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PMV611S- PRINCIPLES AND METHODS OF VALUATION - 2ND OPP - JULY 2022 |
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nAmlBIA unlVERSITY
OF SCIEnCE Ano TECHnOLOGY
FACULTYOF ENGINEERINGAND SPATIALSCIENCES
DEPARTMENT OF ARCHITECTURE AND SPATIAL SCIENCES
(LAND AND PROPERTY SECTION}
QUALIFICATION(S): BACHELOROF PROPERTYSTUDIES
DIPLOMA IN PROPERTYSTUDIES
QUALIFICATION(S) CODE: 08BPRS
06DPRS
NQF LEVEL: 6
COURSE CODE: PMV611S
COURSE NAME: PRINCIPLESAND METHODS OF
VALUATION
EXAMS SESSION: JULY 2022
PAPER:
THEORY
DURATION:
3 HOURS
MARKS:
100
SECOND OPPORTUNITY/ SUPPLEMENTARY EXAMINATION QUESTION PAPER
EXAMINER(S) AMIN ISSA
MODERATOR: SAMUEL ATO K. HAYFORD
INSTRUCTIONS
1. Read the entire question paper before answering the Questions.
2. Please write clearly and legibly!
3. The question paper contains a total of 4 questions.
4. You must answer ALL QUESTIONS.
5. Make sure your Student Number is on the EXAMINATION BOOK(S).
PERMISSIBLE MATERIALS
1. Non-programmable Scientific Calculator
THIS QUESTION PAPER CONSISTS OF 9 PAGES {Including this front page)
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Principles and Methods of Valuation
Question 1
PMV611S
a) For each of the following statements indicate whether it is true or false. Each correct answer
carries 1 (one) mark.
(20)
i) The number of years a house has been built is its effective age while the condition and
utility of a house is its actual age.
ii) It is the discounted or present value of a series of future cash flows, where the initial
outlay is included as an outflow. The NPV is therefore the surplus or deficit present
valued monetary sum above or below the initial outlay (purchase price).
iii) The effective age of a property is the age indicated by the condition and utility of a
structure and is based on a valuer's judgement and interpretation of market perceptions.
iv) In the same market category, similar buildings do depreciate at the same rate.
v) Reproduction cost is the cost of constructing, using current construction methods and
materials, a substitute structure equal to the existing structure in quality and utility.
vi) The principle of anticipation in the investment method of valuation may involve the
anticipated future income or estimating a capitalization rate that implicitly reflects the
anticipated pattern of change in income overtime.
vii) The Amount of N$1 Per Annum refers to the amount to which annual deposits of N$1
each will grow in a given number of years and at a stated rate of interest.
viii) If a building layout or style fails to meet market tastes or standards due to changes in
design and technological advances, the building suffers from economic obsolescence.
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Principles and Methods of Valuation
PMV611S
ix) The difference between a building's economic life and its remaining economic life is the
actual age.
x) The Internal Rate of Return (IRR) is the actual return provided by an investment which
equates the present value of the future cash flow with the initial outlay.
xi) The Residual Method is used to find the value of special purpose properties and the land
on which they are built.
xii) The main challenges in the residual method is in estimating the amounts of the many
variables that go into the valuation.
xiii) The method is used for the purposes of finding the residual value of land only and if the
land is bought then it is also used to find the value of the developments on the land.
xiv) If the land is already owned by the developer, the profit margin and cost of development
can then be easily calculated.
xv) Gross development value is the value of the development intended by the developer and
is realized by either sale of the developed properties or the renting out of rooms in an
estate or even income generated by the hotel.
xvi) The contingencies that are part of the cost of development include, amongst others,
industrial action by the construction workers, floods, sudden increase in construction
materials
xvii) In the Profits method of valuation the value of the property will be related to the profits
which can be made from their use in as far as the value is derived from the income
generated by the business.
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Principles and Methods of Valuation
PMV6115
xviii) Both rental and capital values tend to be directly influenced by the potential for profit
and in these circumstances a valuation having regard to the profits achieved is more likely
to produce a realistic valuation than any application of comparison methods.
xix) A prospective purchaser may hold the view that current profits could be improved
substantially by better management, improved financial controls, the incorporation of
other sales lines or improvements to the premises. This is called business acumen.
xx) Pump prices and income margins available to both dealer and oil company are prescribed
and also the availability of sites for the construction of petrol stations are restricted and
these influence the way valuations are carried out.
b) Multiple Choice Questions
(10)
i) Which formula is applicable in establishing value of a property by cost approach?
A. Cost of site+ cost of building - obsolescence - depreciation = value of the property
B. Cost of site+ cost of building+ obsolescence - depreciation = value of the property
C. Cost of materials+ cost of building - expenses= value of the property
D. Cost of money+ cost of building - obsolescence - depreciation = value of the property.
ii) Which method is best suited for the valuation of hotels, lodges and cinemas?
A. Cost approach
B. Accounts method
C. Residual method
D. Hospitality comparable method
iii) A property valuer is undertaking the valuation of NUST in August 2018, which property
type should he/she consider in establishing the rate of land per square metre?
