In the UAE, we presume that property valuations generally apply to financial institutions where the expected amount of debt is placed on a mortgaged property to create a loan-to-value ratio. While this is one of the most common purposes of valuation, there are several other reasons why it is essential to understand the valuation process for the reasonable market rents for value business property, paid for or received, whether you are looking for audit, investment or disposal.
In order to discover how to value business property, sometimes referred to as a commercial property, is worth it, you must do an evaluation of the property. While doing an evaluation of the company property is not fixed in stone, as only a professional appraiser can provide genuine market value, the computation can help you estimate how much you can purchase or sell the property for. In most cases, a commercial real estate is a form of income-producing property such as an apartment building or an office space.
Factors to Value Business Property
If you’re taking out a loan to pay for a home or start a business, you’ll need an appraisal. It will take into account factors such as the intended use of the space, the location, potential competition from other tenants, and current market rents. Because it affects the market value, the report will include information on the vehicle’s physical condition. However, it is rarely able to get very deep.
To put it another way, there is no simple value. For example, a company may want to use its real estate as collateral for a loan. However, the value for insurance purposes may be different, and the sale price may be different as well.
How much would a buyer be willing to pay for the property in today’s market? However, this is dependent on whether the property is available for rent or not. It’s possible for a company to sell its property but keep its tenant status. Having to figure out the business’s worth adds an additional level of difficulty. An investor is more likely to consider a large or well-established company as a tenant than one that is brand new or has a limited track record. As a result, it is possible for a business to be included in the appraisal, and a potential landlord may want to view their financial records as well.
Market investors want to create future returns through capital gains or rents; it is vital to have an entrance and exit strategy to analyze probable market trends and cash flow projections. The primary purpose of purchasing property is usually for end-users/occupants to avoid rent and pay off the property’s debt. An informed decision for both circumstances can be made by assessing, which can ultimately determine a successful or failed investment.
2. Audits & Accounts
Property assessments for audit purposes are typically made on an end-of-year basis and must offer guidance on the appropriate values to be included in the financial statements. An individual or company would require a “fair value” basis complying with International Financial Reporting Standards (IFRS). Another frequent value business property base comprises internationally recognized market value and market rents, which have a long-established definition, can be found inside RICS Valuation – global standards. (Global Standards Redbook – 31 January 2020)
3. Facility / Development Assessments
A feasibility study is a procedure through which the viability of a planned initiative or development is determined. The analysis will analyze a series of computations based on the customer’s inputs to assess the proposed development’s value, profitability, and adequacy. These variables/inputs may alter, e.g., different rent uses, returns, or financial contributions correspondingly.
There is a prevalent misunderstanding that property is evaluated by adding value business property to the land and building costs to measure market worth. Although this technique to prices is one way to estimate commercial property, the use of this method is far more profound and touches merely the total assessment surface. The RICS Valuation (Global Standards) (Redbook Global Standards – 31 January 2020) identified five recognized valuation methodologies outlined below.
Different Methods of Valuation
1. Method of comparison
The DCA approach offers a property’s market value by ‘comparing’ it to values collected on the open market of similar properties. This approach examines the AED rates per sq. ft in the lettable and integrated regions. This may be seen as the vital way since each of the other methods requires some equivalent analysis. For assets with fewer parts, for example, single-specific office units, the direct comparable technique is more successful.
2. Revenue Approach
Capitalization of income is an assessment approach that estimates the value business property of an asset producing income. This assessment approach refers to the value of the market rent a property can deliver. The net market income is capitalized at a market-driven capitalization rate that considers all property elements. This method would assess properties such as complete constructions of all asset classes, industrial complexes.
3. Discounted Substitution Costs (Building + Land)
The DRC procedure considers the current cost of replacing an asset with its modern counterpart, reduced physical degradation deductions, and all applicable types of obsolescence and optimization. This is not a market-based assessment technique and is believed to be appropriate for unusual real estate because of their unique character, design, design, configuration, size, location, or else).
4. Residual Method
Residual assessment is a developmental assessment and is typically used in places where development is intended based on approvals and permits from plots. The strategy considers the gross development value of business property to be produced from a direct comparison or revenue method and reduces costs.
- Costs of construction, infrastructure, and landscaping
- Professional Fees
- Financial Cost
- Contingency charges
- Marketing and legal services (sales/letters)
- Profit of the developer
- Additional costs (planning/customer costs)
The net outcome is the residual worth of the plot after all these costs have been reduced from the Gross Development Value.
5. Method of Profit
The profit technique is used to evaluate specialized commercial properties, where the value of a business property depends on the company’s profitability. The approach is used to estimate properties such as hotels, gas stations, etc.
Ideally, it is desirable to utilize a minimum of two ways when evaluating a property. The primary method and the other as a cross-reference to ensure that the approach is appropriate for assessment purposes. All practices consider properties/features such as location, specification, condition, property size, forms of leasing agreements, etc. The applicable rates will be modified based on these elements accordingly.
CRC Valuation employs all of the following methods more thoroughly; the team has the skills and understanding to value business property. Our assessment has the essential expertise and certifications to assess these international industry standards.
Fajar Realty has been active in the market for the last 15 years. Basic information from our established services lines is provided to ensure that our assessments are market-oriented. 15 years of presence enabled us to create a comprehensive property transaction database.