Property valuation

What valuers mean by market value and its relatives, the five valuation methods and when each is used, how to value a development site, which market indicators agents watch, and how auctions, tenders and valuation reports work. Valuation is EAQE-only (syllabus Part 6, Level 1): expect definitions plus short hand calculations of capital value, yield and residual land value.

Part I · Stand-alone questions8 min read8 sections

Checked against the EAA, A Study Guide to Estate Agency Law and Practice, Part 6, paras 1 to 18; International Valuation Standards Council definition of market value; Building (Planning) Regulations (Cap. 123F), site classes, site coverage and plot ratio; Estate Agents Ordinance (Cap. 511), section 2(3); Land Registry monthly statistics; EAA Estate Agents Qualifying Examination Syllabus, Part 6 (Appendix 1 to the Examination Handbook, Aug 2026); checked 11 Oct 2026.

Must-know for the exam

Market value: the estimated amount a willing buyer and willing seller would exchange for on the valuation date, at arm's length, after proper marketing, without compulsion (IVSC).
A forced-sale value assumes the seller must sell quickly without proper marketing; it is normally below market value.
Insurance value is the cost of reinstating the building only; land value is ignored.
Direct comparison is the most widely used method in Hong Kong and the best for standard flats in housing estates, adjusted for floor, view, size, condition and date.
Investment method: capital value = net annual rent ÷ yield, or rent × Years' Purchase (YP in perpetuity = 1 ÷ yield). Lower yields mean higher values.
Profits method values hotels and other trading properties from the share of profit available as rent; replacement cost (site plus rebuilding) values churches, schools and hospitals.
Residual method: gross development value minus all costs and the developer's profit equals the maximum bid for the land. DCF does the same with each cash flow discounted.
Market indicators: monthly sale agreements lodged with the Land Registry, land sale results, the Hang Seng Index and bank lending policy (Study Guide Part 6, para 17).
Auction: each bid is an offer; the contract forms at the fall of the hammer if any reserve is met. Tender: each tender is an offer, binding when accepted.
A valuation report states its purpose, basis of value and date of valuation, with tenure, title, incumbrances, areas and condition; plans and a land search are attached.

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Traps that cost marks

Treating the highest offer ever received as the market value.
Taking any price a real buyer paid as market value, whatever the seller's circumstances.
Insuring the land as well as the building.
Forgetting the condition that the market must work reasonably rationally.
Adjusting in the wrong direction: the comparable is adjusted towards the subject property.
Capitalising the monthly rent instead of the annual rent.
Thinking a lower yield lowers value; with rent unchanged it raises it.
Thinking discounting reflects a legal or tax rule rather than the time value of money.

Why this matters in the exam

The SQE has no valuation syllabus; the EAQE does, because an estate agent is expected to brief clients on price, explain a bank's valuation, and advise developers and investors. The syllabus level is awareness, so most questions ask which method fits which property or what a term means. The rest are arithmetic you can do without a calculator: divide rent by a yield, multiply by a plot ratio, or subtract costs from a gross development value.

Remember the line between agency and valuation. Work relating solely to a survey or valuation is not estate agency work (Estate Agents Ordinance (Cap. 511), s.2(3)), and a formal valuation is a valuer's job. An agent may give a market view, but must not present a guess as a valuation or misstate comparables (Practice Regulation (Cap. 511C), s.11).

Kinds of value and what drives them

•Market value: the IVSC definition above. Valuers watch the willing seller assumption most closely, because sellers are more often under pressure than buyers.
•Forced-sale value: a quick sale without proper marketing, for example to repay a loan in two weeks; normally below market value.
•Insurance value: the cost of rebuilding the building if destroyed, ignoring the land.
•Price vs value: price is what was paid in one deal; value is an opinion formed from market evidence at a date.

Supply. Hong Kong's land supply is largely fixed, apart from reclamation. The Government is both regulator and the largest landowner, so its land and planning policies move supply. Supply is inelastic: building takes years, so prices rise while supply catches up, and then supply can overshoot, giving the boom-bust cycle (Study Guide Part 6, paras 1–3).

Demand. Political stability, the world economy and US interest rates, GDP and unemployment, interest rates and bank lending policy (most buyers borrow), inflation (property as a hedge), the number of people of marriageable age, and mild seasonal dips around Christmas, Chinese New Year and the summer holidays (para 4).

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Estate Agents Qualifying Examination