Examining the Variation Between the Conventional and Contemporary Valuation of Residential Investment Properties in Lagos

Abstract:

Due to the interplay between the forces of demand and supply in the determination of residential property investment valuation, there is continuous increase in rental value and rent review pattern and as such, conventional valuation of residential property investment has become inappropriate as it cannot handle the problems of rental values, rental growth, impact of inflation and rent review pattern experienced in the Nigerian property market. The objectives were to determine the annual rental growth rate pattern for residential properties from 2014–2020 and ascertain the level of variation in the use of conventional and contemporary investment methods in determining the value of such real estate assets in Lagos State, Nigeria. Appropriate descriptive approach was adopted and the result showed that rental values increased within the period, rental growth followed a similar trend, rent review pattern was mostly three years, and practitioners were aware of discounted cash flow. Valuation results revealed 6.67% variation for discounted cash flow, 0% for real value model and 25% rational approach. The use of a constant income annuity in perpetuity for conventional investment method of valuation as a single income stream would result in erroneous valuation as conventional technique relies fully on comparable evidence. The contemporary techniques on the other hand integrate property as part of the larger investment community which enables estate valuers to make qualitative market valuation where there is no comparable evidence. This study therefore recommends that contemporary valuation techniques are appropriate in the market valuation of residential property investments, particularly in the market valuation of reversionary freehold.