Real estate is one of the most important assets. This is expressed in Germany’s national accounts where net construction assets are 86% of total net fixed assets.1In addition the usage of real estate belongs to the basic needs of people. Consequently the disposition of real estate regarding construction and acquisition contributes strongly to economical development of net stock of fixed assets within a national economy. However, in the valuation of property particular difficulties appear that complicate rational capital disposition. Basically, property valuation methods are difficult to apply or even fail in respect of rental income forecasts, assessment of risk and market orientation. Other influential factors originate from the heterogeneous character of properties and the complex structure of real estate markets. This work aims for the examination of codified and international property valuation methods in terms of their theoretical structure, practical application and critical aspects that influence a precise property valuation. In the following, principles regarding property valuation are introduced. This is followed by a detailed description of codified and international valuation methods. Subsequently all methods are applied on a real world valuation example that illustrates the methods and their applicability. Afterwards some decisive valuation methods are critically reviewed regarding their methodology, applicability and marketability. In summary the reader is given a classification in form of a matrix that is based on the aforementioned criteria. Further, some favourable components are identified that are complemented with recommendations for the use in practice.
Inhaltsverzeichnis (Table of Contents)
- Executive Summary
- Principles of property valuation
- Characteristics of the property market
- German surveyors in international comparison
- Definitions of value
- Valuation methods and regulations
- Codified valuation methods
- Vergleichswertverfahren (sections 13-14 WertV)
- Basic principle and procedure
- Requirements for application
- Provision for adjustments
- Calculation of the Vergleichswert and deviation of the Verkehrswert
- Ertragswertverfahren (sections 15-20 WertV)
- Basic principle and procedure
- Determination of annual net income
- Annual gross income
- Management and maintenance costs
- Determination of annual income attributable to the building
- Determination of return on land value
- Derivation of real property interest rate
- Determination of multiplier and other factors influencing value
- Determination of land value
- Calculation of the Ertragswert and deviation of the Verkehrswert
- Sachwertverfahren (sections 21-25 WertV)
- Basic principle and procedure
- Determination of the value of built assets
- Cost of constructing the building
- Deduction on account of age
- Deduction on account of physical deficiencies and structural damages
- Addition or deduction of other factors
- Determination of value of additional ground
- Determination of land value
- Calculation of the Sachwert and deviation of the Verkehrswert
- Vergleichswertverfahren (sections 13-14 WertV)
- International valuation methods
- Comparative method
- Basic principle and procedure
- Critical review of the comparative method
- Investment method
- Basic principle and procedure
- Current rent and rental value
- Outgoings
- Yields
- Growth implicit models
- Rack-rented properties
- Under-rented properties
- Term and reversion approach
- Top slicing approach
- Over-rented properties
- Growth explicit models
- Short-cut discounted cash flow method
- Implied rental growth rate
- Critical review of the short-cut discounted cash flow method
- Discounted cash flow analysis
- Free cash flow
- Discount factor
- Terminal value
- Short-cut discounted cash flow method
- Cost approach
- Basic principle and procedure
- Critical review of cost approach
- Residual method
- Basic principle and procedure
- Critical review of the residual method
- Profits method
- Basic principle and procedure
- Critical review of the profits method
- Real world valuation example
- Location and market conditions
- Macro-location Stuttgart
- Micro-location of property to be valued
- Market conditions
- Property description
- Property valuation
- Comparative method
- Ertragswertverfahren
- Sachwertverfahren
- Growth implicit model
- Discounted cash flow method
- Residual method
- Analysis of the results
- Location and market conditions
- Critical review of the property valuation methods
- Critical review of Vergleichswertverfahren
- Methodology
- Applicability
- Marketability
- Excursus: Vergleichswertverfahren versus comparative method
- Critical review of Ertragswertverfahren
- Methodology
- Applicability
- Marketability
- Critical review of Sachwertverfahren
- Methodology
- Applicability
- Marketability
- Excursus: Sachwertverfahren versus cost approach
- Critical review of growth implicit models
- Methodology
- Applicability
- Marketability
- Critical review of growth explicit models
- Methodology
- Applicability
- Marketability
- Summary of critical reviews
- Critical review of Vergleichswertverfahren
- Summary
Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)
This diploma thesis examines the valuation of real estate in Germany, focusing on the application of various valuation methods both in a German and international context. The thesis aims to analyze and compare these methods, providing insights into their strengths, weaknesses, and applicability. The work concludes with a critical review of the methods used in a real-world valuation example.
- Comparison of German and international valuation methods
- Analysis of the strengths and weaknesses of different valuation methods
- Evaluation of the applicability of valuation methods in different contexts
- Critical assessment of the results of a real-world valuation case study
- Understanding the challenges and considerations associated with valuing real estate in Germany
Zusammenfassung der Kapitel (Chapter Summaries)
- Executive Summary: This chapter provides a brief overview of the thesis, outlining the key objectives, themes, and findings.
- Principles of Property Valuation: This chapter introduces the fundamental principles of property valuation, including the characteristics of the German property market, German surveyors in international comparison, and different definitions of value. It also covers various valuation methods and regulations.
- Codified Valuation Methods: This chapter delves into three codified valuation methods commonly used in Germany: Vergleichswertverfahren, Ertragswertverfahren, and Sachwertverfahren. It examines each method's basic principle, application requirements, adjustments, and calculation processes.
- International Valuation Methods: This chapter explores a range of international valuation methods, including the comparative method, investment method, cost approach, residual method, and profits method. It analyzes their principles, procedures, and critical reviews.
- Real World Valuation Example: This chapter presents a case study involving the valuation of a specific property. It applies the different methods discussed in previous chapters to the case study and analyzes the results.
- Critical Review of the Property Valuation Methods: This chapter provides a detailed critical review of each valuation method, examining their methodology, applicability, marketability, and comparison to similar international methods.
Schlüsselwörter (Keywords)
The key focus topics of this thesis include real estate valuation, German valuation methods, international valuation methods, property market analysis, comparative method, investment method, cost approach, residual method, profits method, and critical review of valuation methods.
- Comparative method
- Quote paper
- Stefan Hocke (Author), 2006, The valuation of Real Estate in Germany, Munich, GRIN Verlag, https://www.grin.com/document/53168
