INVESTMENT VALUATIONS IN THE CAPITAL AND PROPERTY MARKETS

Abstract

Over the years, there has been a growth in demand for property to be valued and revalued for individual investors and portfolios and asset valuation purpose. Professional valuers are also increasingly called upon to assume the role of property consultants or counsellors to assist investors to arrive at their buy-sell decisions. Further, investors do not limit their investment considerations solely to property. As a result, property investments must compete with all forms of investment: a prominent alternative being capital market investments. In making decisions on investments in these two markets, investors require a means of comparing both types of investment. One way of seeking such answers is to delve into a methodology which is coherent over these two markets. In both cases, investors measure the expected returns or benefits to be derived from the investments against the cost outlay. The valuer's/ analyst's task is to express these benefits in terms of dollars and cents (VALUATION) and to interpret the relationship between cost and benefits as a rate of return (ANALYSIS), thus allowing the investors to make a choice between alternatives. This study provides a general discussion on this problem by showing how these two fields of valuation may be related. The application of Discounted Cash Flow (DCF) provides an opportunity for the comparison between property and capital investments and to assess what price should be paid for an investment to allow for a specified rate of return. In view of these trends, it is felt that local valuers should not only aim at sharpening their analytical tools which may involve a fair amount of mathematics, but also equip themselves with the knowledge of other alternative forms of investment valuation to cater adequately for their clients' increasing demands for more sophisticated professional advice.