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The Importance of Investment Appraisal

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Abstract

With the emergence of more complex institutional structures and investment products in the global property profession, the need to use a reliable software programme is ever more present. The analytical framework of investment and portfolio valuations has become more complicated, expensive and time-consuming. Furthermore, erroneous application has proved to be more costly, with an ever growing number of litigation claims made against the valuation profession.

An ability to evaluate a real estate investment acquisition or disposal is therefore becoming a critical area of discussion for the global real estate industry. Cheng et al. (2011) confirmed the importance of a user being able to “…choose the optimal holding period because “when to sell” affects “whether to buy””. Such viewpoints require a robust analysis and an ability for the appraiser to run and re-run various simulations, to consider a range of likely outcomes. Academics have argued and shed light on the fact that current valuation practices that are naively borrowed from financial theory are substandard and underestimate the market observed risk inherent with real estate investment. This paper gives a brief overview of the methodologies behind real estate investment appraisals and then discusses the application of leading valuation software Estate Master Investment Appraisal (or IA) in today’s property investment market. Furthermore, its application not only as a valuation tool but an investment management tool is brought into the analysis.

A basic case study model is linked to this paper as means of demonstrating some of the commentary included (see Appendix 1 – ‘Hypo Tower A’)

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Date Published: 27 Aug 2013
Category: White Papers

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