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BOVAEP Valuer TPC practice questions

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Question 1Valuation Principles, Bases and Methodology

Under the IVS-aligned definition of market value used in Malaysian valuation practice, which condition must be present for the estimate to qualify as market value?

  1. The price reflects the value to one named owner
  2. Proper marketing occurs before the valuation date Correct answer.
  3. The seller keeps a right to repurchase the property
  4. The buyer is compelled to complete the purchase quickly

Explanation

Market value assumes a willing buyer and willing seller, an arm's length transaction, proper marketing before the valuation date, and parties acting knowledgeably, prudently and without compulsion. A forced timetable or a price tied to one owner's circumstances falls outside that definition.

Question 2Valuation Principles, Bases and Methodology

A purpose-built government laboratory has no close comparable sales and is rarely traded. Which valuation approach is most appropriate as the primary method?

  1. Direct comparison approach using residential sales
  2. Cost approach using depreciated replacement cost Correct answer.
  3. Profits method using business turnover
  4. Residual method using hypothetical development

Explanation

A specialised property with no active market is normally valued by the cost approach, using current replacement or reproduction cost less depreciation, plus land value. Direct comparison requires reliable comparable transactions, while profits and residual methods depend on trading or development assumptions that do not fit this asset.

Question 3Valuation Principles, Bases and Methodology

A pension fund asks a valuer to estimate the amount the fund itself could rationally pay for an office tower, reflecting the fund's own financing and tax position. Which basis of value is being requested?

  1. Forced sale value
  2. Market rent
  3. Liquidation value
  4. Investment value Correct answer.

Explanation

Investment value is the value of an asset to a particular investor, reflecting that investor's own requirements, financing, tax position and return expectations. Market value, by contrast, assumes a typical knowledgeable market participant rather than one fund's circumstances.

Question 4Valuation Principles, Bases and Methodology

A shop produces a net operating income of RM72,000 per year. Recent comparable sales indicate a capitalization rate of 6%. Using the direct capitalization method, what is the indicated market value?

  1. RM900,000
  2. RM1,200,000 Correct answer.
  3. RM432,000
  4. RM720,000

Explanation

Direct capitalization converts a single year's sustainable net operating income into value by dividing it by the capitalization rate. Here RM72,000 ÷ 0.06 = RM1,200,000, representing the income the property is expected to produce at the required market yield.

Question 5Valuation Principles, Bases and Methodology

A development site has a gross development value of RM5,000,000. Total construction and professional costs are RM3,200,000, and the developer requires a profit of 20% of GDV. Using the residual method, what is the residual land value before purchase costs?

  1. RM1,800,000
  2. RM1,000,000
  3. RM600,000
  4. RM800,000 Correct answer.

Explanation

The residual method deducts development costs and the required developer's profit from gross development value to derive land value. Profit is 20% × RM5,000,000 = RM1,000,000, so the residual is RM5,000,000 − RM3,200,000 − RM1,000,000 = RM800,000 before purchase costs.

Question 6Valuation Principles, Bases and Methodology

An office building has an inefficient floor plate that forces long internal corridors and reduces lettable area compared with modern offices in the same location. Which type of depreciation does this most directly illustrate?

  1. External obsolescence
  2. Functional obsolescence Correct answer.
  3. Physical deterioration
  4. Locational obsolescence

Explanation

Functional obsolescence is loss of value caused by deficiencies in design, layout or specification within the property itself. An inefficient floor plate that wastes lettable area is a classic functional deficiency, distinct from physical wear, location and external market factors.

Question 7Valuation Principles, Bases and Methodology

A retail unit is let on a lease with three years remaining at a passing rent of RM80,000 per year. Market rent for the unit is now RM110,000 per year. In a term-and-reversion valuation, how is the reversion treated?

