EVALUATION OF TRUE VALUE OF PROPERTY Essay Example

  • Category:
    Marketing
  • Document type:
    Assignment
  • Level:
    Masters
  • Page:
    3
  • Words:
    2062

EVALUATION OF TRUE VALUE OF PROPERTY

University Affiliation

EXECUTIVE SUMMARY

The process of purchasing an office property building is pretty troublesome if there is no way to ensure that you are getting the best price on offer. In order to determine whether the value of a certain property is justified, research has to be conducted in the market where the comparison approach will be critical in determining the real value of a property in the current market (Dugan, Dugan and John, 1999). It is all well to use the different ways to compare properties where you estimate that the value of a property cannot be more than its substitute but to determine its real valuation, the discounted cash flow will be immensely beneficial in determining the present value of the property as it uses future cash flow projections to arrive at that given conclusion (Glabadanidis, 2014).

The research will be quite useful as nothing topples market knowledge. Hence, careful research must be conducted to determine the valuation of similar properties which can e used not only as references but also as comparables. This information of the sales no matter how crucial to the process must first be verified by one of the parties involved in the transaction and this might include the agent, purchaser, or the vendor (Anderson and Shaw, 2000).

INTRODUCTION

The property that is going to be used for research is 155 Clarence Street, Sydney, NSW 2000. These offices were sold for a price of $124, 070, 000. Originally built in 1938 to 1939, it was the headquarters of the Australian Red Cross before redevelopment started. The redevelopment was completed in 2015 where it saw an addition of 3 brand new floors. This piece of property was sold on March 2, 2017, to Eureka Funds Management on behalf of Union Investment RE. This building is located in the heart of the CBD which makes it a quite strategic location for the offices. The property also occupies 12, 500 sqm and hence to use it for our research, it is essential that we look for properties that are comparable to this one.

I say comparable because in the real estate every single property is unique and finding identical properties is rare. Due to the uniqueness of most properties, we tend to identify comparable characteristics that will help us in the evaluation. Though, adjustments must be indicated in terms of size and direction, if you are comparing properties in the different locations or of different conditions. If in any case, the market data is not available, general trends are used.

National office market outlook and local office market outlook

Australia has been transitioning to domestic economic drivers which are shown by the annual growth of 4% in the public sector final consumption as well as the 2.5% household final consumption. NSW was ranked as the strongest performing state in Australia. According to analysts, this strong performance is set to continue for the next year. The impact of lower interest rates has been felt in the market, where offices and industrial properties have hugely benefited. However, potential capital value stability has been helped by the improved prospect for rent growth which is an advantage that cannot be underestimated due to the surrounding environment of higher rising debt costs.

During the 2Q17 the demands for the property remained strong. Office space demand was actually broad based, with different industry sectors active in taking the space. However, not all was smooth sailing as the net absorption (1,900) was just moderate even with high demand. The levels of demand were further distorted by the significant levels of withdrawals (24, 500sqm).

Supply additions suffered in 2Q17 as just only one projected was completed during this time. International House Sydney in Barangaroo stood as the single project completed in 2Q17. The assets performance was also, quite strong as the investment inquiry was quite strong. There were five strong assets that transacted (Sales>= 5.0 million) amounting to AUD 1.5 billion. These transactions were indicative of the persistent investment demand in Sydney CBD. In the next year, the office demand is looking quite positive. The rents are expected to increase in the next one year or less as a result of tightening space conditions.

Comparable property analysis

It is a necessity that we choose comparable properties that will help us determine the true market value of the property that was sold. The key characterization that will be taken into consideration will be the location or rather its position from the CBD. The first property is 401-405 Illawarra Road, Marrickville, NSW 2204 which was sold for $6, 150,000on June 19, 2017. This property has a floor area of 619m2 and is just 8km away from the CBD.

Sale Price

Distance from CBD

Floor Area

401-405 Illawarra Road, Marrickville, NSW 2204

$6, 150,000

19 June, 2017

Market report for 155 clarence st nsw 2000

401-405 Illawarra Road, MARRICKVILLE, 2204, New South Wales

The second property on the show is 617-619 Parramatta Road, Leichhardt, NSW 2040, which is currently tenanted and consists of earnings of $73,000 P.A. It has a land area of 446.00m2 and the exact floor area.

Sale Price

Distance from CBD

Floor Area

617-619 Parramatta Road, Leichhardt, NSW 2040

$4, 250,000

21 July, 2017

Market report for 155 clarence st nsw 2000 1

617-619 Parramatta Road, Leichhardt, NSW 2040

The Third property is 619 — 621 Harris Street, Ultimo, NSW 2007 which is on the border of the CBD and a floor area of 355m2.

Sale Price

Distance from CBD

Floor Area

619 — 621 Harris Street, Ultimo, NSW 2007

$2, 250,000

Edge of the city (60 km)

27 June, 2017

Market report for 155 clarence st nsw 2000 2

619 — 621 Harris Street, Ultimo, NSW 2007

The fourth property is 9 Deane Street, Burwood, NSW 2134 which has a floor area of 2,712m2 and has a current income of $1, 040,000.

Sale Price

Distance from CBD

Floor Area

9 Deane Street, Burwood, NSW 2134

$21, 250,000

28 July, 2017

Market report for 155 clarence st nsw 2000 3

9 Deane Street, Burwood, NSW 2134

The fifth property is 321 Marrickville Road, Marrickville, NSW 2204 with a floor area of 1249m2.

