Chapter 9Valuation of Investment Property

9.1 Introduction

This chapter covers the valuation of investment property, that is, property that can produce a rental income that may be capitalised to arrive at a capital value. Chapter 10 covers the valuation of development property.

Two internationally recognised bases of value are considered: market value and investment value. Market value is equivalent to value‐in‐exchange and investment value is equivalent to value‐in‐use. Investment value has regard to the specific requirements of a purchaser, which might encompass:

  • The financial resources available for a property acquisition, including the split between debt and equity finance;
  • The timescale for holding a property asset, and
  • The tax position, personal tastes and specific requirements of the decision‐maker.

Moreover, these specific requirements may relate to the way in which the property is to be managed; a small‐scale niche investor may wish to manage the property much more actively than a large institutional investor. Wider considerations relating to an investment portfolio may also need to be considered.

In a perfect market, where buyers and sellers have instant access to market information, their economic requirements are identical and properties are homogeneous, it might be presumed that market participants would arrive at similar decisions and thus individual investment values might converge on a market value. In other words, there would be no difference between exchange ...

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