  1. Only passing rent is capitalised because no review is possible
  2. Passing rent is capitalised in perpetuity because it is the contract rent
  3. Passing rent is capitalised for the term, then market rent for the reversion Correct answer.
  4. Market rent applies for the whole period and passing rent is ignored

Explanation

In a term-and-reversion valuation the contract rent is capitalised for the remaining lease term, and the market rent is capitalised from the reversion onward, often at a different yield. This recognises that the passing rent is fixed until the lease ends or is reviewed.

Question 8Valuation Principles, Bases and Methodology

Which property type is most commonly valued using the profits method because the property's value is closely tied to the trading performance of the business?

  1. Vacant industrial warehouses
  2. Standard suburban houses
  3. Hotels operated as going concerns Correct answer.
  4. Government office buildings

Explanation

The profits method values a property by reference to the trading profit of the business conducted there, capitalising a fair maintainable operating profit. It is used for specialised trading properties such as hotels, pubs and petrol stations where trading potential is the main driver of value.

Question 9Valuation Principles, Bases and Methodology

Two otherwise identical shops are valued by direct capitalization. Shop A has a secure 10-year lease to a national retailer; Shop B is vacant and in a weak letting market. What is the most likely effect on the capitalization rates and values?

  1. Shop A will have a higher capitalization rate and lower value than Shop B
  2. Shop B will have a lower capitalization rate because vacancy creates flexibility
  3. Shop A will have a lower capitalization rate and higher value than Shop B Correct answer.
  4. Both shops will use identical capitalization rates because they are identical physically

Explanation

Capitalization rates reflect risk: a higher-risk income stream is capitalised at a higher rate and produces a lower value. Shop A's secure lease lowers risk and therefore its capitalization rate, while Shop B's vacancy and weak letting market raise risk and reduce value.

Question 10Valuation Principles, Bases and Methodology

A comparable shop sold nine months ago for RM600,000. The valuer's market index shows shop values have risen 6% over that nine-month period. What is the time-adjusted indication of value for the subject property, before any other adjustments?

  1. RM654,000
  2. RM564,000
  3. RM600,000
  4. RM636,000 Correct answer.

Explanation

A time adjustment updates the comparable sale to reflect market movement between the sale date and the valuation date. A 6% rise applied to RM600,000 gives RM600,000 × 1.06 = RM636,000 before any further adjustments for location, condition or lease terms.

Question 11Valuation Principles, Bases and Methodology

In valuation practice, a basis of value is best described as:

  1. The formula used to capitalise income into a value
  2. The sequence of inspection steps that the valuer follows on site
  3. The type of comparable evidence selected for analysis
  4. The fundamental assumptions on which a value is reported Correct answer.

Explanation

A basis of value sets the fundamental assumptions on which a valuation is reported, such as market value or investment value. It is not the same as the valuation approach, the method, or the inspection procedure, which are the means by which the figure is derived.

Question 12Valuation Principles, Bases and Methodology

Which set of tests is used to determine the highest and best use of a property?

  1. Market rent, passing rent, yield, and expected rental growth
  2. Replacement cost, depreciation, land value, and obsolescence
  3. Current use, zoning, rental level, and capitalisation rate assumptions
  4. Legally permissible, physically possible, financially feasible, maximally productive Correct answer.

Explanation

Highest and best use is determined by testing four criteria: legally permissible, physically possible, financially feasible, and maximally productive. A use must pass all four before it can be treated as the highest and best use.

Question 13Valuation Principles, Bases and Methodology

A forced sale value differs from market value mainly because it assumes:

  1. That the buyer and seller are related parties
  2. That the property is sold with vacant possession in every case
  3. That no depreciation is applied to the improvements
  4. A restricted marketing period rather than the normal exposure period Correct answer.

Explanation

Forced sale value assumes a seller constrained to dispose of the property within a shortened marketing period, often for lending or liquidation purposes. It is not a formal IVS basis of value, and the shorter exposure period is the main reason it generally falls below market value.

