QUESTION:
What are the Various Property and Real Estate Valuation Methods and Approaches in Kenya, for valuing Properties and Real Estate Investments?
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ANSWER:
There are many Property and Real Estate Valuation Methods used by Property Valuers in Kenya and the world at large. The method of use by a Valuer depends on the objective of the Valuation, and the data available to the Valuer or Assessor in determining the Value of the Property of Real Estate Investment.
Below is a summary of the various methods for Real Estate and Property Valuation, for your information as an Investor, to know the methods that should give credible value for your property or real estate investment.
- Comparison Method: This Valuation method uses comparable evidence like Sales Prices, Rental Prices, and Yields as the basis for the data used in determining the Value of the property. The Valuation process include collecting and checking comparable evidence, identifying and adjusting for differences, and using the resulting evidence to establish the Value of the property.
- Income Method: This Valuation method that is used to value Income generating properties or investment properties that are already generating income. These include rental income generating property like Commercial Buildings and Office Blocks. The two techniques that are widely used to value income generating investment properties are Income capitalization and Discounted cash flow (DCF) method.
- Cost Approach: This Valuation method is used for accounts purposes and for rating valuations. This includes valuation required for company accounts, business rates, and Insurance; commonly known as reinstatement valuation. Cost Approach Method of Valuation is also known as Depreciated Replacement Cost (DRC) method.
- Profit Method: This Valuation method is used to value properties typically sold as part of a business (properties equipped as operational entities), because it is difficult to obtain evidence of property prices and rents. The Value is determined having regard to estimated future trading potential of the business venture.
- Residual Method: This method is used to value development land, or land property meant for a proposed development. The method differs from other methods of valuation because the property being valued does not yet exist. The value of the proposed development is estimated, from which the estimated costs of its construction are deducted, leaving a ‘residual’ land value. Scale of development varies enormously and the complexity of development appraisal models follows accordingly. The two common tasks associated with development land are: Estimation of land value and Appraisal of profitability (or viability).
Writer of the Article:
This Article is written by Buildafrique Consulting Group, Kenya multi-disciplinary consultancy, that offers END-TO-END DEVELOPMENT CONSULTANCY, REAL ESTATE, and PROJECT FINANCE solutions through specialized subsidiaries. Among our solutions includes:
- Feasibility Studies and Market Research.
- Project Finance and Capital Raising.
- Joint Venture & Finance Structuring.
- Project Management.
- Investment Design Appraisal.
- Quantity Surveying
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- Environmental Management and Impact Assessment
- Real Estate Development and Structured Investment Solutions
- Property Valuation
- Marketing and Property Sales Agency
- Property Management and Facility Management
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