A Study of Errors Arising from Property Investment Income Capitalization Techniques

Abstract

This paper reviews a compendium of the valuers’ techniques, such as the Contractor’s test, Sales comparison, and the income capitalization and attempts to highlight the probable errors and shortcomings of the income capitalisation techniques, which is the most commonly used by them. These errors are found in the treatment of taxation, allowance for sinking fund, use of allrisks yields, allowance for risks on the basis of Risk Adjusted Discount Facto (RADF), and the implicit rental growth conventional valuation concept. Contemporary models for allowance of Capital Gains Tax (CGT) in freehold valuations, Double Sinking Fund (DSF), Equivalent Yield, and Risk and Explicit Rental Growth Adjustment are briefly considered with illustrations. This paper seeks to encourage students and lecturers to update their knowledge content of these models, and also compel valuation surveyors to step up their applications in valuation practice in Nigeria.

DOI: 10.5901/mjss.2013.v4n6p639