Advice and Opinion

Property valuations as a method for planning for the future

While most people may understand the immediate function of a commercial property valuation, few realize the long term benefits it can provide.

Louis van Rooyen, commercial and industrial broker with Rawson Commercial Somerset West says, “A valuation is a core function that underpins all property transactions and ownership, and yet it is often not fully appreciated for the strategic benefits it provides.” Here are a number of long term payoffs for obtaining a commercial property valuation”:

Estate or Succession Planning

In the event that a shareholder retires, dies or becomes disabled, the interest they previously held in the property must pass to the remaining shareholders, often in line with specific terms and conditions provided for in a ‘Buy-and-Sell agreement’. Alternatively, it is left to specific beneficiaries or heirs as provided for in terms of a valid will.

“Either way, for the purposes of proper estate or succession planning,” says van Rooyen, “the current value of the property needs to be understood at all times, by any person holding an interest in the property. Only then will they be able to ensure their interests are passed on in the most efficient and tax effective manner”.

“Needless to say, valuations play a key role before and after such an event.”

Retirement Planning

“Entrepreneurs invariably view their businesses and property holdings as their principal retirement funding vehicles or pension funds, and rightly so,” van Rooyen continues, “property, like cash and equities, is an asset class that needs prudent management and performance tracking.”

An annual valuation, like any other investment performance schedule, will provide insight into whether your property portfolio is performing in line with expectations of yield and capital growth. This allows for proactive planning and decision making and avoids unpleasant surprises when you can least afford them, at retirement.

To Guide Maintenance and Renovation Decisions

A property investment is one of the biggest investment decisions one is likely to make and regular maintenance should therefore be carried out. However, there is a fine line between one’s duty to maintain the property, and the temptation to continue renovating or developing the property, which can amount to over-capitalisation of the asset.

“If you are considering some major renovations to a property in your portfolio, it is a good idea to have a valuation done to determine whether or not maintenance may be required,” says van Rooyen, “and how much the additional expenditure may add to the value of the property, if any. Any expenditure to the property, without generating additional income, only reduces the return on the investment.”

Development Opportunities

“When determining the value of a commercial property,” says van Rooyen, “a valuer often considers the development opportunities which may not yet have been capitalized upon by the current owner. The valuer often comments on these, thereby allowing the owner of the property to consider the potential an investment into the property may have, and what possibilities exist to unlocking additional value.”

Capital Gains Tax

Should you intend selling a commercial property where the sale price exceeds the initial cost of the property, taking into account allowable deductions at the same time, SARS will charge ‘Capital Gains Tax’ on the difference.

“SARS has recently increased Capital Gains Tax, causing all legal entities selling property for a profit to pay a higher amount.” “Thus,” Van Rooyen concludes, “the owners will find they have less net proceeds available to them once the sale is concluded. A regular valuation done on the property will allow owners to always stay abreast of what the estimated net proceeds will be, should they wish to sell the property at a later date.”