Question 14Valuation Principles, Bases and Methodology

A comparable shop in a superior location sold for RM800,000. The valuer judges that the subject's location is 10% inferior to the comparable. In a quantitative adjustment grid, the adjustment to the comparable's sale price is:

  1. Deduct RM80,000 from the comparable's sale price Correct answer.
  2. Deduct RM88,889 from the comparable's sale price
  3. Add RM80,000 to the comparable's sale price
  4. Make no adjustment because location differences are purely qualitative

Explanation

The comparable must be adjusted to reflect the subject. Because the comparable is 10% superior in location, its sale price is reduced by 10% of RM800,000, giving a RM80,000 deduction. Adding the adjustment would move the evidence in the wrong direction.

Question 15Valuation Principles, Bases and Methodology

An all-risks yield of 7.0% and expected long-term net rental growth of 2.0% per annum imply a capitalisation rate of approximately:

  1. 14.0%
  2. 7.0%
  3. 5.0% Correct answer.
  4. 9.0%

Explanation

In a constant-growth income model, the capitalisation rate equals the all-risks yield minus expected long-term net rental growth. Here, 7.0% less 2.0% gives 5.0%. Adding the growth rate would overstate the capitalisation rate.

Question 16Valuation Principles, Bases and Methodology

A warehouse was built 30 years ago but was extensively refurbished five years ago. In the cost approach, which age measure best reflects the remaining economic life of the improvements?

  1. Remaining economic life
  2. Effective age Correct answer.
  3. Total economic life
  4. Chronological age

Explanation

Effective age reflects the condition and utility of the improvements after refurbishment, rather than the actual elapsed time since construction. It is used with total economic life to estimate remaining economic life in the cost approach. Chronological age would overstate the depreciation for a recently refurbished building.

Question 17Valuation Principles, Bases and Methodology

A five-year lease has a headline rent of RM120,000 per year and a one-year rent-free incentive. Ignoring time value and rent review, the average effective rent per year is:

  1. RM100,000
  2. RM96,000 Correct answer.
  3. RM120,000
  4. RM150,000

Explanation

The tenant pays four annual rents of RM120,000 over the five-year term because one year is rent-free. Total rent is RM480,000, which divided by five years gives an average effective rent of RM96,000 per year. This ignores time value and any rent review.

Question 18Valuation Principles, Bases and Methodology

In depreciated replacement cost, the cost figure normally adopted is the:

  1. Original historical cost indexed to today's prices
  2. Replacement cost of an asset of equivalent utility Correct answer.
  3. Reproduction cost of an identical replica
  4. Market value of the land plus book value of the improvements

Explanation

Depreciated replacement cost starts with the replacement cost of an asset of equivalent utility, not the reproduction cost of an identical replica. Depreciation is then deducted for physical deterioration and obsolescence. Historical cost and book values are not the starting point.

Question 19Valuation Principles, Bases and Methodology

Which statement correctly distinguishes fair value under IFRS 13 from market value under IVS?

  1. Fair value is an exit price in the principal market; market value assumes open-market marketing Correct answer.
  2. Fair value is always higher than market value because it includes transaction costs payable by the buyer
  3. Fair value is an entity-specific value reflecting the owner's intentions, while market value is market-based
  4. Fair value may be used only for owner-occupied property, while market value applies to all other property

Explanation

IFRS 13 defines fair value as an exit price in the principal or most advantageous market between market participants. IVS market value also assumes an open market, but its wording emphasises proper marketing and willing parties rather than the accounting principal-market framework. Both are market-based concepts, so fair value is not an entity-specific value.

Question 20Valuation Principles, Bases and Methodology

Under IVS, when should a valuer disclose a material valuation uncertainty?

  1. When market disruption means the valuation cannot be relied upon to the normal degree Correct answer.
  2. Whenever the valuer adopts more than one valuation approach for cross-checking
  3. Whenever the property is unique and has no direct comparable evidence
  4. Only when the client specifically instructs the valuer to provide a forced sale value for lending

Explanation

A material valuation uncertainty disclosure is made when market conditions are so disrupted that the valuation cannot be relied upon to the normal degree. It is not a routine clause for unique properties or for using more than one approach. The clause warns users that the evidence base is unusually weak.

