The influence of property valuations on real estate investment decisions by businesses in Uganda

Abstract

Real estate, like other investment options, is associated with risks. As such, real estate business investors strive to reduce these risks associated with the investment in order to maximise returns. Reducing the risks entails analysis of the various factors that may affect the potential investment opportunity before deciding on which investment to pursue. Accurate property valuations play a significant role by influencing real estate business investment decisions. Whereas the tolerable margin of valuation accuracy globally, is between +/- 10%, concerns have been raised by businesses in Uganda about the increasing margin of the property valuation inaccuracy that have led to several businesses making poor real estate investment decisions, resulting into severe financial losses and at times, bankruptcy. As such, this research, which focusses on the influence of property valuations on real estate investment decisions by businesses in Uganda, was undertaken to address concerns about the increasing valuation inaccuracies in the country. The study adopted a mixed method research design based on literature review, focus group discussions and an online questionnaire survey. A total of 196 real estate business investors and practicing property valuers comprising members of the Association of Real Estate Agents Uganda and the Institution of Surveyors of Uganda were purposively sampled. A narrow understanding of the choice and application of property valuation methods was ranked as the highest cause of valuation inaccuracies (Mean = 4.03), followed by poor property market information dissemination (Mean = 3.8). The erosion of public trust in property valuations, misallocation of resources, financial losses and bankruptcy were found to be the main consequences of inaccurate property valuations in Uganda. These findings confirmed that property valuations can influence real estate business investment decisions. A thematic analysis of recommendations by the respondents led to the development of a comprehensive valuation model for Uganda, focused on the candid interaction between the real estate business investor and the property valuer, as well as the contributions by key stakeholders such as the government, valuation organisation, education institutions and the valuation client. The study recommends enhancement of property valuation data availability, accessibility and reliability, development and promotion of relevant CPD programs for valuers, creation of public awareness on property valuation, enactment of a specific law for valuation and a law for real estate agency, development and enforcement of valuation standards and promotion of further research for the development of the valuation profession. The study further recommends that specific research be conducted to establish the extent of valuation variance in Uganda. In addition, the ongoing interventions to improve property valuation accuracy in Uganda should be aligned to the proposed property valuation model for the assurance of their effectiveness, efficiency, credibility, accuracy and accountability to support real estate investment decisions by businesses in Uganda.