APPLICATION OF THE INVESTMENT METHOD OF VALUATION IN VALUING RESIDENTIAL PROPERTIES IN CALABAR METROPOLIS

  • : Ms Word, Ms Word Format
  • : 55 Pages
  • : ₦3000
  • : 1-5 Chapters
  •  
  • Click to DOWNLOAD Materials
APPLICATION OF THE INVESTMENT METHOD OF VALUATION IN VALUING RESIDENTIAL PROPERTIES IN CALABAR METROPOLIS

CHAPTER ONE

INTRODUCTION

BACKGROUND OF THE STUDY

Valuation plays an important role in the determination of the value of properties either for mortgage, sale, purchase, rental, compensation, insurance, rating etc. In carrying out any valuation assignment for mortgage purposes, the valuer is faced with a task of selecting the appropriate method to adopt in such assignment. Most valuers in Nigeria often adopt the cost method; some adopt the market comparison approach while only a few adopt the investment method of valuation. Theoretically, the investment method has been considered as appropriate in valuing income producing properties for mortgage purposes. On the contrary, majority of the valuers in practice often adopt the cost method of valuation. The question still remains, which method is the most reliable when valuing income properties for mortgages? This and other questions that bother on the reliability of the investment method is examined in this research.

The theory of the investment method of valuation is that property is regarded as an investment yielding income in the form of rent or profit accruing from it. This is the most common method used not only for freehold interests but also for leasehold interests, life interests and reversions. The operation of this method involves the determination of the annual value in which the property can produce annual return on the money expended on buying the investment. This has to be capitalized using appropriate rate of interest in arriving at the capital value of the property. In Nigeria, banks and mortgage institutions give out loans to real estate developers and investors. In doing so, they often require the services of an estate surveyor and valuer who will determine the value of the property of the borrower to advise them on how much money that will be advanced as loan to such real estate developers or investors. The property whose value is being determined is used as collateral for the loan.

In secured lending, the underlying philosophy is to determine the value of the asset on which the loan is based and to ensure that the former is greater than the amount borrowed. The degree by which the asset exceeds the loan provides the margin of asset cover or the loan-to-value ratio. The investment method of valuation involves the conversion of an income flow from property to an appropriate capital sum. The approach to the determination of value is based on a sound principle and method which has the market behaviour as its central focus. Ogunba (2013) have noted that the investment method of valuation is based on the principle of anticipation which affirms that value is created by the expectation of benefits to be derived from possession, operation and capital gain at re-sale. The principle according to him, uncovers the relationship between anticipated earnings (rental income) and value for comparable property types. There are numerous reasons about the suitability or credibility of investment method. Chief among them is the fundamental issue of assessment of the monetary worth of the interest in property and not the physical structure or land (Kalu, 2001).

The investment method of valuation has three primary variables in the determination of capital value as rental value, outgoings and yield. The method is used mainly for income producing properties and is being examined in this paper to know how reliable and applicable in valuing properties for mortgage purposes.

1.2  STATEMENT OF PROBLEM

There is always a disagreement on which method to adopt when valuing income producing properties for mortgages. In determining the value of properties for mortgage purposes, majority valuers often adopt the cost method of valuation which does not give a clear understanding of mortgage valuation. The cost approach is based on the understanding that market participants relate value to cost. The forces of demand and supply determine the value of a property and not supply only of which cost is associated. Since mortgage is an investment in the open market, the cost approach will not be appropriate. Where a property has no market demand, it cannot have a mortgage value. The method will not reveal the potential of the collateral in the property market. Therefore, the blind adoption of this method for mortgage valuation is a misnormal and should be discontinued. Some valuers also adopt the market comparison approach but this approach is most applicable in an active market particularly where open market valuation is envisaged. However, where worst possibilities are presumed as in the case of forced sale valuation, the reliability of the market comparison approach to determine the forced sale value of collateral is doubtful (Aluko, 1999; 2007). This paper is therefore limited to the study of the investment method of valuation and its reliability in the valuing income producing properties for mortgages in Nigeria.

1.3 Objectives of the study

To examine roles of investment method of valuation in valuing residential properties in calabar metropolis.

To examine benefits of investment method of valuation in valuing residential properties in calabar metropolis

To examine the challenges of investment method of valuation in valuing residential properties in calabar metropolis

 

1.4  Research Questions

What is the roles of investment method of valuation in valuing residential properties in calabar metropolis.

What is the benefits of investment method of valuation in valuing residential properties in calabar metropolis

What is the challenges of investment method of valuation in valuing residential properties in calabar metropolis

1.5  Hypothesis

There is no significant effect of the  roles of investment method of valuation in valuing residential properties in calabar metropolis.

There is no significant effect of the benefits of investment method of valuation in valuing residential properties in calabar metropolis

There is no significant effect of the challenges of investment method of valuation in valuing residential properties in calabar metropolis

1.6  Significance of the study

The significance of this study can be viewed from the following perspectives.

One main significance of this study is that when completed, it would serve as a bridge for the gap that have been created between where previous works on this subject area stopped and today.

This study is significant in the sense that it’s finding would serve as a base and framework for future researchers to carry out further studies in the field of knowledge under study.

The government would benefit from this study in view of the fact that they would learn how flood is and in reaction, effectively and adequately implement the finings of the study in the management of the menace of flood in residential areas

The outcome of this research is hoped to be of immense use to students of estate management and environmental science, urban and regional plaining since it contains information on valuation

1.7  Limitation of the study

In every research work, it is likely that the researcher may encounter some limitations. The researcher encountered some challenges during the period of carrying out this research. Some of these challenges include the dearth of materials for a proper and effective research work constituted a major limitation. Again, how to get the true and required information from the students through questionnaire also constituted a constraint in the study.

       Finally, there was the problem of convincing the residents in the study on the primary objectives of the questionnaire so as to give the true and required information. However, the intervention of the landlords and landlady of the selected properties who took time to clear the air and convince his/her residents helped the investigator to administer the instrument successfully.
APPLICATION OF THE INVESTMENT METHOD OF VALUATION IN VALUING RESIDENTIAL PROPERTIES IN CALABAR METROPOLIS

Sharing is caring!

Leave a Reply