IMPERATIVE OF INVESTMENT METHOD IN THE VALUATION OF INCOME PRODUCING PROPERTIES FOR MORTGAGE PURPOSES IN NIGERIA

Author's Name: ELEKWACHI, Chikwendu Michael; UDOBI, Alexander Nnamdi & OKORO, Michael Kalu
Subject Area: Social Science and Humanities
Subject Management
Section Research Paper

Keyword:

mortgage valuation, open market value, market price, security, income producing property, investment method, yield, cost method.


Abstract

Since after the introduction of the Structural Adjustment Programme (SAP) in September, 1986 in Nigeria, there has been doubts and confusion as to the applicability of the investment method in valuation of properties in the country. Some valuers are of the view that the investment method is no longer relevant within the context of the present inflationary Nigerian economy. Most valuers in Nigeria adopt cost method (used for valuing specialized properties) in determining open market values of income producing properties for mortgage purpose, resulting to over estimation of open market values of the properties. The paper examined and analyzed the recent market sales evidence of blocks of residential flats and their rental values in three neighbourhoods in Aba. It revealed that the use of investment method, applying appropriate yield (capitalization rate) derived from the analysis of recent market sales of comparable properties and their corresponding rental incomes gives an accurate estimate of market value. The study concludes that investment method is the most reliable method of achieving market price and should continued to be used in valuing income producing properties for mortgage purpose in Nigeria.

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