How to Value your Commercial Property?

Dubai is knowns as the best commercial centre for investors locally and internationally. Dubai attracts businesses worldwide and keeps gaining trust in real estate even after the pandemic. The government of UAE is introducing new regulations to support the real estate industry to grow and get more attention from investors.

Suppose you are looking to open a business in Dubai and have enquiries about selling or renting commercial property. In that case, fam Properties is the best property portal to contact and search for the best properties to buy in simple clicks.

The market’s current situation is favourable for international investors, and it will give them a good profit. The investors can quickly get back the capital while buying a commercial property in the next ten years.

COST FOR BUYING READY COMMERCIAL PROPERTY IN DUBAI

Here is the breakdown of the upfront costs owners can expect when buying commercial properties in Dubai.

• The property value
• The transfer fees of 4% to the Dubai Land Department (DLD)
• The 5% Value Added Tax (VAT)
• The trustee registration fee is AED 4k + the 5% VAT, which comes up to AED 4,200
• The brokerage fees to the real estate agency

Why do we value commercial property?

Within Dubai, financial organizations use property valuations where a predictable amount of debt is placed against the property for a mortgage to analyze a loan to value ratio. Although this is one of the most common purposes of valuation, also used for off-plan properties in Dubai, there are multiple other reasons.

Acquisition / Disposal:

Investors within the market look to make future returns, and it doesn’t matter, even though capital gains or a rental return. Therefore, it is significant to have a market entry and exit strategy to analyze potential trends. It also helps in forecasting cash flows for the future. Typically for end-users, the main reason for buying property is to avoid rent and to pay off the property’s mortgage. 

Auditing & Accounting:

Property valuations for auditing resolutions are usually undertaken on a year-end basis and require advice on the suitable values to include within financial statements. People also use Market Value and Market Rent to value commercial property. The property audit is documented internationally. They have a long-established definition. Property valuation is a must when buying or selling any property in Dubai. However, it gives you an idea about the return. The procedure is the same for off-plan properties.

Facilities / Development Appraisals:

A study is a procedure for determining the capability of a proposed initiative or development. The study will analyze a series of calculations to establish the product’s value, profitability, and suitability based on a client’s required inputs. These variables or information can be changed, like rents, profits, or financial contributions.

Different Valuation Methods:

 Comparable Method

The Direct Comparison Approach method provides the market value of a property by comparing it to values gained in the open market of similar properties. This approach looks at AED charges per sq. of the developed areas. It can be a critical method, as each of the remaining techniques requires similar analysis to function. The direct comparable way is more convenient on properties. Moreover, it comes with fewer essentials. and is identical to single/ individual office units. This makes it a good approach as well, however, people still find more ways to evaluate the property to be more precise. Therefore, a comparative method is an option in demand nowadays among people.

 Income Approach

Income capitalization is a valuation method estimating the value of an income-producing asset. This way of valuation relates value to the market rent that a property can be predictable to produce. The net market income is capitalized at a market-driven rate that reflects all the property’s aspects. The income approach process would value properties, and the buildings of all asset classes are industrial complexes that attract the investors’ attention.

 Discounted Replacement Cost 

The DRC method reflects the existing cost of replacing a benefit with its modern equivalent, fewer inferences for physical deterioration, and all applicable forms of useless optimization. It is not a market-based valuation approach and considers particular properties to be pertinent. 

 Residual Method  

A residual valuation is a form of a development assessment using land sites, where proposing development is on plots endorsements and approvals. The method uses the gross development value and a direct evaluation based on the income method. The residual method includes:

• Construction, Infrastructure & Landscaping Costs
• Professional Fees
• Cost of Finance
• Contingency Costs
• Marketing and Legal (Sale/Letting)
• Developer’s Profit
• Other Costs (Planning/Purchasers costs)

The residual value is all costs deducted from the Gross Development Value. 

 Profits Method  

The profits method is for valuing professional trading properties, where the property’s value depends on the business’s success. This method uses for valuing properties like hotels, petrol stations, etc. The Six Senses Dubai is a new development project attracting investors at Palm Jumeirah Dubai. 

Using the Methods

Ideally, you should use at least two methods when valuing a property, one as the direct method and the second as a cross-reference. Ensuring a suitable and favourable way for a property valuation is essential to maximize investors.