Question 21Valuation Principles, Bases and Methodology

A retail parade loses trade and value after a new highway bypass removes through traffic from the area. In the cost approach, this loss is classified as:

  1. external obsolescence Correct answer.
  2. physical deterioration
  3. curable physical deterioration
  4. functional obsolescence

Explanation

External obsolescence, also called economic obsolescence, arises from factors outside the property such as changed traffic patterns or local demand. It is usually incurable by the owner because the cause lies beyond the site boundary. Physical deterioration concerns wear and tear, while functional obsolescence concerns the property's design or utility.

Question 22Valuation Principles, Bases and Methodology

Under the International Valuation Standards, the valuation date is best described as:

  1. the date on which the valuation report is signed
  2. the date on which the valuer's opinion of value applies Correct answer.
  3. the date on which the client commissioned the valuation
  4. the date on which the property was inspected

Explanation

The valuation date is the specific date to which the valuer's opinion of value relates, and it may differ from the inspection date or report date. IVS requires the valuation date to be stated clearly because market conditions and property facts can change between those dates.

Question 23Valuation Principles, Bases and Methodology

A comparable shop sold for RM900,000 and has a gross annual rent of RM60,000. Using the gross rent multiplier, the multiplier is:

  1. 15 Correct answer.
  2. 18
  3. 12
  4. 20

Explanation

The gross rent multiplier is the sale price divided by the gross annual rent. Here RM900,000 divided by RM60,000 equals 15. The multiplier can then be applied to the subject's gross rent to indicate value under the market approach.

Question 24Valuation Principles, Bases and Methodology

A shop is let at a passing rent of RM50,000 per year for exactly three years, after which the rent is expected to revert to the market rent of RM70,000 per year in perpetuity. Using a capitalisation rate of 8%, the years' purchase for three years at 8% is 2.5771 and the present value of RM1 in three years at 8% is 0.7938. What is the market value using the term and reversion method?

  1. RM823,430 Correct answer.
  2. RM1,003,855
  3. RM875,000
  4. RM694,575

Explanation

The term value is RM50,000 multiplied by 2.5771, which equals RM128,855. The reversion value is RM70,000 divided by 0.08, giving RM875,000, discounted at 0.7938 to RM694,575. Adding the term and reversion gives RM128,855 plus RM694,575, or RM823,430.

Question 25Valuation Principles, Bases and Methodology

A property has an initial yield of 5% and a reversionary yield of 7%. The equivalent yield is best described as:

  1. the discount rate that equates projected income to capital value Correct answer.
  2. the average of the initial and reversionary yields
  3. the yield that would be achieved if the property were sold immediately
  4. the yield used only when rent is not subject to review

Explanation

The equivalent yield is a single discount rate that, when applied to the projected income stream including reversions, produces the same present value as the capital value. It is not a simple average of initial and reversionary yields and is used to compare properties with different lease profiles.

Question 26Valuation Principles, Bases and Methodology

In the profits method of valuation, which figure is capitalised to arrive at the property's value?

  1. the business's gross revenue before any deductions
  2. fair maintainable operating profit Correct answer.
  3. the tenant's capital employed in the business
  4. the net profit after tax and financing costs

Explanation

The profits method capitalises the fair maintainable operating profit that the property can reasonably generate. This figure is struck after deducting operating expenses and providing for the tenant's capital and reward, so it reflects the property's trading potential rather than accounting profit.

Question 27Valuation Principles, Bases and Methodology

A building has a replacement cost new of RM2,000,000, an effective age of 10 years and a total economic life of 50 years. Using straight-line depreciation, what is its depreciated replacement cost?

  1. RM2,000,000
  2. RM1,800,000
  3. RM1,500,000
  4. RM1,600,000 Correct answer.

Explanation

Straight-line depreciation is 10 divided by 50, or 20% of replacement cost new. The depreciation deduction is RM2,000,000 multiplied by 20%, which equals RM400,000. Depreciated replacement cost is therefore RM2,000,000 minus RM400,000, or RM1,600,000.

