Contact Us
Sign In / Sign Up for FREE
Go to advanced search...

In property valuation,how important is covenant strength and how is it reflected in valuation - Essay Example

Comments (0) Cite this document
Due to the financial implications of property ownership, most people consider it a long-term objective. With the recent economic crisis, security and valuation has become an important aspect in the…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER94% of users find it useful
In property valuation,how important is covenant strength and how is it reflected in valuation
Read TextPreview

Extract of sample "In property valuation,how important is covenant strength and how is it reflected in valuation"

Covenant Strength in Property Valuation Property ownership is an objective of every person living in United Kingdom. Due to the financial implications of property ownership, most people consider it a long-term objective. With the recent economic crisis, security and valuation has become an important aspect in the housing industry. This paper will explain some important factors associated with property transactions. The paper will focus on the importance of covenant strength using Fisher model of yield construction.
The covenant strength refers to the financial ability or worth of a potential or an existing tenant. Determining the financial capabilities of tenants is important since it gives clear details about potential or existing tenant who can be an individual or a corporate. The credit worthiness of existing and potential tenants contributes to the value of a property. It is therefore an important factor in yield adjustments.
Firstly determining the strength has great importance to property owners. According to Fishers model, return on investment is a reward for liquidity loss, risk assumed, and expected inflation (Norman, 2008). Property owners also consider covenant strength to be an important aspect of the housing industry. Property owners are investors in the housing industry and therefore they assume risks. In addition, the value of rent is subject to inflation considering the appreciation and depreciation of property value. The variable enables property owners to determine the possible income from their investment for a given period. Determining tenant’s financial abilities also enables the property owners to determine their expected income or possible losses. The proprietors also need to determine the value of their property at a given time. The strength therefore enables property owners to determine their yield with a high degree of accuracy.
Properties are common form of security for loans due to their low liquidity. Lenders also consider covenant strength as an important factor on their business. The factor gives the reward of liquidity on a property (Norman, Alastair, & Nicky, 2011). It also gives the possible risks in constant inflation. These variables are important to lenders since they enable them to determine the credit worthiness of a property owner. The factors also enable lenders to determine the optimum capital that a given property can secure. Finally, lenders also need to determine the return on liquidity in case they need to recover their cash from a defaulter. In such cases, tenant’s financial position proves to be of great importance.
Assignees are key players in the property market. Assignees act as guarantors in property deals and they are liable under contract laws. The covenant strength is therefore important to assignees since it enables them to evaluate the ability of tenants to meet their obligations or to pay their rents. Assignees are risk takers and therefore the measure enables them to compare the risks assumed with the expected returns. Evaluating the credit worthiness of tenants assists assignees to make appropriate decisions in their business.
Although the factor is the most important in determine yield, market forces such as market competition and expectation acts as determinants of yield.
In conclusion, covenant strength has different implication to various players in the property market and this determines it importance.
Norman, E. H., 2008. Covenant strength in shopping centers: a diversified risk? Journal of Property Investment & Finance. 26 (4), pp. 329-341.
Norman, E. H., Alastair, S. A. & Nicky, F., 2011. The impact of covenant strength on property pricing. Journal of Property Research, 28:2, 167-188 Read More
Cite this document
  • APA
  • MLA
(“In property valuation,how important is covenant strength and how is it Essay”, n.d.)
In property valuation,how important is covenant strength and how is it Essay. Retrieved from
(In Property valuation,how Important Is Covenant Strength and How Is It Essay)
In Property valuation,how Important Is Covenant Strength and How Is It Essay.
“In Property valuation,how Important Is Covenant Strength and How Is It Essay”, n.d.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF In property valuation,how important is covenant strength and how is it reflected in valuation

Real Estate & Property: Valuation and Investment

...Real Estate & Property: Valuation and Investment The UK property market has generated a lot of discussion over the last few decades. A dramatic hike in the property prices noticed during 1998-2007, has led to an increase in the equity of the existing property or house owners. However, abnormal increase in price also made impossible for majority to people to own a house. The figures available from the Office of National Statistics (ONS) states, that the average price of houses in UK in the beginning of 1998 was about £78,469, while by the end of 2007 it rose to £219,865. This shows that the property prices rose three times more than its initial value. This growth remains consistent by approximately 11 percent every year. However... percent....
10 Pages(2500 words)Essay


...? Valuation [N a m e] VALUATION Coca-cola Corporation Coca-cola Corporation is one the leading brands of the worldthat offers non-alcoholic beverages. The company is an American based multinational enterprise having headquartered in Atlanta. Coca-cola Corporation has introduced more than 500 brands and some of the renowned brands are Coke, Diet Coke, Caffeine Free Coca-Cola and Coca-Cola Zero. The company has its presence in more than 200 countries of the world and is more renowned as Coke. More than 1.7 billion people are served every day with the products of Coca-Cola. In 2011, Coca-Cola was also recognized as the most valuable brand in the world on the basis of Interbrand’s best global brand. Pepsi Corporation Pepsi Corporation... of 3.5%...
7 Pages(1750 words)Research Paper