A. The NUSTland rates
B. The rate being applied on public universities in Windhoek
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Principles and Methods of Valuation
C. The rate being applied on properties within Windhoek West
D. All of the above.
PMV6115
iv) For a good valuation report to be compiled, it is vital for the valuer to note the following
sources of information except for:-
A. Estate agents
B. Deeds registry
C. Real estate newspaper pull out
D. Interior design magazine
v) The sales comparison approach involves various elements of comparison. Which of the
following elements is NOT one employed in this approach?
A. Cost
B. Property rights conveyed
C. Conditions of sale
D. Date of sale
vi) The following are the purposes for which a property valuation is done, except for
A. Cost estimation
B. Insurance
C. Expropriation
D. Purchase and sale
vii) What is the capitalization factor for years purchase in perpetuity at a yield of 8% to 1
decimal place?
A. 12.5
B. 10.0
C. 11.5
D. 9.0
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Principles and Methods of Valuation
PMV611S
viii) How does the sales comparison approach estimate property value?
A. Calculates price as a function of estimate rental income
B. Estimates price appreciation based on the past year of market performance
C. Compares the asking price to the last time the home was sold
D. Compares the subject property to nearby recently sold properties
ix) What is the best description of the discounted cash flow method?
A. The sum of the future value of rents over a specified period oftime
B. A discount paid at the purchase because the seller guarantees cash flow
C. The sum of the present value of rents over a specified period of time
D. The ratio of rent over the selling price of the home
x) For which of the following, profit method of valuation is most appropriate?
A. Vacant Land
B. Petrol station
C. Residential Home
D. Public School
[30]
Question 2
a) Under what circumstances would a valuer use the Cost Method of valuation?
(6
b) Derive the Net Rate from a comparable whose sale price is N$300 000, and the Erf value being
N$80,000 while value of its outbuilding is N$25,000 and value of siteworks and other
improvements is N$5, 000. It has an area of 200m2•
(6)
c) Use the Reduced Floor Area analysis to calculate the value of a house whose rate per square
metre is N$3,000. The area of the main house is 200m2, the verandah is 10m2, the granny flat is
40m 2 and the garage has an area of 20m2• Apply standardized conversion factors.
(5)
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Principles and Methods of Valuation
PMV611S
d) Using the cost approach, determine the market value of a property with a 300 square metre
building if construction costs new are N$5,000 per square metre, land value is estimated to be
N$400,000 and total depreciation on the building to date is estimated to be 8%?
(3)
[20)
Question 3
a) Using the following information provided by owners of Mopani Hotel (freehold property) for
the year 2020, calculate the Rental Value and also the Capital Value for the hotel.
• Total Gross Earnings
• Cost of Sales/Purchases
• Hotelexpenses
N$4 000 000
N$ 800 000
N$1650 000
Additional Information
Interest on Tenant's capital
12%
Tenants remuneration for working in Business 12%
Risk taking & Entrepreneurship
15%
Yield for the hotel business
9%
(10)
b) The Gross development value of a town house development in Rocky Crest is N$16,250,000
while its building costs (including cost of roads and professional fees) is N$ 8,400,000. The
cost of finance is N$840,000. If the Developer's Profit is 20% calculate the Land Residual
Value.
(5)
c) Mzekezeke intends to construct a much larger single storey residence once a rural plot is
purchased. As a preliminary step, he wants to estimate the cost of the main building, along
with a detached garage and a large workshop. To assist, a local builder has provided you with
replacement cost figures for homes of equal quality to the one contemplated by Mzekezeke.
Calculate the replacement cost, based on the following information.
(5)
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Principles and Methods of Valuation
PMV611S
Structure
Measurement
(metres)
Total
m2
Rep Cost Re~. Cost
/m2
N$
Main Bldg. 9.15 X 18.29
Garage
7.32 X 12.19
Workshop 6.10 X 6.10
N$6,925
N$3,432
N$3,225
Total Replacement cost:
[20]
Question 4
a) The following is data on a property in Windhoek West:
Sale price
N$ 400 000
Value of Land
N$ 100 000
Cost of Improvements new
N$ 450 000
i) Calculate the Lump-sum dollar depreciation as well as the Lump-sum percentage
depreciation of the property.
{4)
ii) Calculate the average annual percentage depreciation if the property is 8 years old.
(2)
b) The operating statement of a prime apartment block {freehold) is as follows:
Effective Gross Income
Fixed Operating Expenses
Variable Operating Expenses
Replacement Allowance
N$500 000
N$41000
N$55 000
N$35 600
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Principles and Methods of Valuation
PMV611S
Using the information provided above, calculate the:
i. Total Operating Expenses
(2)
ii. Operating Expense Ratio
{2)
iii. Net Operating Income
{2)
iv. Net Operating Income Ratio
(2)
v. Value of the property given the yield for similar type of properties being 8%
(4)
c) A freehold property on the market has an asking price of N$600 000 and a rental income of
N$1800 per month. Calculate the yield?
{3)
d) Shambo CC intends to build a total of 25 one bedroom flats in Otjomuise whose end sales
value is N$180 000 each. The cost of constructing each flat is N$850 per m2. Each flat has an
area of 55 m2. Shambo CCwants your professional advice on the price of the land they need
to build the 25 flats. The following additional information is provided:
• Ancillaries (other improvements) @ 3% of building costs
• Professional fees
@ 12.5%
• Contingencies
@ 3%
• Finance Costs
@ 7%
• Marketing fees
@ 3%
• Entrepreneurs Profit
@ 15%
(9)
[30]
End of Examination
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