Question 28Valuation Principles, Bases and Methodology

A property produces a net income of RM100,000 at the end of each year for the next three years. At the end of year 3 it is expected to be sold for RM1,500,000. Using a discount rate of 10%, and given present value factors at 10% of 0.9091, 0.8264 and 0.7513 for years 1 to 3, what is the present value?

  1. RM1,248,680
  2. RM1,500,000
  3. RM1,375,630 Correct answer.
  4. RM1,126,950

Explanation

The present value of the three income payments is RM100,000 multiplied by the sum of 0.9091, 0.8264 and 0.7513, which equals RM248,680. The present value of the sale proceeds is RM1,500,000 multiplied by 0.7513, or RM1,126,950. The total present value is RM248,680 plus RM1,126,950, or RM1,375,630.

Question 29Valuation Principles, Bases and Methodology

Two adjoining freehold sites are owned separately. If they are combined into a single development plot, the total value of the combined site exceeds the sum of the values of the two separate sites. The additional value created by the combination is best described as:

  1. business goodwill
  2. betterment gain
  3. residual salvage value
  4. marriage value Correct answer.

Explanation

Marriage value is the increase in value arising from merging two or more interests or parcels that are more valuable together than separately. It is commonly analysed when adjoining owners assemble a site or when a freehold and leasehold interest are combined.

Question 30Valuation Principles, Bases and Methodology

Under the International Valuation Standards, a special assumption is best described as:

  1. a client instruction that limits the scope of the valuation
  2. an assumption that facts differ from those existing at the valuation date Correct answer.
  3. a fact that the valuer has verified as correct at the valuation date
  4. a statement that the valuer cannot be held responsible for the valuation

Explanation

A special assumption assumes facts that differ from the actual facts at the valuation date, such as assuming vacant possession when the property is occupied. It must be disclosed because it changes the basis on which the value opinion is given.

Question 31Valuation Principles, Bases and Methodology

A property is described as being let at market rent when the rent payable under the existing lease:

  1. is set to recover the landlord's original purchase price
  2. matches the rent for a new letting on the valuation date Correct answer.
  3. was fixed at the start of the lease and never reviewed
  4. includes service charge and insurance contributions

Explanation

Market rent is the estimated amount for which a property should rent on the valuation date between a willing lessor and lessee in an arm's length transaction. A lease is at market rent only when its passing rent equals that open-market figure; the historical rent or the landlord's cost base is irrelevant.

Question 32Valuation Principles, Bases and Methodology

The profits method of valuation is most appropriate for which type of property?

  1. A vacant residential apartment
  2. A standard office floor let to a government tenant
  3. An undeveloped residential plot
  4. A hotel operated as a going concern Correct answer.

Explanation

The profits method capitalises the maintainable net profit of the business carried on at the property. It suits hotels, petrol stations, restaurants and similar properties where value is closely tied to trading potential rather than to a simple market rent. Ordinary let properties are usually valued by the investment or comparable method.

Question 33Valuation Principles, Bases and Methodology

Investment value differs from market value mainly because investment value:

  1. assumes a forced sale within a short marketing period
  2. is the price recorded in the most recent comparable transaction
  3. reflects the worth of a property to a particular investor Correct answer.
  4. is set by a statutory formula for rating purposes

Explanation

Investment value is the value of an asset to a specific owner or prospective owner for individual investment or operational objectives. Market value is an open-market concept that assumes a willing buyer and seller and disregards special purchaser synergies. The two figures can differ materially for the same property.

Question 34Valuation Principles, Bases and Methodology

A development site will produce a completed development value of RM10,000,000. Construction and professional fees total RM6,000,000. The developer requires a profit of 20% of the completed development value. Ignoring finance, time and purchase costs, what is the residual land value?

