Core Valuations @CoreValuations

There are a number of key steps when valuing a Trade Related Property. 1. Determine the Fair Maintainable Turnover that a reasonably efficient manager could generate.

The profitability of a Trade Related Property will determine the level of rental that it can afford to pay and hence the price a buyer will be prepared to pay.

A trade related property is designed for a specific type of business where the property value reflects the trading potential for that business.

The most often appropriate valuation period for a business is 5 years, because businesses have a higher risk than property ownership. Due to the character of the time value of money, this represents ± 65 % (depending the discount rate) of an ad infinitum valuation period.

Soil has many different characteristics. The clay content, the effective depth, the topsoil characteristics and the subsoil characteristics. The combination of all the characteristics determines the production potential which will influence the value of the farm.

a Forecast period consists of two components, a window period and a terminal period.

The unique combination of natural resources (soil, water, and climate) on a farm determines not only its potential but also, among other factors, what a purchaser is willing to pay for farmland.

It is generally recognized that a discount needs to be made when a minority interest is being valued.

Perception plays a major role in the price a buyer is prepared to pay for farm. An example is in the Kiepersol area the price / ha for banana land is higher than in Malelane, although the yield / ha in Malelane is higher.

The definition of Corporate Control is the ability of a shareholder to exercise a controlling interest over the management of the company.

Land restitution transactions, in an area, influences farm values materially

A minority shareholding in a company has a lower value per 1% share than a majority shareholding (in the same company) per 1% share.

The value of livestock farms that are located in Foot and Mouth Disease areas are lower that farms outside the FMD risk area

A business is never valued by applying a capitalisation method because it implies a business life of 50 years, which is not realistic

Investment from outside the agricultural sector has an influence. Businesses in Gauteng buys game farms within a two hour drive. This tend to push the value of game farms upwards.

A company valuation is done on a going concern basis; therefore, the share value is lower than the Net Asset Value when it has a negative economic goodwill.

Industrial development in an area can change the supply and demand for farmland as well as the market for farm produce, thereby changing the value of farmland. Mines in area mean alternative use for the farmland.

Water restrictions on irrigation schemes will also have a negative impact on farmland values

Changes in water supply can influence the value of a whole area. Farmland values in the Kalahari increased materially after the commissioning of the Kalahari pipelines.

Temperature plays a major role in determining what can be planted where. Avocados and potatoes need a frost-free growing period, whilst other crops such as apples need cold winters to initiate proper flowering.