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]
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