by Francis Ayieko
August 23 2012
In 1997, Corner House was valued at Sh770 million. In 2000, it was disposed of at Sh620 million. Just before the sale, the property was valued at Sh550 million.
The ongoing parliamentary inquest into the sale of Corner House in Nairobi 12 years ago has no doubt left many Kenyans wondering just how property values are arrived at.
A brief background: In 1997, Corner House, then the property of the now defunct Kenya National Assurance Company, was valued at Sh770 million.
Three years later in 2000, the imposing building located at the junction of Kimathi Street and Mama Ngina Street in the city’s central business district, opposite The Hilton Hotel, was disposed of at Sh620 million. Just before the sale, the property was valued at Sh550 million.
Now, the Mithika Linturi-led Public Investment Committee wants chief government valuer Jim Gatheru and the company that valued the property to explain the discrepancies.
Just how did we end up with three different values for the same property within such a short span of time? (I think a warning would be in order here: Don’t be quick to judge.)
Well, we will not judge, but if you own a property or you are an aspiring property owner, you should have a basic understanding of how property values are ascertained.
Most Kenyans have wild imaginations about how it is done. And they are not to blame.
For one, valuation – the process by which a property value is ascertained – is practised only by a tiny fraction of Kenyans, and the methods they use are Greek to even highly educated Kenyans.
Two, the same property can have up to five different values at the same time.
Confused? Don’t worry. First, it is important to know what valuation is and what is involved in valuing a property. Simply put, valuation is the process of determining the value of a particular interest in a property for a specific purpose at a particular moment in time, taking into account all features of the property as well as considering the prevailing market forces. Yes, you guessed right, that is a text book definition.
This is what it means: The value of a property varies depending on the reason or purpose for valuation, the time of valuation and market forces.
That means there can exist a variety of values in one single property. For example, the value you come up with when valuing a property for insurance purposes is usually different from the value you get if the property is being valued for sale or mortgage or rental purposes. Why? Because ownership of a property is in terms of the interest or rights you have in that property.
Some people wrongly think that the role of a valuer is to determine the value of every component of a building (in this case all the building materials) and then assign them a market value to each component and then get the sum total.
I still remember how mesmerised I was in 1999 on my first valuation assignment as an intern at a Nairobi real estate firm. Every moment was a new lesson for me as I assisted John Kich Ayiecho.
We took different measurements of the building and scribbled notes to describe the building materials used on the walls, floors, windows, the kitchen, wet area (bathrooms and toilets), ceilings and the roof.
We noted the type of accommodation it had: lounge, dining room, bedrooms, kitchen, stores and bathrooms.
We noted services like water, electricity, telephone and sewer. We also took note of the state of repair of each component of the whole building. We continued with the inspection outside, noting the plot size, the location, siteworks such as boundary walls and fences, paths, driveways and gates.
We also described the outbuildings like garages, domestic workers’ quarters and stores. We ascertained the “age” of the building and whether it was on a freehold or leasehold land.
We also made sure that put down the general structural and decorative condition of the property as well as neighbourhood effects on its value.
All this and more formed the basis of our valuation report. The property was to be used as a collateral for a bank loan.If it were to be valued at the same time (even by the same people) for insurance or auctioning, the value would have been different.
Because those taking out mortgages pay a valuation fee, it is important for them to have a basic understanding of how property values are arrived at by valuers.
As for Corner House, it will be interesting to hear the explanation given by the chief government valuer and his team for the curious discrepancy in the value of the building.