RES451

Property valuation technique INVESTMENT VALUE

Prepared by :
Sr. Dr Nur Lesya Firsya Binti Johaimi Ling, MRISM
 RES451
Property Valuation Technique

Investment Value Framework

Components:
➢ Net income or cash flows
➢ Time or the period over which the net income or cash flows are received
➢ Yield or the rate of return
• The key variable – the yield which reflects expected future income change &
performance of the investment in comparison to alternative investments
 RES451
Property Valuation Technique

Definition and Function of YIELD

• Is defined as the ratio of benefits over the capital investment
• •The return on investment (ROI) is the ratio between return of investment over the
capital outlay
• •Also known as the rate of return (ROR) or capitalisation rate in property
investment
• •Act as a reward for an investor.
• •Can be used to cover and reduce the risk of loosing the money and the drop in
inflation
• •Also function as units of comparison to understand the prices of value of certain
investment
 RES451
Property Valuation Technique

How to calculate YIELD

• The calculation of yield is:
• INCOME (RETURN) x 100
Capital
• = _______%

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 RES451
Property Valuation Technique

YIELD in Property Investment

• Tells an investor the amount of annual return that he or she is likely to get
from the investment
• •It is calculated by expressing the rental income as a percentage of the
capital outlay of the property (Stephen Ludlow)
• Types of Yield is divided into two:
i)Income Yield
ii) Total Yield (Internal Rate of Return – IRR)

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 RES451
Property Valuation Technique

Types of YIELD

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Property Valuation Technique

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Property Valuation Technique

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Property Valuation Technique

EXERCISES
A commercial property investment located in a city center, let
to a tenant at RM 6,000 p.m. gross for an unexpired term 4
years, was recently sold out at RM 1 million. It is estimated that
property could fetch a rental value of RM7,000 per month gross
in the open market, and if sold with vacant possession could
fetch a price of RM 1.2 million.

Using the scenario, briefly explain and calculate the different

type of yields that can be associated with property investment.

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 RES451
Property Valuation Technique

FACTORS INFLUENCING YIELD

• Security & risk of income & capital
• Growth prospects or depreciation
• Liquidity
• Marketability
• Taxation liability
• Management costs
• Transfer costs
• Frequency & timing of income

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THANK YOU!!!