  1. RM2,000,000 Correct answer.
  2. RM2,800,000
  3. RM1,200,000
  4. RM4,000,000

Explanation

Developer's profit is 20% of RM10,000,000, or RM2,000,000. The residual land value is the completed value less construction and fees less profit: RM10,000,000 - RM6,000,000 - RM2,000,000 = RM2,000,000.

Question 35Valuation Principles, Bases and Methodology

A comparable property sold for RM600,000 18 months ago. The valuer has reliable evidence that values for similar properties have risen by 6% per annum, compounded, over that period. What is the market-conditions-adjusted value of the comparable, to the nearest RM1,000?

  1. RM655,000 Correct answer.
  2. RM648,000
  3. RM636,000
  4. RM672,000

Explanation

The compound adjustment for 18 months is RM600,000 x 1.06^1.5 = RM654,804, which rounds to RM655,000. A simple one-year or simple 8% adjustment would fail to reflect compounding over the full period.

Question 36Valuation Principles, Bases and Methodology

A property has a net operating income of RM150,000 per annum. The valuer deducts RM10,000 per annum as a capital expenditure reserve before capitalising the income at 7%. What is the indicated value?

  1. RM1,785,714
  2. RM2,285,714
  3. RM2,000,000 Correct answer.
  4. RM2,142,857

Explanation

The capital expenditure reserve is deducted from net operating income to reflect the annual cost of maintaining the property's income-producing capacity. The adjusted income is RM140,000, and capitalising this at 7% gives RM2,000,000. Capitalising the unadjusted RM150,000 would overstate value.

Question 37Valuation Principles, Bases and Methodology

In the comparable method, a valuer makes a quantum allowance when:

  1. the comparable is leasehold and the subject is freehold
  2. the comparable sale was not at arm's length
  3. the comparable sale included furniture and the subject is vacant
  4. the subject and the comparable differ materially in size Correct answer.

Explanation

A quantum allowance recognises that value per unit area or per unit of accommodation generally falls as size increases. It is applied where a single percentage adjustment across the whole property would overstate or understate the size effect. It is separate from tenure, contents or transaction-status adjustments.

Question 38Valuation Principles, Bases and Methodology

In the investment method, the net operating income to be capitalised is normally calculated:

  1. before operating expenses but after debt service
  2. after only the landlord's income tax is deducted
  3. after operating expenses but before debt service and tax Correct answer.
  4. after mortgage interest and income tax are deducted

Explanation

The investment method capitalises the income attributable to the property, so the figure is struck after normal operating expenses but before financing costs and tax. Debt service and tax depend on the particular owner's financial position and would mix property return with the investor's circumstances. Using a post-tax or debt-serviced figure would not isolate the property's income stream.

Question 39Valuation Principles, Bases and Methodology

A property is let on a lease with three years remaining at a passing rent of RM120,000 per annum. The market rent for the property is RM90,000 per annum. Which statement best describes the effect on the value of the landlord's freehold interest?

  1. The over-rent raises the reversionary value at lease expiry
  2. The rent passing is below market rent, creating a profit rent for the landlord
  3. The over-rent has no effect because market rent governs value
  4. The rent passing exceeds market rent, creating an over-rent that ends at lease expiry Correct answer.

Explanation

An over-rent arises where the passing rent is above market rent. It is a temporary benefit to the landlord that is capitalised only for the remainder of the lease; at expiry the property reverts to the lower market rent. The over-rent does not increase the reversionary value and cannot be ignored in the valuation.

Question 40Valuation Principles, Bases and Methodology

In the cost approach, physical deterioration is treated as curable when:

  1. the defect cannot be remedied within the remaining economic life
  2. the building is older than its effective age
  3. the cost of remedying it is less than the value it adds Correct answer.
  4. the defect affects the building's structure rather than its finishes

Explanation

Curable depreciation is limited to items where the expenditure to rectify the defect is economically justified by the value added. If the cost exceeds the benefit, the deterioration is incurable and is reflected in the overall loss in value. Structural location or age alone does not determine curability.

