A REVIEW OF ALL RISKS YIELD AND IMPLIED RENTAL GROWTH RATE EMBEDDED IN THE EQUATED YIELD HYBRID MODEL OF PROPERTY INVESTMENT VALUATION

Ataguba, Joseph Obaje and Tinufa, Anthony Abbey

 Department of Estate Management and Valuation

School of Environmental Studies, The Federal Polytechnic Idah, Nigeria

E-mail: josephtgb81@gmail.com

ABSTRACT

The real value/equated yield hybrid model otherwise known as the Crosby’s 3-YPs model is a contemporary value model which deploys nominal rate of interest (equated yield), rent review, and inflation risk free yield to the discounting of cash flows of property investments. Notwithstanding its robust features in the valuation of incomes with growth potentials, this model has been observed to be implicit about all risks yield and implied rental growth rate per annum such that they might only be known to the valuer who prepared the valuation; unless additional information on these parameters are provided with the valuation in question. This article evaluates an alternative perspective of how implied rental growth rate per annum and all risks yield are embedded in the Crosby’s real value/equated yield hybrid model. An analytical framework which culminated into the derivation of all risks yield and implied rental growth rate per annum from the real value/equated yield model was designed. Thereafter, the synergy between the 3-YPs model and the derived formulas were evaluated with recourse to the valuation of fully let- and reversionary freehold interests respectively. Results indicate that the all risks yield and implied rental growth rate per annum are embedded in the 3-YPs model. It also was observed that this phenomenon was facilitate by equated yield and rent review period which are the variables commonly found in the formula for all risks yield, implied rental growth rate and the 3-YPs model. The formula derivation process and results from the individual valuation cases revealed that all risks yield and implied rental growth rate are adequately captured in the real value/equated yield hybrid model such that valuations ensuing from this model would not deviate from those produced by the growth explicit discounted cash flow (DCF) technique.