Sale Price

Distance from CBD

Floor Area

321 Marrickville Road, Marrickville, NSW 2204

$10, 250,000

23 July, 2017

Market report for 155 clarence st nsw 2000 4

321 Marrickville Road, Marrickville, NSW 2204

The last property is 77 Glebe Point Road, Glebe, NSW 2037 which has a floor is of 497 m2 and is perfectly positioned such that it is quite near the CBD.

Sale Price

Distance from CBD

Floor Area

77 Glebe Point Road, Glebe, NSW 2037

$4, 250,000

9 June, 2017

Market report for 155 clarence st nsw 2000 5

77 Glebe Point Road, Glebe, NSW 2037

Subject Property Analysis

What the analysis concludes is that 401-405 Illawarra Road, Marrickville, NSW 2204 and 617-619 Parramatta Road, Leichhardt, NSW 2040 were almost similar in every way except their floor size and land area which was quite a little difference but the first property was sold for almost twice the price because of its proximity to the CBD. The second property cost and demand were hurt to some extent because of the location of the property which does not appear close to the CBD. This can also be used to compare the first property 401-405 Illawarra Road, Marrickville, NSW 2204 and the second one 9 Deane Street, Burwood, NSW 2134, where still the dates, when they were sold, may differ but what really determines the cost of the property is again the proximity to the CBD. Though the 9 Deane Street, Burwood, NSW 2134 property is quite helped by the Land Area as well as the floor area and that is why it gains a foot on the first property.

These properties are sold nearly the same period or just one month between each other and thus the time the properties were sold have a less impact on the cost as the trends do not have enough time to actually stabilize and determine the course of the market. This means that time adjustment will be almost insignificant in determining the cost of the houses that are sold at almost the same time.

Role of government in the property market

The government needs to be involved in the property market as this involvement ensures the government will intend for a prospering property market so that both the government itself and the property market thrive. For any property market to exist, basic government structures such as land registration and ownership system, enforceable contracts, and the rule of law among others are required. While these basic government structures are the key to ensuring that even a property market will exist, you also need the necessary responses as the market is continuously changing (Beer, Kearins and Pieters, 2007).

The government in Australia has the responsibility to ensure that all obstacles facing the growth of property market are eradicated. This is because the property market plays a huge role in the living of Australians and also importantly the Australian economy. One such issue that has been holding the property market back has been the rising prices of the property which is a counter for the high taxes charged on this property. Tax reform is necessary to phase out the quite steep stamp duty fees charged by the government. This has the effect of making most of the citizens avoid selling their property due to these fees.

Another role of the government is to regulate land and this is often carried out by the national government using a method known as zoning. This describes what can be done in each zone and what cannot be done. This means that there are constraints set for land development. This zoning can have the effect of either reducing or encouraging the growth of the property market. Zoning is thus not viewed as the solution to correct the misdeed of private properties (Popper, 1988).

The government does affect the property market by use of incentives hence buyers and sellers alike have to be aware of the incentives as they tend to affect the market positively. This is because they tend to determine changes in demand and supply, while also helping to identify the false trends. Without approaching this matter with caution you could wrongly end up thinking that a demand exists for a certain property, which in turn could lead to losses if you choose to invest completely without prior knowledge (Anderson and Shaw, 2000). This is because government incentives persuade homebuyers to buy homes as they make the price much more attainable than it would have otherwise been if such incentives did not exist.

The bailout is also another result of the government’s involvement in the property market. This is the willingness of the government to help industries that find themselves in a bit of a mess. This skews the market in a way that those properties that are poorly run can survive (Woods, 2009).

CONCLUSION

All in all, governments are quite a powerful force in the property market because they can skew the trend by just implementing or changing a single regulation or policy. Hence, taking other factors into consideration while evaluating property value you also need to take the government as one of the hugest factors. While the subsidies from the government may make life much easier for its citizens, this cost will inevitably come back to the taxpayers.

This method of direct comparison is the most acceptable approach as well as the most common one when it comes to determining the actual value of the property. This is because it allows the ease of using adjustments that will dictate why costs are higher on some properties than others. This can be the time of the transaction, the location of the property as well as many other factors indicated in the paper.

REFERENCES

Anderson, T.L. and Shaw, J.S., 2000. Is Free-Market Environmentalism “Mainstream”?. The Social Studies, 91(5), pp.227-231.

Beer, A., Kearins, B. and Pieters, H., 2007. Housing affordability and planning in Australia: the challenge of policy under neo-liberalism. Housing studies, 22(1), pp.11-24.

Dugan, J.W., Dugan and John W., 1999. Real estate appraisal method and device for standardizing real property marketing analysis by using pre-adjusted appraised comparable sales. U.S. Patent 5,857,174.

Glabadanidis, P., 2014. Discounted Cash Flow Valuation. In Absence of Arbitrage Valuation (pp. 15-27). Palgrave Macmillan US.

Popper, K.R., 1988. The open universe: An argument for indeterminism (Vol. 2). Psychology Press.

Woods Jr, T.E., 2009. Meltdown: A Free-market Look at why the Stock Market Collapsed, the Economy Tanked, and the Government Bailout Will Make Things Worse. Regnery Publishing.