Question 41Applied and Specialised Property Valuation (residential, commercial, industrial, agricultural, specialised and Going-Concern assets)

A valuer is asked to value a 15-year-old single-storey terrace house in a suburb where similar houses have recently sold in arm's-length transactions. Which approach is most appropriate?

  1. Capitalisation of the notional net income an owner-occupier might derive.
  2. Comparison with recent sales of similar houses, adjusted for differences. Correct answer.
  3. The residual value of the land after deducting notional development costs.
  4. Depreciated replacement cost of the building added to the value of the land as if vacant.

Explanation

For a standard residential terrace house in an active market, the comparison (market) approach is the primary method, because recent verifiable sales of similar houses provide direct evidence of price. Adjustments are then made for location, floor area, condition, age and tenure. The cost and income approaches serve only as checks or as fallbacks where comparable evidence is scarce.

Question 42Applied and Specialised Property Valuation (residential, commercial, industrial, agricultural, specialised and Going-Concern assets)

In valuing a purpose-built factory, which building feature most directly affects its utility to a heavy-engineering occupier?

  1. The clear span, eaves height and crane capacity. Correct answer.
  2. The number of visitor car parking bays provided.
  3. The floor area of the first-floor administration offices.
  4. The colour scheme applied to the external cladding.

Explanation

Heavy-engineering occupiers need to install and operate overhead cranes and tall plant, so clear span, eaves height and crane capacity determine which occupiers can use the building. That in turn drives the rent the property can command and therefore its capital value. Office and parking provision matter, but they are secondary for this occupier type.

Question 43Applied and Specialised Property Valuation (residential, commercial, industrial, agricultural, specialised and Going-Concern assets)

A valuer is assessing a mature durian orchard. Which factor most directly supports the orchard's maintainable income?

  1. Tree maturity, variety mix and the estate's yield history. Correct answer.
  2. The age and condition of the farmhouse on the land.
  3. The original cost of land clearing and fencing.
  4. The number of workers permanently employed on the estate.

Explanation

Perennial tree crops are valued by reference to their sustainable productive capacity, so tree maturity, the varieties planted and the estate's proven yield record underpin the maintainable income that is capitalised. These factors determine fruit volume, quality and hence revenue. Historic establishment costs and ancillary buildings do not drive ongoing income.

Question 44Applied and Specialised Property Valuation (residential, commercial, industrial, agricultural, specialised and Going-Concern assets)

A shop unit is let at RM8,000 per month with four years unexpired, while the market rent for comparable units is RM6,000 per month. Under the investment method, how should the valuer treat the income?

  1. Deduct the over-rent for the whole term without any risk adjustment.
  2. Adopt the market rent for the whole term and disregard the passing rent entirely.
  3. Value the reversion only and disregard the term income altogether.
  4. Capitalise the passing rent to expiry, then the market rent into perpetuity. Correct answer.

Explanation

The passing rent is contractually receivable until expiry, so it is capitalised for the remaining term; thereafter the property is assumed to let at market rent, and that reversionary income is capitalised in perpetuity. The over-rent is a matter of covenant strength and renewal risk rather than a mechanical deduction. This layered approach is the standard investment method treatment.

Question 45Applied and Specialised Property Valuation (residential, commercial, industrial, agricultural, specialised and Going-Concern assets)

A retail unit is let at a base rent plus a turnover top-up calculated on the tenant's gross sales. In the investment method, how should the turnover element be handled?

  1. Treat turnover rent as a landlord's expense and deduct it from the base rent.
  2. Base rent capitalised, with sustainable top-ups reflected in the rent or yield. Correct answer.
  3. Ignore the base rent and capitalise the turnover rent as the sole income.
  4. Capitalise the highest turnover rent achieved in any single year of the lease.

Explanation

Only the base rent is contractually certain, while turnover top-ups depend on the tenant's trading performance and may fluctuate or disappear. A prudent valuer therefore capitalises the base rent and reflects only sustainable top-ups, either through the rent adopted or through the capitalisation rate. Treating peak or guaranteed turnover as certain income overstates value.

