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Income Risk in Property Valuation for Loan Security Purposes

Author

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  • Nawrocka Ewelina

    (Department of Investment and Real Estate, University of Gdansk)

Abstract

Under the provisions of the standard Valuation to Secure Debt made by the Polish Federation of Valuers’ Associations, in preparing the appraisal report for this purpose, the valuer, among other things, is “obligated to identify risk areas related to the property concerned, including the anticipated changes in the property market and the risk related to how the property is assessed by investors”. The article discusses the assessment of the risk of incomes generated by a commercial property which is to constitute loan security. Factors influencing the variability of incomes taken into consideration in the income approach to property valuation are subject to detailed analysis. The article analyses the assessment of the risk of earning income different from that expected from the property constituting loan security with the use of statistical measures. The main purpose of the article is to propose the application of statistical measures for income risk assessment. Auxiliary goals are listing the factors which influence the variability of incomes in property valuation and characteristic features of modern office space in the Polish Tricity (i.e. Gdansk, Sopot, Gdynia) near the Baltic Sea, with the analysis of rents and vacancies. The article analyzes data from the Tricity property market over the period 2009 – 2016.

Suggested Citation

  • Nawrocka Ewelina, 2018. "Income Risk in Property Valuation for Loan Security Purposes," Real Estate Management and Valuation, Sciendo, vol. 26(2), pages 12-22, June.
    • Handle: RePEc:vrs:remava:v:26:y:2018:i:2:p:12-22:n:2
    DOI: 10.2478/remav-2018-0012
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    References listed on IDEAS

    as
    1. Grovenstein, Robert A. & Harding, John P. & Sirmans, C.F. & Thebpanya, Sansanee & Turnbull, Geoffrey K., 2005. "Commercial mortgage underwriting: How well do lenders manage the risks?," Journal of Housing Economics, Elsevier, vol. 14(4), pages 355-383, December.
    2. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    3. Aebi, Vincent & Sabato, Gabriele & Schmid, Markus, 2012. "Risk management, corporate governance, and bank performance in the financial crisis," Journal of Banking & Finance, Elsevier, vol. 36(12), pages 3213-3226.
    4. Tsai, Feng-Tse & Lu, Hsin-Min & Hung, Mao-Wei, 2016. "The impact of news articles and corporate disclosure on credit risk valuation," Journal of Banking & Finance, Elsevier, vol. 68(C), pages 100-116.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    risk; income; commercial property; valuation; loan;
    All these keywords.

    JEL classification:

    • C49 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Other
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • R33 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Nonagricultural and Nonresidential Real Estate Markets

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