What determines that property’s value?

Tuesday February 16 2021
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Residential property in Kampala. Property valuation is the process which determines the economic value of real estate. PHOTO/Eddie Chicco

By Justus Lyatuu

Few people understand what valuers consider when determining the market price of property. I have in the recent past engaged different valuers to value a house I wanted to buy but each of them came up with different values. So, what do these professionals look at?

Valuation involves analysing real properties and developing an opinion on their value using tested and proven scientific processes and methods.

Registered valuers are often required, not only when buying and selling property but also for other purposes including insurance.

Others are when banks are advancing loans against securities, reparation in cases of disputes, for court sureties, book value and determination of land rates.

 Mr Rogers Matovu, the managing director at Planet Estates Limited, says valuation also comes in handy before the State acquires private property by compulsory acquisition. The valuers analyse several aspects of property before arriving at a market price by considering the locality, state of repairs and maintenance of the property and soil characteristics.

He says valuation which is also known as property appraisal programme has not been taken seriously by Ugandans.

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“In my career I have only met six valuers; three government valuers and the other three from the private sector,” he says.

How it is done

Mr Matovu who is also a lecturer of real estate and financial management, Makerere University Business School (MUBS)  says the first point is to ascertain the true value of the properties although the value although there is the market value.

Mr Matovu says, “There are three different valuations you can do; the cost value, how much money was used to construct this property. Here, we look at things like iron sheets,” he says.

There is also income valuation, where the land of property is valued at the income it can bring for instance if you quantified how much it took to construct a property like Hotel Africana, right now the building will be more expensive because of its income value.

Valuer project income for a period of time using Hotel Africana as an example over say 10 years, it can give you Shs10 billion. That’s what they call time value.

The most common is the field comparison, for instance, if an upscale plot in Kololo costs Shs1b, that is the market price so the valuer will find out at what price people are selling and set their price.

Although there could be differences in raw materials, Mr Matovu says those are known as “adjustable.”

Mr Sewajjwa Kyeyune, a principal partner at Santa Property Services, says there are professional valuers for property because valuation is a complex matter.

 “A lot of parameters are taken into consideration, for instance, if one is evaluating a property to get a bank loan, most of the time the value will differ from someone valuing to sell,” he says.

 He adds; “The best way to avoid being fleeced is using professional valuers; just like when you want to get a construction plan, you look for surveyors that should apply to property valuation.”

Price

 In determining prices, Mr Kyeyune says the most common method is comparison, for instance, you compare a house or a piece of land sold recently like a three-bedroom house sold at Shs150m.

 “You compare properties around an area then you determine the prices in that area but we have valuers who will take care of the unforeseen. For instance, if you have a shop in the corner, it will be valued higher than the middle shop because it will attract  a higher price than a middle shop,” he says.

 Mr Kyeyune says most prices are subjective to change.”

 Mr Ivan Mulumba, an official from Buganda Land Board, says the approach to value a property varies depending on the property type and the purpose.

 Don’t  be fleeced

 Mr Kyeyune says to avoid being fleeced, employ registered valuation Surveyors to do the work.

 He says a list is published in the newspapers every year by the surveyors’ registration board. These are the ones with the right to value property and property interests.

 The professionals also say before buying land, market value comparison always matters, ground research is the better.

“If you have a valuer or not, ground work is important,”  he says .

What banks use

But who has the right to value property especially if it is used for collateral? Experts say the bank has the right to value your property but for your own property it is better to hire a valuer.  Government has their own valuers.

Professionals agree that financial institutions use what they call “forced sale value” to remain in business.

Forced value means the loans given are ‘not the real value of the property meaning even if everything fails, they are assured of their money they lent to you.

Mr Kyeyune says banks put your property under risks they undergo that is why they get valuers they are acquainted with.

How it started

Forced sale value

Who has the right to value property especially if it is used for collateral? Experts say the bank has the right to value your property but for your own property it is better to hire a valuer.  Government has their own valuers.

Professionals agree that financial institutions use what they call “forced sale value” to remain in business.

Forced value means the loans given are ‘not the real value of the property meaning even if everything fails, they are assured of getting back the money they lent to you.

Valuing property

According to Judy Rugasira, a chartered surveyor and managing director of Knight Frank Uganda, a property’s value is defined as the present worth of future benefits arising from the ownership of the property.

The benefits of property are generally realised over a long period of time. Value is, therefore, not necessarily equal to cost or price.

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