August 17, 2022
Meaning of Real Estate Valuation and Methods of Investments in Ajman
Real estate investment in Ajman has become a sophisticated field that keeps attracting new investors over the years. Because purchasing and selling a property in Ajman has been demonstrated to be a reliable source of additional income for people progressing through financial investments. Over the last 10 years, GJ Properties has delivered 15 high-quality real estate projects in Ajman and the Northern Emirates. Our priority is to create living spaces that offer exceptional quality of life to our customers. It’s made us one of the premier luxury real estate developers in UAE.
This blog gives a holistic overview of property evaluation in Ajman. It focuses on educating inexperienced investors looking to get started in real estate in Ajman or even investors who have purchased a few properties but are still at the beginning of their journey. This blog will help clarify the meaning of real estate valuation in UAE. It will also spotlight the different methods to value Real estate in UAE. GJ real estate and its experienced sales consultant team will assist you in your property investment plans.
Meaning of real estate valuation in Ajman
Valuing real estate in Ajman is not an easy task for many reasons. When evaluating a property in UAE, you have to consider the location, lot size, floor plan, and amenities. In addition, Ajman’s market offers and demands play a significant role in the property’s value. Moreover, the value of the real estate in Ajman comes from its present worth compared to the expected benefit in the future.
Furthermore, when we estimate the value of property in the UAE, we must also take into account the economic and social trends and governmental control. Also, environmental conditions may affect the four main elements of value which are demand, utility, scarcity, and transferability.
Methods to value real estate in Ajman, UAE
Method 1: Sales Comparison Strategy
The sales comparison method is commonly used in real estate in Ajman to determine the value of mono homes and lands. It is an estimate of value derived by comparing a property with recently sold properties of similar features. These comparable are properties that must be as similar to the subject property as possible to provide a valid comparison.
- Have been sold in an open, competitive market within the last year
- Have been sold in normal market conditions
In the appraisal process, at least three or four figures should be used. When selecting comparable, the main things to consider are size, features, and most importantly the location, which can have an impact on a property’s market value.
Qualities of Comparable properties
Since no two properties are completely identical, there will be adjustments to the prices of the comparable sales to account for other factors which affect the value, such as:
- Building age and condition
- Date of sale, if there are economic changes between the sale of a comparable and the date of the appraisal
- Terms and conditions of sale, such as whether the seller of the property was under pressure.
- Location because comparable properties may vary in price from one neighborhood to another.
- The state of the building; characteristics such as lot size, landscaping, construction type, and quality, number and type of rooms, square feet of living space, hardwood floors, a garage, kitchen upgrades, a fireplace, a pool, and central air, etc.
The subject property’s market value will fall within the range formed by the adjusted sales prices of the comparable. Because some of the adjustments made to the comparable’ sales prices will be more subjective than others, measured consideration is usually given to the comparable with the least amount of adjustment.
Method 2: Cost Analysis
The cost approach can be used to estimate the value of the real estate in Ajman that has had one or more buildings added to it. This method involves estimating the value of the building(s) and the land separately, taking depreciation into account. The estimates are added together to determine the total value of the improved property. The cost approach assumes that a reasonable buyer would not pay more for an existing improved property than the cost of a comparable lot and constructing a comparable building. This method is useful when the property being appraised is not commonly sold and does not generate income like schools, hospitals, and government buildings.
You can estimate building costs in many ways, such as the square-foot method, which multiplies the cost per square foot of a recently built comparable by the number of square feet in the subject building; the unit-in-place method, which estimates costs based on the construction cost per unit of the individual building components, including both labour and materials; and the quantity-survey method, which estimates the amounts of raw materials that will be used.
- Using the sales comparison approach, estimate the value of the land as if it were empty and ready to be put to its highest and best use because land cannot be devalued.
- Determine the current cost of building(s) and site improvements.
- Calculate the amount of devaluation resulting from degradation, functional obsolescence, or economic obsolescence.
- Subtract the estimated construction costs from the depreciation.
- To determine the total property value, add the estimated value of the land to the depreciated cost of the building(s) and site improvements.
Approach 3: Income Capitalization
This approach is often used for Ajman property investment. It is commonly called the income approach; this method is based on the link between the rate of return an investor requires and the net income that a property generates. It is used to determine the worth of income-producing properties such as apartment buildings, office buildings, and shopping malls. When the subject property is expected to generate future income and its expenses are predictable and consistent, income capitalization appraisals can be relatively simple.
When using the direct capitalization approach, appraisers will take the following steps:
- Calculate your annual potential total income.
- Consider vacancy and rent collection losses when calculating effective total income.
- Subtract annual operating expenses to arrive at annual net operating income.
- Calculate the price a typical investor would pay for the income generated by the specific type and class of property. It is achieved by determining the rate of return, also known as the capitalization rate.
- To estimate the property’s value, you need to multiply the capitalization rate by the annual net operating income.
To sum up, investing in real estate is one of the most profitable ways to make money in Ajman. However, to succeed in real estate investment you need to understand how to evaluate real estate’s value and the three methods; sales comparison strategy, cost analysis, and income capitalization. Mastering these methods will definitely open the path for you in the world of real estate and money. For more information or assistance, get a free on-call consultation with GJ real estate property consultants’ team over property valuation in Ajman.