Property Watch (Part III) - Valuation of Commercial and Industrial Property

PART III - THE COST OF BUILDING AND REPLACEMENT VALUE

An industrial property is let at R45m², the net income of R575,856-00 per annum, capitalised at 9%, values the property at R6,398,400-00

This would be the price paid by an investor. An owner-occupier could take a different view and be prepared to pay more as he would consider the alternative of buying land, building, and assessing what he is prepared to pay for an existing structure compared to the total cost of a new building.

Assuming the land/site area is 2,000 m² with coverage of 70%, the size of the building is 1,400m², the GLA, gross lettable area will be less, we have worked on 1,333m2, a basic cost/ replacement value would be;

Land Value 2,000 m² at R1,000-00 per m² = R2,000,000-00
Buildings 1,400 m² at R3,300-00 per m² = R4,620,000-00
Sub Total R6,620,000-00

This may only represent 50% to 60% of the actual replacement cost, as the following must also be taken into consideration:

Legal and financial:
VAT (reclaimable?)
Commission
Transfer duty
Conveyancing fees
Bond registration costs

Building Costs:
Factory
Offices
Landscaping
Perimeter walls and paving
Security fencing, etc.

Escalation:
Design Period
Construction Period

Professional Fees:
Architect
Quantity Surveyor
Structural Engineer
Mechanical Engineer, etc.
Project Manager

Development Costs:
Demolition costs
Finance Raising Fees
Legal costs
Plan Scrutiny Fees
Connection Fees
Rates during construction
Commission on letting, etc.

Loss of interest:
On land and building cost

These additional costs could increase the original estimate by as much as 40%.
Original Estimate R6,620,000-00
Add other costs – say 36.6% R2,422,756-00
Total Cost R9,042,756-00

The cost of buying an investment property at 9% is R6,398,400-00 the building/replacement could be R 9,042,756-00, 41.33% more than buying an existing building.

Courtesy: Reg Wall

Contact: Reg Wall

Tel: 021 797 2552 / 083 261 0563

Email: [email protected]

Web: www.coreproperty.co.za

Disclaimer: The information in this email is confidential and legally privileged. It is intended solely for the addressee. If you are not the intended recipient, please delete the email. You may not copy, distribute, or disclose the included information to anyone.  Whilst all reasonable steps have been taken to ensure the accuracy and integrity of all data transmitted electronically, Christies Property Brokers cc t/a Core Property Group and its subsidiaries do not accept liability if the data, for whatever reason, is corrupt or does not reach its intended destination. No representation or warranty, expressed or implied, is or will be made and no responsibility or liability is or will be accepted by Christies Property Brokers cc t/a Core Property Group, or its subsidiaries, employees, or agents in relation to the accuracy, completeness or fitness for any purpose of this information or for any loss, liability, damage (whether direct or consequential) or expense of any nature whatsoever which may be suffered as a result of or which may be attributable, directly or indirectly, to the use of or reliance upon any of this information. Past performance is not a reliable indicator of future results. The information stated, opinions expressed and estimates given are subject to change without prior notice. This information is for informative purposes only and does not constitute investment advice or any other advice, or a personal recommendation. All aspects of any transaction would need to be reviewed by the client’s preferred advisor prior to implementation. E.O.E

Search By Reference


NEWSLETTER SUBSCRIBE

Stay updated on the latest Property News

Contractor Find - The Smart Way to Find Your Contractor