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Contractor's Method for Valuation of Clubhouse

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[ Home ] [ Up ] [ New Contents/ Updates ] [ APC Resources ] [ Q & A (Knowledge Base) ] [ Research & Analyses ] [ Public Forum ] [ Useful Web Sites ] The contractors' method is a means of ascertaining the rental value of a property principally for rating purposes where no satisfactory comparables exist. Illustrate how it can be applied to the valuation of a club house and its limitations.

Characteristics of Club house - non-profit making, owned by its members and not normally involved in property market transaction - not a proprietary club which carried on business offering similar facilities and was obliged to participate in the market in order to acquire its premises, but actually they are the same in user term - seldom change hands, therefore few comparables - little general market and consequently rarely sold

Profit method - may be inapplicable if the activities carried on at a property are not conducted with the primary objective of making a profit.

Contractors' method - alternative method in the absence of rental evidence (for rating evidence purposes) - potential/hypothetical tenant would elect to construct and own his own premises rather than rent the premises - a range of market rents do not exist - he could borrow money, on which he would have to pay interest; or use his own capital by forgoing interest to put up a similar building for his owner-occupation rather than rent it, and he will do that to Cardiff case : observe that the benefit of ownership, the annual rent would have to be much below the annual interest charge - the substantial deduction reflects the fact that the owner has security of title, obtains the benefit of appreciation in value and enjoys other advantages not shared by a yearly tenant - Cardiff deduction Royal Hong Kong Golf Club v Commissioner of R & V - breakdown the method into 5 important steps to assess the rateable value

APPLICABILITY 1. No general market demand and scarce transaction. 2. Few comparables renders comparative method, residual method inapplicable.
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Contractor's Method for Valuation of Clubhouse

3. Non-profit making purposes renders residual method, profit method, investment method and Discounted Cash Flow method inappropriate. 4. On the assumption that cost is normally one factor of many which may affect supply and demand and which therefore affect value, but it is probably true that with this type of building it is a predominant factor. 5. The would be users of such buildings to acquire alternatives sites and to construct new buildings rather than purchase an existing property at a' greater overall cost. As competition between rival potential users would be unlikely and it is therefore reasonable to assume that cost and value are not unrelated with such specialist buildings.

Valuation : Cost of Site Cost of Building Depreciation Allowance and Obsolescence Allowance Value of Existing Property

+ =

LIMITATIONS 1. The Contractor Method is based loosely on the assumption that cost and value are related. 2. Difficulty in defining the depreciation and obsolescence allowance. 3. Market value of the land (cost of site) had to be assessed in accordance with variation in supply and demand, if the site is strictly confined to the club house use, how to assess in the absence of comparables.

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