Question 46Applied and Specialised Property Valuation (residential, commercial, industrial, agricultural, specialised and Going-Concern assets)

When valuing a city hotel as a going concern, which approach should the valuer principally adopt?

  1. Land value at highest and best use with vacant possession.
  2. The cost of the furniture, fixtures and operating equipment only.
  3. Capitalising the hotel's maintainable net operating profit. Correct answer.
  4. Comparison with sales of nearby residential apartment units.

Explanation

A hotel is a trading entity whose value as a going concern is derived from the profits it can generate, so the income approach applied to maintainable net operating profit is the principal method. The cost approach and market evidence are used as cross-checks on the resulting figure. Occupancy, average room rate and departmental costs are examined when deriving the maintainable profit.

Question 47Applied and Specialised Property Valuation (residential, commercial, industrial, agricultural, specialised and Going-Concern assets)

A leasehold industrial lot has 25 years unexpired and a fixed ground rent. Compared with an identical freehold lot, its lower value mainly reflects:

  1. The tenant's internal repairing obligation under the lease.
  2. Higher day-to-day maintenance costs on the leasehold lot.
  3. Capitalised ground rent and the loss of the reversion. Correct answer.
  4. Statutory depreciation applied to the factory building.

Explanation

A leasehold interest is worth less than the freehold because the holder must pay the ground rent throughout and will lose the property to the landlord at expiry. The difference is measured by the capitalised ground rent plus the value of the reversion, discounted for the time remaining. A shorter unexpired term increases the discount applied to that reversion.

Question 48Applied and Specialised Property Valuation (residential, commercial, industrial, agricultural, specialised and Going-Concern assets)

In a going-concern valuation of a manufacturing plant, which item is normally excluded from the plant and machinery valuation?

  1. Overhead gantry cranes used to move work in progress.
  2. Process machinery permanently bolted to the factory floor and foundations.
  3. Raw materials and finished goods held as stock. Correct answer.
  4. Electrical distribution equipment serving the production process.

Explanation

The plant and machinery valuation captures assets used in the production process, including fixed process plant, cranes and the engineering services that support them. Trading stock is a current asset realised through the working capital cycle of the business and is normally excluded from the plant and machinery figure. Double counting it would inflate the going-concern value.

Question 49Applied and Specialised Property Valuation (residential, commercial, industrial, agricultural, specialised and Going-Concern assets)

A petrol station on a long lease, operated under a fuel supply agreement that can be transferred to a purchaser, is valued as a going concern. How should the supply agreement be reflected?

  1. Through capitalised maintainable earnings, if it transfers to a purchaser. Correct answer.
  2. As a separate intangible asset added at face value to the land value.
  3. It should be disregarded, as only land and buildings carry value.
  4. At the original cost of the signage and canopy branding installed.

Explanation

The value of a petrol station as a going concern rests on its throughput and fuel margin, both of which depend on the supply terms. Where the agreement is transferable, that benefit is captured by capitalising maintainable earnings rather than by adding a separate figure. If the agreement were personal to the operator, it would be excluded from the valuation.

Question 50Applied and Specialised Property Valuation (residential, commercial, industrial, agricultural, specialised and Going-Concern assets)

A single-screen cinema now competing with multiplexes is valued by depreciated replacement cost. Which adjustment is most significant in arriving at its value?

  1. The capitalised ground rent payable under the occupational lease.
  2. The site's redevelopment value under an alternative use.
  3. Functional obsolescence from its layout and limited screen count. Correct answer.
  4. Physical deterioration of the seating and floor coverings.

Explanation

Depreciated replacement cost starts from the cost of providing an equivalent modern facility, so a building whose layout and screen count make it uncompetitive against multiplexes suffers substantial functional obsolescence. That deduction is usually far larger than physical wear and tear for such a property. The figure is then tested against the profitability of the use.