Search results

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.

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 review the historic evolution of dual rate valuation practice in the UK from the nineteenth century to the present time.

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

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.

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.

The purpose of this paper is to re‐visit the problems of taxation consequences of sinking fund in the UK and to look at what is believed to be the only rational reason for using the dual rate adjusted for tax method variant.

The structure of this paper is: valuing a freehold and a leasehold interest by the single rate gross and net of tax approaches to show the logic that works with freehold valuation interest may not work with leasehold valuation; exploring the tax impacts on sinking fund; resolving the taxation issue of sinking fund; demonstrating the solution to the “double sinking fund problem” by the Greaves method and the single rate net of tax approach; and exploring the future of the dual rate theory.

The paper confirms that the traditional method is not satisfactory, even after the modifications made by the various methods mentioned above. The single rate net of tax approach is proved to meet all expectations and can be regarded as a more rational approach to the dual rate method.

Valuers of the “UK School” might consider that not only should dual rate valuation be regarded as defunct, but also that the more appropriate approach might be to move to a net of taxation approach.

This paper is the original work of the authors.

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.

There have always been situations where tenants, for one reason or another, have paid rents in excess of open market rental value. The position today, due to the downturn in the letting market, is that many more tenants are now in this position. This poses a problem for valuation surveyors when asked to express an opinion on value for sale, negative or reverse premiums, and on value for asset valuation purposes where negative values must be specified. A further point for consideration is the issue raised by the Accounting Standards Board of charging future rent obligations as a single lump sum to profit and loss accounts. Explores these challenges in relation to leasehold valuation methodology and suggests approaches.

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’.

In a previous paper Sykes derived a mathematically consistent investment valuation model for freehold properties which he referred to as the Rational Model. This new model overcomes certain serious failings of other methods commonly in use. The present paper readdresses the arguments of the earlier paper in a manner rather more familiar to a practising valuer and compares current methods of valuation with the Rational Model. It is also shown that the Rational Model can be simply adapted for the valuation of leasehold interests without resorting to a separate (and usually quite artificial) ‘sinking fund’ rate.

Examines the problems of valuing properties in China, as part of an ongoing research project on the developing of the socialist market economy in China. Identifies these problems by examining the valuation reports in the listing documents of the Chinese State enterprises issuing what is termed “H‐shares” in Hong Kong′s Stock Exchange. Comments on the approaches adopted in these valuation reports from both legal and theoretical points of view. Makes reference also to the property laws in China and the guidelines issued by the Hong Kong Stock Exchange for valuation of property in developing markets including China. Despite the different terminology used by Chinese officials, China is moving towards being a capitalist economy. This is evident in many events that have been happening in China. One such event, which started a number of years ago, is the land reform in China which allows private ownership and transfer of land use rights. As a result, nowadays most listed companies in Hong Kong possess, in one form or other, land use rights in China. On the other hand, despite the speed of such changes, China is still very different from other capitalist economies in terms of the organization and operation of its “markets” including the “property market”. Another more recent event is the “privatization” of state‐owned enterprises by way of listing in the stock exchanges of capitalist economies such as Hong Kong and New York, with the former predominating. These two changes have given rise to an issue which is of interest to both academic and practising surveyors: how should property which is situated in China and owned by the state enterprises be valued for the purpose of listing in Hong Kong′s Stock Exchange?