AFFILIATIONS

All our valuers are members of the South Africa Council for the Property Valuers Profession as well as the South African Institute of Valuers.

SACPVP is a statutory body established on 1 January 1983 as the South African Council for Valuers, which was replaced by the SA Council for the Property Valuers Profession established by section 2 of The Property Valuers Profession Act, 2000. The Council's main functions are:

• Registration of Professional Valuers, Professional Associated Valuers and Candidate Valuers;

• Maintenance of their integrity and enhancement of their status;

• Improvement of their academic and other qualifications and of the standard of services rendered by them;

• Protection of members of the public in their dealings with registered persons;

• Drawing up and keeping up to date a register of all registered persons.

The SAIV, representing the majority of registered Valuers in South Africa and established in 1909, is dedicated to serving the public interest by advancing high standards for members of the valuation profession. The SAIV is in the business of promoting excellence by:

• Setting and maintaining high standards of professional proficiency, ethics and education

• Striving to provide the appropriate educational programmes, sources of data and information

• Marketing and creating awareness of the benefits of the professional services of its members to existing and potential clients;

• Monitoring and making representations on relevant legislation in the best interests of its members and their clients.

METHODOLOGY

The responsibility of a Valuer is to execute his mandate/instruction according to ethical standards which confirm credibility, efficiency and honesty of purpose. The manner in which the practical aspect of property valuations should be executed is best described by the legal maxim ”without fear, favour or prejudice.”

For the efficacy of each and every valuation, it is essential for the Party instructing the Valuer to provide a detailed and comprehensive instruction relating to the subject property. Thereafter the Valuer may commence his/her search procedure which is an all-encompassing investigation into the relevant Deeds Office and Local Authority records relating to Title Deeds, endorsements, restrictions, diagrams, rates records, zoning certificates and the use of geographical information systems. These mechanisms would assist the Valuer in establishing the “Highest and best use of the subject property.” Arrangements would then be made for an in situ inspection of the property at a time convenient to both Parties.

There are a number of methodologies for Valuers to use, especially in the valuation of commercial and industrial properties. This is best understood by the sentiments of The International Private Equity and Venture Capital Valuation Board which states “In assessing whether a methodology is appropriate, the Valuer should be biased towards those methodologies that draw heavily on market-based measures of risk and return.” The following are the methodologies currently used in the market place by Valuers in Southern Africa:

This method considers the sales of similar or substitute properties and related market data and establishes a value by comparing the information (i.e. “apples with apples.”) What the Valuer is looking for is a sale of a property which is similar, not identical. This method has been held as the most reliable and accepted by Courts.

This is a comparative approach to value that considers income and expense data relating to property being valued and estimates value through a capitalization process. This method is applied when income-generating capabilities is present and is considered by the market as forming the primary basis for value. The capital value refers to the value attributed to the right of an annual income stream.

This approach entails the research and analysis of transaction prices of similar or comparably substituting properties, rental rates, expense ratios, yields, capitalization rates, tenant covenants and risk. In essence this approach entails an income stream from which expenses are deducted and the net income capitalized. (Examples are an office block, a shopping centre or a factory).

This is defined as the current cost of replacing an asset with its modern equivalent asset, less deductions for physical deterioration and all forms of obsolescence and optimization. This is appropriate when little or no market evidence is available and the property does not transact readily in the market place i.e. a specialized property as defined more fully in the International Valuers Handbook. The procedure is to measure the improvements (buildings, site works etc) to which the appropriate construction costs are applied which results in the new replacement (or reproduction) cost.

A depreciation factor (composed of 3 factors viz. physical deterioration, functional obsolescence and external or economical obsolescence) is then applied to the replacement values in order to arrive at the present-day value of the improvements. The market value of the land, as if unimproved, is then to be determined and added to this depreciated amount with the total amount reflecting the market value of the property. (Examples: place of worship and government buildings etc. which are not normally traded in the open market.).

The residual method refers to the estimated amount that an entity would currently obtain from the disposal of an asset after deducting the estimated costs of disposal, if the asset were already of the age and in the condition expected at the end of its useful life. This approach is widely used by developers to determine the value of a tract of land with development potential.

The first step would be to estimate the value of the development as if complete. Then an allowance for development costs, professional fees, advertising and marketing costs, financing costs, developers profit and risk is then deducted from the completed value. What is left after these deductions, is the residual value. (Example; land value of a proposed township development – residential, commercial or industrial properties.)

This states that the rental amounts and capital values of assets are usually influenced by the potential to generate profit. Therefore, profits can be used as a basis to determine the value of a property. An estimate of the gross annual income or turnover is made from which cost of sales and operating expenses are deducted. The net balance is then divided into a rent and profit split. The rental is capitalized at an appropriate capitalization factor.

In addition, the goodwill is to be ascertained at a market-related multiplier with the market value represented by the total of these two amounts. The second approach takes the estimated net profit only, divides it into a rental and profit split and capitalizes the rental amount in order to determine the value of the business “lock, stock and barrel.” (Examples; hotels, petrol filling stations or quarries.)

The appropriate valuation method for a property is dependent on that property’s specific use (eg. income-producing or farmland,) lease profile and notional buyer (eg a listed Property Fund would look to a Discounted Cash Flow model in the proposed purchase of a shopping centre and an Attorney seeking an office suite would look to the market place via the direct Comparison Method.)