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20180818 Market Value

20180818 (Sat)

How can you determine the market value of a property?

It is most appropriate to refer to a Valuer. However, if you do not seriously want to determine its value, another way is to check www.brickz.my.

This is the easiest way and the most reliable way to determine the market value of your property. Although you might not see very close match to your property in brickz.my, you can roughly get a range of transacted prices. Of course, no two properties are exactly the same, so the prices in transacted list might not apply to your property. In this case, you may do the below calculation. BUT, be aware that this is only in theory, the market value is best determined by a qualified VALUER!

Present Value of Annuity – What is the present value of a lump sum of money which can give you an annuity of periodical payment for a period of time.

This concept is called Year’s Purchase (YP) in valuation. The formula is

{1 – (1+i)^-n} / i, i = interest rate, n = term of period

Expecting the interest around 5%, and annuity period of 20 years the calculation would be:

{1 – (1.05) ^ – 20} / 0.05 = (1 – 0.377) / 0.05 = 12.46

So, if you expect your property to be rented at RM1,600 per month for 20 years, its value today is:

RM1,600 x 12 x 12.46 = RM239,232.

Of course, we cannot be using 20 years to calculate, it should be forever if you are going to sell the property; n = perpetuity

Therefore, the formula should have been modified to 1 – (1.05)^ – Perpetuity / 0.05 which is: (1 – 0) / 0.05 = 20

Market Value by YP is RM1,600 x 12 x 20 = RM384,000.

If it is a new property, base on the purchase price this calculated value is way too low! YES, you now understand that real life value is way beyond theory!

Even when you add in the potential appreciation of this property over 5 years, lets assume 6.5%.

RM384,000 x (1.065^5) = RM526,113

You are buying today at a 5 years future price!

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