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Property investment caution

Published:Wednesday | December 18, 2019 | 12:05 AM
Earl Samuels (centre), chief development financing officer, The Jamaica National Group, makes a point as he speaks during a panel discussion at the International Realtors Conference, held at the Hilton Rose Hall Hotel in St James recently. Listening are fellow panellist Karl Allison (left), chartered valuation surveyor, and Eric Allen of the National Land Agency, who moderated the discussion.
Earl Samuels (centre), chief development financing officer, The Jamaica National Group, makes a point as he speaks during a panel discussion at the International Realtors Conference, held at the Hilton Rose Hall Hotel in St James recently. Listening are fellow panellist Karl Allison (left), chartered valuation surveyor, and Eric Allen of the National Land Agency, who moderated the discussion.

Real estate purchasers are being cautioned not to overinvest during construction as their investment will not determine the value of the property in the future.

The warning came from a panel of three housing and development experts at the recently concluded International Realtors Conference, which was held at the Hilton Rose Hall Montego Bay resort.

“Property must be treated as an investment at all times and, therefore, we need to consistently assess the value of it after we invest in it, so that we don’t spend more than is necessary. There is nothing wrong with building out a dream. However, the dream should not cost more than the reality, which is its worth!” said Earl Samuels, chief development financing officer at The Jamaica National Group.

The financier, who is a former managing director of the National Housing Trust, noted that Jamaica faces a dilemma, as people sometimes become too romantically attached to their properties because of familial or historical ties.

“These are some of the issues which, at times, lead to vexation and confusion, when owners seek to earn an income through sale or rental of property; or seek to access more equity from the ­property than its worth, irrespective of how much was spent to ­refurbish or expand it over the years,” Samuels said.

He noted that when lending to develop or purchase property, financial institutions rely on the value determined by a qualified and experienced appraiser and not only the cost to construct the building.

“Therefore, you may spend ­millions of dollars on the ­property, and you say, ‘I want to take an equity loan and use it (the property) as collateral’. What you think is worth $50 million, when Karl carries out the valuation, [it’s a different story],” the well-known financier advised, pointing to ­fellow panellist and chartered valuation surveyor Karl Allison of Allison, Pitter and Company.

Determinants of value

He outlined that market value was often determined by primary factors, one of the most common and core ones being location, which takes into consideration the environmental and socio-economic conditions of the area where the property is located.

Emphasising the importance of location to value, quantity surveyor Dean Burrowes of Burrowes and Wallace said that a cluster of luxury houses situated in Duncans, Trelawny, for example, versus ­similar houses in Ironshore, St James, would not attract the same value. The houses in Ironshore would be far pricier.

Using downtown Kingston as an example, Burrowes pointed out that someone who bought property on Port Royal Street for a bargain in earlier years may now be looking at a higher value, because downtown Kingston is rebounding.

“The cost is going to be approximately the same, but the values [increase] with regeneration, in a few years … . In fact, I understand you can’t get property to buy down there (downtown Kingston) now!” he exclaimed.

However, Allison argued that for new developments, cost may sometimes be considered equal to the value of the property.

“It’s not exactly a very true statement, but you can argue it, because there is no real obsolescence in the property. Therefore, if the property is brand new, the difference between cost and value would be [that] we’re going to impute an entrepreneurial profit,” he explained.

Notwithstanding the reliance on sound appraisals, the experts acknowledged that the valuation process is not without its issues.