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PMV611S - PRINCIPLES AND METHODS OF VALUATION - 2ND OPP - JULY 2023 |
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n Am I BI A u n IVER s I TY
OF SCIEnCE Ano TECHnOLOGY
FACULTY OF ENGINEERING AND THE BUILT ENVIRONMENT
DEPARTMENT OF LAND AND SPATIAL SCIENCES
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 2023
PAPER:
THEORY
DURATION:
3 HOURS
MARKS:
100
SECOND OPPORTUNITY/SUPPLEMENTARY EXAMINATION QUESTION PAPER
EXAMINER(S)
SAM M. MWANDO
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 5 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 6 PAGES (Including this front page)
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Principles and Methods of Valuation
PMV611S
Question 1
For each of the following statements indicate whether it is 'TRUE' or 'FALSE'. Each correct answer carries 1
mark.
(20)
a) In the calculation of depreciation using the cost approach, remaining economic life is economic life
plus the effective age of a building.
(1)
b) The profits method of valuation is applicable to properties such as service stations and religious
buildings in an active market.
(1)
c) The actual age of a building is defined as the number of years which have elapsed since the
construction was completed.
(1)
d) Of the three causes of depreciation on buildings, only functional obsolescence cannot be cured.
(1)
e) In valuing income producing properties, they are two main approaches we can use, the direct
capitalization and the capital flow method.
(1)
f) The gross operating income includes insurance, utilities, management fees, dividends, and vacancies.
(1)
g) In determining the yield on a property, we consider the risk-free rate, the sector risk, illiquidity risk
premium, management premium and expected capital gain.
(1)
h) In applying the comparative method of valuation, we compare unique properties which have sold in
the past and using evidence of those transactions to assessthe value of the subject property.
(1)
i) The comparative method of valuation is most suited for residential properties where there is a
freehold interest or a long leasehold interest.
(1)
j) The Amount of N$1 Per Annum refers to the amount to which annual deposits of N$1 each will grow
in each number of years and at a stated rate of interest.
(1)
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Principles and Methods of Valuation
PMV611S
k) When the market is weak and few market transactions are available, using the profits method is the
next best alternative to valuing residential properties.
(1)
I) The cost approach is preferred in the valuation of residential properties because of their
heterogenous nature where each piece of land is unique.
(1)
m) The gross external area is the area of a building measured externally.
(1)
n) The reduced floor area analysis is a method used to derive a value per square metre for a property.
(1)
o) Where the sales are found to have resulted from a forced sale or foreclosure, those com parables may
not be the best to use in arriving at the value of the subject property.
(1)
p) Effective demand is the level of demand that represents a real intention to purchase by people with
the means to pay.
(1)
q) A reasonable assumption to make in property valuation is that property values will remain static
throughout a foreseeable period.
(1)
r) The layout of a farm manager's house can assist us in determining the value of an agricultural
property.
(1)
s) Large and beautifully manicured lawns normally assist us in determining the value of office buildings.
(1)
t) A double-storey house located in Khomasdale is an example of a special use property.
(1)
[20)
Question 2
a) What are the underlying principles of each of the following methods of valuation?
i) Investment method
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· Principles and Methods of Valuation
PMV611S
ii) Cost approach
(2)
b) Define the following types of depreciation and give a minimum of two _(2)examples for each of them.
i) Physical deterioration
(2)
ii) Functional obsolescence
(2)
iii) Economic obsolescence
(2)
c) Assuming similar lease terms and conditions, analyse and calculate the rental value of a residential
property in Khomasdal with a net floor area of 145m2 currently vacant and to let. The following are
comparable properties:
(5)
Comparables
Property A
Property B
Property C
Extent in Location/locality
m2
150 Adjacent
100 Nearby
150 Nearby
Date of
Lease
Recently
January
2019
November
2018
Rentals (N$)
Value (N$)
48 000
36 000
450 000
d) Consider the following data on a property in Windhoek West:
Sale price
N$ 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.
(3)
ii) Calculate the average annual percentage depreciation if the property is 8 years old.
(1)
iii) Which method of calculating depreciation is this?
(1)
[20)
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Principles and Methods of Valuation
r
r
Question 3
PMV611S
a) A shop with an area of 130 square metres is currently let at N$ 5 000 per annum. Analyse the
transaction to value an adjacent shop which has an area of 144 square metres. Yields for shops are
presently at 8%.
(8)
b) Assessthe Rental Value for Tura Hotel given the following information obtained from their account
books:
Gross receipts: Bar
N$125 000
Restaurant N$ 90 000
Rooms
N$ 70 000
Purchases
N$ 60 000
Employee wages
N$ 40 000
Rates
N$ 2 000
License
N$ 2 500
Insurance
N$ 10 000
Repair and Maintenance
N$ 10 000
Depreciation
N$ 8 000
Tax
N$ 10 000
Audit Fees
N$ 4 000
Advertising
N$ 3 000
Bank Charges
N$ 2 000
Tenants Remuneration stands at 12% while RiskTaking and Entrepreneurship amounts to 15%. The
interest on borrowed capital of N$150 000 is about 14%.
(12)
[20)
Question 4
a) Explain the circumstances where a valuer would use the Residual Method of Valuation?
(3)
b) Outline the three (3) main purposes for which a Residual valuation may be undertaken.
(7)
c) Outline any three (3) variables to consider in determining the Gross Development Value.
(3)
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Principles and Methods of Valuation
d) Explain the following terms as they apply to Residual Method of Valuation:
i) Developer's profit and risk
ii) Professional fees and costs
iii) Advertising and marketing
PMV611S
(2)
(2)
(3)
[20]
Question 5
a) Explain the following as used in the profits method of Valuation:
i) The profits principle
(2)
ii) Legal Monopoly
(1)
iii) Factual monopoly
(1)
iv) Goodwill
(1)
b) Why is the profits method of valuation a preferred method when valuing Petrol station?
(5)
c) Airport Petrol Station comprises a garage and self-service petrol station situated on a busy road in
Windhoek. The development comprises a forecourt, a 550m 2 convenient shop, a 250m2 storeroom
and a 850m 2 workshop. Petrol sales are at average of 275,000 litres per annum at N$20.65 per litre.
Current net rentals for similar shops are N$80/m 2 per month, workshops and storeroom rentals are
N$30/m 2 and N$22/m 2 per month respectively. Outgoings are set at N$ 250,000 per annum.
According to your research in the market, the market yields for this kind of investment is
approximately 11%. However, on close analysis, you discover that the service station would yield a
2 percentage points better than the market yield. Assuming a freehold title, calculate the value of
the property.
(10)
[20]
Second Opportunity Examination Paper
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July 2023