Complex Land Valuation in current times Short review of the methods

Contents Comparison Approach Overview Data Pros & Cons Sources of uncertainty Residual Method Overview Data Pros & Cons Sources of uncertainty Case study of complex valuation Comparison Approach Available Data Comparison Approach Outcome Residual Method Data Residual Method Outcome Conclusions

Comparison Approach Is applicable for similar properties Requires a functional market with data availability Using adjustments to determine value Data used: Transactions with similar properties Property listings Market information (micro & macro economics) Property specific data Valuers experience Pros +- Cons Direct measurement Simple and straightforward Easy to verify Excellent for typical properties Sensitive to the quality of information Involves subjectivity Not suitable for distinctive properties

Comparison Approach (3) Sources of Uncertainty subjectivity in estimating adjustments (location, physical features, etc) incomplete/ wrong information adjustments for non straight-forward features (development potential)

Residual Method Is applicable for complex properties Multidisciplinary Complex and requiring extensive experience Data used: Transactions with end-product properties Construction market, Financing market, Consultancy market data Market information (micro & macro economics) Property specific data Valuers experience Pros +- Cons Flexible and adaptive to properties from simple to very complex Multidisciplinary Allows a more thorough view on the risk of a property Complex and requiring experience Verification is not straightforward Allows manipulation Too demanding to be used in simple cases

Residual Method (3) Sources of Uncertainty Development specific information (profit rate, financing rate, etc.) Sensitivity to quick market movements Future projection

Case Study – Semi central development land plot

Conclusions Difference in approach could lead to deal-breaking situations Residual method indicates the maximum achievable values if extremes values are used, otherwise indicates averages Lender will always look into the pragmatic side of facts, developer will target best deal A decision should be made looking carefully into both outcomes Lenders/ Valuers should be aware of the pros and cons of each method before considering any of them Land value reflects its potential, not the physical existence/ features The potential of the land plot is not always properly revealed using direct comparison The residual approach does not forecast the take up of the project, it is an assumption