Property Investment Analysis Report

Topics: Discounted cash flow, Real estate, Real estate appraisal Pages: 15 (4441 words) Published: January 6, 2009
Property Investment Analysis Report


1 Summary2
2 The Valuer/Client Relationship and Proposals2
2.1 Concern2
2.2 Manllison’s Recommendation3
2.3 Evaluation3
3 Valuation Methods, Proposals and Discussion6
3.1 Research into Valuation Methods6
3.1.1 All-risks Yield6
3.1.2 Discount Cash Flow (DCF) Techniques6
3.1.3 Comparative Analysis Techniques7
3.1.4 Pricing Structure8
3.1.5 Profits or Accounting Methodologies8
3.1.6 Evidence8
3.2 Discussion of Proposals on Property Investment9
4 Ownership Interest Valuation10
4.1 Properties with Trading Potential11
4.2 Total Earnings Method11
4.3 Reversionary Investment12
4.4 Descounted Cash Flow(DCF)13
5 The Incorporation of DCF into the Proposals13
5.1 The Incorporation of DCF into the Mallinson Recommendations13 5.2 The Incorporation of DCF into the Carsberg Recommendations15 Bibliography16

1 Summary

Mallinson Report and the Carsberg Report presented the valuation profession with a number of comprehensive and far reaching proposals. If implemented, would represent a significant change in the way in which many valuations and appraisal are to be undertaken, presented and justified. We discussed how these recommendations are incorporated into property investment analysis and the subsequent methods. A case of ownership interest is valued using conventional term and reversion approach and DCF. DCF is further discussed for it is better incorporated into the recommendations.

2 The Valuer/Client Relationship and Proposals

2.1 Concern

The Mallinson report (1994) concerns with the valuers clearly understand the needs of the client at an early stage. The range of client is enormous; there are those who have already and great understanding of property, and those wholly unfamiliar with property, the property market and the terms and concepts used by valuers.

For the variety of clients, it is the valuer’s accountability to make (1) Calculations of a notional transaction price constructed in a universal, formal, widely understood, and wherever possible realistic manner. (2)Calculations of the price for which a property might actually be traded if put to the open market in a manner and timeframe prescribed. (3) Calculations of price in special circumstances. (4) Calculations of worth to be compared with price. (5)Calculations of stable, long term value which exclude the volatility of day to day market prices which are set at the margin and heavily influenced by short term factors. (6)Calculations for use particularly within financial statements in non-market situatuons which do not purport to reflect either price or worth, for example depreciated replacement cost. To achieve these valuation basis, the valuer need to know the purpose for which he requires the valuation(Stated in Mallinson Report, 1994). Only by knowing this, will the valuer be certain which valuation basis is appropriate, or what additional information the client needs.

In addition, it is common rule that a ‘valuation’ obtained for one purpose cannot be used for another, otherwise, it will expose the valuer to quite unjust criticism. Therefore, it is quite clear that there should be a mandatory obligation on the valuer to seek the purpose of the valuation and record this in the Memorandum of Instructions.

2.2 Manllison’s Recommendation

It is the professional duty of a valuer to understand not only the purpose for which his client seeks the valuation, but also his ability to understand and benefit from the advice given, and to have at least some understanding of the importance of the advice to the client. The Mallinson Report recommend that a valuer should be required to carry through a ‘know your client ’process.

First, a checklist should be used instead of a standard form to prompt the valuer on questions to ask and matters on which to comment. Besides asking the questions, the...

Bibliography: Michael Mallinson et al. 1994. The Mallinson Report-Report of the President’s Working Party on Commercial Property Valuations. The Royal Institute of Chartered Surveyors.
Bryan Carsberg et al. 2002. Property Valuation-The Carsberg Report.
Andrew Baum, Nein Crosby et al. 2000. The influence of valuers and valuations on the working of the commercial property investment market. Reading and Nottingham Trent Universities.
Ann Colborne and Philip C.L. Hall, 1992. The Profits Methods of Valuation. Journal of Property Valuation and Investment, 11: 41-49.
Rohit Kishore, 1996. Discounted cash flow analysis in property investment valuations. Journal of Property Valuation & Investment, Vol.14 No.3, pp.63-70.
Mackenzie, B. (1993), Discounted cash flow analysis: tests of reasonableness, The Appraisal
Journal, January, pp. 138-43.
Nick French, 1996. Investment Valuation: Developments from the Mallinson Report. Journal of Property Valuation&Investment. Vol.14 No.5, pp.48-58.
Nick French, 2005. Discounted cash flow: accounting for uncertainty. Journal of Property Investment & Finance. Vol.23 No.1, pp.76-89.
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