of the system. This paper suggests that enhancing consumer education and imposing stricter disclosure requirements might serve as a more effective solution than outright legislative prohibitions.

The paper also briefly touches upon the concept of “gouging” in market function, highlighting potential inconsistencies in consumer behaviour.

This is a review of the UK leasehold market in relation to the legal title being offered at purchase.

This paper is concerned with behavioural responses to reviewed ground rents in New Zealand. The focus is on how freehold growth information is interpreted when considering reviewed ground rents on ground leasehold value.

Semi-structured interviews were conducted with ground leaseholders to inform the design of a controlled experiment. The interviews revealed that (a) purchasers tended to directly compare freeholds to ground leaseholds and (b) used rudimentary valuation methods. In the experiment, 40 property investors were requested to estimate the ground leasehold value close to the ground rent review time. Thereafter, 20 of the investors reassessed their ground leasehold value estimate using a projection of the future ground rent and a statement as to freehold growth (treatment). The control group of the remaining 20 investors received the estimate of the future ground rent only.

The tendency for higher treatment group valuations indicated the growth information was too available. Comparing ground leaseholds directly to freeholds, rather than thinking about the cost implications, is attributed to a manifestation of the availability heuristic.

The study involves a typical ground lease arrangement (as verified by experts) in the New Zealand market where there are few protections for ground leaseholders. These findings justify prohibiting new ground leases where the ground rents are set by reference to freehold land value.

This paper extends behavioural theory (availability heuristic) to explaining human interaction with ground leaseholds.

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.

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.

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.

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.

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.

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.

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.

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.

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

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”.

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.

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.

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.

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.

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.

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.

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

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.

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.

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.

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.