Methods of Property Valuation

...Classroom Management The above sketch presents a street plan for the high street with properties being auctioned. A comparable could essentially be defined a property possessing similar characteristics with another property being valued (Schram, 2006). Comparable offers property critical information utilized by people in determining the values for properties being auctioned. The valuation process for properties situated in proximity to one another significantly utilises the comparable in establishing estimation for property value. The process of estimating values of properties considers...
6 Pages(1500 words)Term Paper

Advanced Valuation

...that provides a clear message to the reader that the valuer has fully understood the requirements of the lease and the representations put forth to him by both the landlord and the tenant. The report should also indicate that the valuer had placed reliance on the particular evidence. The report should also guide the reader through the though process adopted by the valuer in determining the valuation. As has been decided in the case of ORTI-TULLO & ANOR v SADEK & ANOR 2001 ATC 4691 when "the determination does not expose on its face the underlying facts such as comparable agreements for leases or other material on which the valuer relied, and does not state any analysis or reasoning showing how the...
5 Pages(1250 words)Essay

Property valuation

...Introduction Property valuation is an exercise in itself. It has to take into consideration a number of factors ly, the location or area of the building, the facilities available in and around the building, proximity to various facilities like education, medical, entertainment, public transport facilities and other facilities. Then there is valuation based on the type of property: whether commercial or residential. Generally, for a given location, the valuation of commercial property is much higher than residential property. The profession and income levels of the residents also influence the value of a...
4 Pages(1000 words)Essay

Property valuation questions

...1. Answer: (a) . Hence the amount accumulated after 8 years from now is equals to the 10.64 times the invested value. (b) . Hence the amount of 1500 will be 34,913.95 if invested for 15 years at 6% of interest rate. (c) . Hence if an amount of 1000 is expected to receive each year for continuous 5 years at a rate of 7.5%, the value of the right is equal to 4045.88 today. (d) .Hence if an amount of 2000 is expected to receive each year for continuous 6 years at a rate of 5%, the value of the right is equal to 10,151.38 today. 2. The five conventional method of property valuation is: (a) The comparative method: When comparable transaction of a property is done against a...
7 Pages(1750 words)Essay

Valuation of property

...VALUATION OF PROPERTY INTRODUCTION The valuation of any property often referred to as Real e appraisal, property valuation or land valuation isthe practice of developing an opinion of the value of real property, usually its Market Value. The need for appraisals arises from the heterogeneous nature of property as an investment class: no two properties are identical, and all properties differ from each other in their location - which is the most important determinant of their value. So there cannot exist a centralized Walrasian auction...
11 Pages(2750 words)Article


.... Being profitable with a given capital structure also involves also short-term strength or capacity and this is known as liquidity.7 This subsection would therefore discuss on what drives companies to survive at least in the short-run and how these company managed their working capital as needed in operations.8 In case of failure in liquidity, every company faces the risks of bankruptcy or control of the business by creditors.9 Companies which cannot meet their currently maturing obligations would not be able have its officer employees doing their next day or period. Unpaid officers and employees would mean unmanned office. In addition, would mean no one to meet or deal with suppliers. One may...
13 Pages(3250 words)Research Paper

Finance valuation

...structure of the company, the financial strength of the company, economic value and the dividend payout by the company. This is a guarantee that he has faith in his company and he understands the importance of the products and the services that the company offers. Having built the company from scratch it is expected that he will lead the company to further growth which will have a direct impact on shareholders wealth The company runs the most popular search website in the world and provides advertising technology to clients on a global scale (Koller, 54). It has technology that enables the users to get better information in regards to search results. There is a clear representation of pictures, videos...
6 Pages(1500 words)Research Paper

Corporate Valuation extremely important to arrive at P/E multiples for its valuation. This also means that just last four quarters' earnings growth is not sufficient to arrive at correct P/E multiples. According to Martin, one must know the firm's normalised earnings per share of yesteryears and should be able to forecast the same for at least next 7 years. This also implies that past growth rates and estimated future growth rates can be aggregated to arrive at the correct P/E multiples. Analysts’ perceptions greatly vary in the market when the question comes to estimating future earnings growth. One can even normalize analysts’ perceptions while arriving at future growth rates. References Koller, T., Goedhart, M.,...
2 Pages(500 words)Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic In property valuation,how important is covenant strength and how is it reflected in valuation for FREE!

Contact Us