Analyzing the shortcomings of the residual valuation method in its application for the valuation of incomplete commercial buildings in Kampala

Abstract

This dissertation analyzes the shortcomings of the Residual Valuation method when applied for the valuation of incomplete commercial buildings in Kampala, Uganda. The Residual Valuation method, widely used in real estate appraisal, estimates property value by deducting the development costs from the projected market value of a completed commercial building. This study critically examines the application of the residual valuation method for the valuation of incomplete commercial buildings in Kampala. Despite its popularity, this method poses significant challenges when applied to properties under construction. Key shortcomings include inaccurate cost and income projections, speculative market value estimates, and the impact of economic volatility, which can lead to substantial valuation discrepancies. Moreover, the method’s reliance on current market conditions and assumptions about future completion complicates its accuracy and reliability. Findings indicate that the Residual valuation method is best suited for the valuation of vacant land in cases where there is limited comparable data. Studies also imply that valuers need more dynamic and adaptable cost estimation tools that can account for market volatility and should develop standardized assumptions and criteria to enhance the reliability of valuations. In conclusion, the extent of the shortcomings of the residual valuation method makes it unreliable for the valuation of incomplete commercial buildings. This research contributes to real estate valuation by identifying the key issues leading to significant valuation discrepancies when using the residual valuation method and suggesting improvements that can enhance the accuracy and reliability of real estate valuations using the Residual valuation method.