Problem
You are a qualified valuer with a graduate valuer working under your supervision. You want to train up this junior valuer and give him a valuation task using the following data:
A freehold shop with an existing tenancy will expire in 2 years. The existing annual rent is $48,000 gross, and the outgoings are at 25% of gross rent. The capitalisation rate for similar properties is 8% and the current full market gross rent is $54,000 p.a. In addition, market data shows that the term yield is 7%.
The junior valuer has prepared the following valuation for your scrutiny.
Annual gross rent $54,000
YP in perp @ 8% 12.5
Market Value $675,000
1. Comment on the validity of this valuation. Is it correct? If not, what is wrong?
2. Prepare a valuation to show the junior valuer the correct approach.