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Revisiting methodology determining property investment valuation methods

Paice, Tristan, Kleinschmidt, Christopher R., Redfern, Meghan, Vanarey, Michael Y., & Walsh, Michael (2007) Revisiting methodology determining property investment valuation methods. Queensland Property, July, pp. 9-14.

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Abstract

By nature, property is an expensive and emotive commodity. Moreover, property economists – as indeed all economists – are faced with the growing complexity of their field. Although globalisation affects every commodity, property is increasingly subject to the myriad variables which determine how much it is worth. The valuer occupies the interface between the property market and investors, and is not only challenged by evolving economic dynamics but is legally and ethically bound to value as accurately as possible.

Mathematical models are clearly the backbone of economic theory and are the result of centuries of economic reasoning from first principles. However, some property economists are beginning to question whether the application of general economic principles to property might be fraught with fundamental errors in theory and method. This is focussing debate and research on the economic nature of property and the methods used to value it.

We discuss the relationship between property economics and mainstream economics, pointing out that both are largely products of dominant Marshallian economic theory. This ‘positivist’ approach privileges the quantification of observed data over efforts to understand the nature and behaviour of property and markets, which is largely qualitatively recorded. Focusing on valuation theory, we explore at the methodological level the quality and timeliness of information, validity of future predictions, and the problematic economic assumptions underpinning the concept of utility-maximising human behaviour. In other words, we do not assume that existing methods are ideal, but explore the influence and nature of property data on the method development and selection process. We will demonstrate that property economics will benefit from the continuing quantification of complex issues and correlations, but the value and validity of this data rests increasingly on the qualitative nature of its assessment.

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ID Code: 12484
Item Type: Journal Article
Additional Information: Access to the author-version is currently restricted pending permission from the publisher. For more information, please refer to the journal’s website (see hypertext link) or contact the author.
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Keywords: Property economics, property investment valuation, methods, methodology, qualitative and quantitative analysis, DCF
Subjects: Australian and New Zealand Standard Research Classification > BUILT ENVIRONMENT AND DESIGN (120000) > OTHER BUILT ENVIRONMENT AND DESIGN (129900) > Built Environment and Design not elsewhere classified (129999)
Divisions: Past > QUT Faculties & Divisions > Faculty of Built Environment and Engineering
Copyright Owner: Copyright 2007 Australian Property Institute
Deposited On: 25 Feb 2008
Last Modified: 09 Jun 2010 22:55

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