Property and Asset Valuation
Property and Asset Valuation
Domain 3 tests technical valuation of land, buildings and other assets in Sri Lankan conditions: tenure, units of measure, approach selection, depreciation and adjustment.
Tenure and measurement
Freehold, leasehold, statutory permits and state land grants carry different rights and therefore different values. Land is measured in perches (1 perch ≈ 25.29 m²), with 40 perches to a rood and 160 perches to an acre. Confirm boundaries, title and encumbrances - including restrictions on alienation to foreign persons - before you value.
Approaches
- Sales comparison: adjust comparables for date, location, size, frontage, condition and title.
- Income: capitalise net operating income, or discount cash flows where leases are staggered.
- Cost: replacement cost new, less physical, functional and external obsolescence, plus land value.
Worked example
A 20-year-old warehouse has a replacement cost new of LKR 45,000,000 and a 50-year economic life, so depreciation is 20/50 = 40%, or LKR 18,000,000, leaving LKR 27,000,000. Land of 40 perches at LKR 500,000 per perch adds LKR 20,000,000: cost approach value LKR 47,000,000. Income check: NOI LKR 4,000,000 at 9% = LKR 44,400,000. Conclusion around LKR 45,000,000, weighted to the income evidence.
Traps
- Deducting depreciation from the whole property, land included.
- Ignoring lease terms that cap the income.
- Valuing permit or state land as though freehold.
- Applying a per-perch rate from a different town without adjustment.