The valuation of waterfront properties along the coastline of Kenya

Citation:
Swazuri MA. The valuation of waterfront properties along the coastline of Kenya .; 1996.

Abstract:

The valuation of waterfront properties along the coastline of Kenya Kenya is one of the coastal states that lie in the eastern part of Africa. For a long time now Kenyan valuation practice has been concentrated on land-based resources. Valuation of farms, houses, offices, industries etc. are now quite familiar in everyday life. However, a "new" era is now becoming important in world resources affairs, an area in which the valuation profession in Kenya can also participate. This area is the coastal or marine environment, where many sectors of the economy such as energy, transport and research are now increasingly turning to use. Whereas professional valuers in other countries have expanded their scope into these environments, the valuation profession in Kenya has been slow to realise its potential in the same. And because the full economic potential of the resources of the Kenyan coast is not known with certainty, it is logical to carry out studies of their estimation. Unlike land-based resources waterfront properties along the coastline Possess somewhat peculiar characteristics which imply that a free market or a purely price competitive mechanism will not allocate these resources properly. It is even worse for the methods of valuation which can be employed in such cases. Identification and exploitation of resources have to be enhanced by proper methods of the resources' estimation for them to be worthwhile. Two notable characteristics of the waterfront properties located along the Kenyan coastline are the extremitie in values of similar properties, sometimes even in the same localities, and the exclusive use of the market comparison method in such property valuations. This study contends that extremities in values have arisen from the use of improper methods for valuieing waterfront properties. And the method being used currently in the valuation disregards a number of important factors, most of which are difficult to quantify using the market comparison method. This study aims, therefore, to present better ways of valuing waterfront lands . .The valuation of waterfront lands 1.'3 influenced by both site- oriented, such as size and non-site-oriented variables like reasons for sale, date of transaction and so on. Evidence from the valuation pr ac t i.ce s in the study area suggests that only site-oriented characteristics of property are considered during valuations and this leads to either under valuation or overvaluation of these properties. Although some factors are not directly on the property being valued, they· are actually significant influences of value, and disregarding them altogether is not reasonable. The valuation method proposed in this study considers both site and non-site oriented factors. Using conventional multiple regression analysis (CMRA) it has been shown here that the choice of value- influencing variables is more scientific, more reasonable and less subjective than in the ordinary Comparison Method . Choice of influencing variables for valuation purposes is a necessary step if proper values have to be estimated. Many valuations have had faults because of inability to identify and measure these factors. Several regressiGn methods of valuation have been tried in this study, ranging from the simple mul tiple regression analysis to rank transformation regression. Each of- the methods has its merits and demerits, in most cases in terms of their usefulnes and accuracy involving waterfront lands. Conventional Multiple Regression Analysis (CMRA) and Rank Transformation Regression (RTR) were foun.d ·to be the best of the lot, accounting for 49% and 51% of the variation in property values in the area respectively. However, RTR seems to have the methodological problem of how to rank factors affecting value before using them in the procedure. While it is appealing and quite rational to rank factors, the criteria to be used for the ranking is contentious. CMRA was, therefore, found to be a 'better' method, because it produced better results in all the various tests the models underwent. For example, CMRA had a relatively high R2 of 49.1%, a relatively low MSE value of 13612 and the smallest Cp value of 277. CMRA's ability to rank the independent variables within itself during analysis can easily be understood by both the valuer and client, and is applicable in practice. Using the same methods, it was found that SIZE of property is the most important factor affecting value in the study area. The larger the size, the higher the value, although other factors such as width of the beach area (AREA), VIEW of the ocean waters, availability of water SPORTS on the beach etc, have also to be considered. Furthermore, no single factor alone can be used as the only basis for estimating values of waterfront lands. Despite the study advocating for the use of CMRA in waterfront valuations, _there are very few instances where the valuer will not use some form of comparison in the valuation process. Whether it is in the choice of independent variables or in the measurement of these variables, the principles of comparison have to be utilised to arrive at objective values. After all, valuation is all about the market, and if the valuer disregards the market trends then his valuation will be somewhat incomplete.

Website

UoN Websites Search