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So to you sir, cost in $ is property Value? Nothing is held constant in the property market. If the cost of dollar due to any circumstances goes up, your property value rises in geometric proportion. There is something called investment valuation. Amount of N1 calculations. https://twitter.com/gossyomega/status/1254060526314885120
Even though I major in Statutory Valuation where we help people get justice from Government’s compulsory acquisition under the guise of overriding public interest. But the underlying principles are the same and what differs are the methods of valuation and sundry considerations.
I want to make this as clear and simple as ever. Let’s begin with the main reason why people buy property. There may be several reasons ranging from the need to own your own home to having an investment that will bring you a steady flow of income in rents.
So as a valued tasked with the duty of determining the value of a property (freehold or leasehold interest) bought/built in dollars 20years ago. From the investment or income approach, I must visualize that some money was invested at some point to receive series of income later.
The series of regular income is called Rents Or should the owner choose to sell outrightly, we will consider what Capital value should be asked for at the said date which can be today if the property (regardless of use) is put out on the market for sale.
Now nite that no pepper seller sell what she buys at the same rate even on the same day. So no property investor will want to receive anything lower than the capital invested over the years. Property market is highly capital intensive.
So the approach in determining market value (MV) of property investment is through discounting regular incomes (rent) at a rate adjudged suitable for that type of property. This is called income capitalization.
Even at this, this methodology involves considerable reliance on historical data (trends in capital and rental value in the locality as mentioned before over the years) cum the experience/Judgement of the valuer by capitalizing known income (rents) from similar property.
An example will make this clearer. When I say Freehold interest, I mean an unencumbered interest with the highest value in the chain. Meaning the building/title (bundle of rights) belongs to your family & you have not used it as a collateral for loan. You are not under a lease.
In order words you own the land perpetually. This, however, is the traditional leasehold interest that the Omo Oniles enjoy (Oniru Family etc). But modern Freehold interest is what we call Certificate of Occupancy title issued by State Govt as empowered by the Land Use Act 1978.
Meaning all lands owned before 1978 are held by families perpetually but must never be transacted or exchanged without the consent of the State Governor. Anyways, the modern day freehold interest makes you a tenant to the State Govt with 99years lease that reverts to the State.
Technically any other interest in land lower than the traditional Freehold interest makes you a lessee to the Govt and the property ceases to be yours after 99years unless renewed. This makes the value of such lands worth more with higher unexpired term (Agents don’t know this).
So when you are buying a lease (benefitting from a sublet) it is different from buying to own a property. You are merely exchanging a contract that belongs to an original owner (lessor). So in every building you see beyond brick and mortar there are several (bundle) of rights.
So let’s consider a commercial building along Admiralty way in Lekki phase one with a certificate of occupancy with 98years un-expired. The owner like our friend in the case being studied paid in dollars to perfect the freehold title some years back and leased the same...
...for 15years 10years ago at a net tent of N2M per year. Current net rental value of the property based on market research of comparables in same location is estimated at 3M per annum and a similar property recently sold for N350M. So this is the nature of issues valuers face.
From the above value to the owner of the property is not value to the rent payer. They are seeing from different perspectives. The lessee with 5years unexpired term can still sell his lease to another with consideration of reversion to the lessor.
So if you are unfortunate enough to buy his lease with 5years less one day of reversion to the real owner (lessee to the State Govt) and assume you just bought a property you will be deceiving yourself for not seeing the whole picture. You are still a tenant with 5years to move.
So valuers can be of service to all parties involved. To the landlord with the original 98years unexpired with the state have traded 15years leaving him with 83years unexpired union reversion. This will be the basis of calculating his Capital & Rental Value.
So I’m our calculation we will begin with Term and Reversion. We will consider the current value under the lease term and the reversion art interestbonce the tenant is gone then sum these up to obtain the Market Value of the property as of today.
