The objective of this research study is to development the best international valuation method for the valuation of hotel properties in Kuala Lumpur, Malaysia.
The target population is 50 respondents who coming from different valuation firm in the area of Kuala Lumpur. Among these respondents, there are 35 registered valuers and 15 property consultants are selected by convenience sampling technique.
70% of the respondents are registered valuers because their knowledge and skill of valuation are needed to achieve the goals in this research study. However, there are 30% of respondents are property consultants because they have different view points from registered valuers. Property consultants always keep abreast with the knowledge of new developments in property market.
The Influence on Hotel Development from Tourism Industry:
There are 68% of the respondents believe that the hotel industry will grows in parallel with the trend in tourism industry while 32% of the respondents disagree.
The growth of tourism industry for the past few years. The future of tourism industry is predicted to grow in small trend. With the effort of government in order to encourage the growth of tourism industry, the number of tourism coming to Malaysia will increase and they will be staying for a longer period.
In 30% of the respondents who are property consultants, the majority of property consultants which contribute 16% of property consultants agree with the statement while 14% of them disagree. Property consultants disagree because the hotel industry is just a portion of the property market which being encouraged by tourism industry in Malaysia.
The Attraction of Hotel Industry in Malaysia:
The secondary data in chapter 3 shows that the amount of tourists arrives in Malaysia is proportion to the equivalence amount of income received. Tourism ministry has aimed to generate more income through encouraging tourists stay longer and spend more in Malaysia. The hotels supply is hard to support the increasing amount of tourists. Thus, this gives a higher investment potential on hotel industry in property market.
In the second question in questionnaire, there are 60% of respondents in the opinion that the potential of hotel industry is attracting investors. Property consultants and registered valuers believe that investors will undertake the opportunity to propose hotel development because the demand of hotel properties in Malaysia is high.
However, there are 40% of respondents disagree with the statement. They believe that the investment potential in hotel industry encouraged by tourism industry is low because the hotel industry is just a small portion in property market. Thus, tourism industry has planned several programs to encourage investors to pay close attention to hotel industry.
The Predicted Demand of International Valuation Standard for Hotel Properties in Malaysia:
The third question shows the willingness to apply World Hotel Rating System is high. World hotel rating can gives standardize rating rate for the hotel properties. Thus, there are 82% of the respondents agree for the adoption of international valuation standard in the valuation of hotel properties is favored by investor in the forth question.
The Comparison between International Valuation Methods and Malaysia Valuation Methods:
Sales Comparison Approach and Comparison Method:
There are 84% of respondents shown that sales comparison approach can replaces comparison method.
The comparison between these two methods. The valuation process of these two valuation methods are the same. The market value of subject property determined by these methods is the adjusted transacted value from comparison between the subject property and similar comparable properties.
However, the valuation techniques of these two valuation methods are similar. There are 16% of respondents disagree with the statement because the sales comparison approach is applied on the properties located nearby the boundary area among different countries while comparison method is just applied in Malaysia.
Cost Approach and Cost Method:
98% of the respondents believe that the cost method can be replaces by cost approach. They assume that there are no potential buyer in real property will pay more for a property than the cost of buying a similar land and construct a similar building on it.
Property consultants are fully agreed with the statement because the valuation processes and their valuation techniques of these two methods is the same. The market value of subject property is determined through summation of the land value and the building cost including any improvement value and depreciated value.
The literature review has shown that these two methods are suitable for all type of property and they are the most reliable valuation methods for new or near-new property. This is because these valuation methods apply in the valuation of an older property, estimated depreciation on the construction cost for a new building need to be included.
Income Approach and Investment Method:
There are 62% of the respondents believe that the investment method can be replaced by income approach because these two valuation methods have the same valuation process and similar valuation technique.
Chapter Two has reviewed that the valuation technique of investment method is similar to one of the valuation techniques in income approach which is named Gross Income Multiplier Technique. These two valuation techniques are the same. The market value of subject property is assessed by multiply the gross income multiplier with the gross income of the subject property. The gross income multiplier is derived by divide the transacted market value of similar comparable properties on the gross potential income.
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In 30% of the respondents who are property consultants, majority of 18% property consultants disagree with the statement. They believe that the differentiated this valuation technique into a unit valuation method such as investment method in Malaysia is better than the income approach built-up of three valuation techniques because it is used for the valuation of office buildings, shop lots and retails in shopping complex. These types of properties collect rentals from tenants as the main income stream.
Income Approach and Profit Method:
There are 66% of the respondents believe that the profit method can be replaced by income approach because these two valuation methods have the same valuation process and similar valuation technique.
Chapter Two has reviewed that the valuation technique of profit method is similar to one of the valuation techniques in income approach which is named Capitalization Rate Technique. These two valuation techniques are the same. The market value of subject property is determined by multiplying the net operating income with capitalization rate. The capitalization rate is derived by divide the transacted market value of similar comparable properties on the gross potential income determined through the analysis of recent comparable sales.
In the 30% of respondents who are property consultants, majority of 16% of them are disagreed with the statement. They believe that the differentiated this valuation technique into a unit valuation method such as profit method in Malaysia is better than the income approach built-up of three valuation techniques because it is used for the valuation of business property such as theme park, golf course, cinema, hotel etc. These types of properties are income-producing properties with not recently transacted.
Income Approach and Residual Method:
There are 60% of the respondents believe that the residual method can be replaced by income approach because these two valuation methods have the same valuation process and similar valuation technique.
Chapter Two has reviewed that the valuation technique of residual method is similar to one of the valuation techniques in income approach which is named Discounted Cash Flow Technique. These two valuation techniques are the same. The market value of subject property is determined by the capitalized the amount of discounted the prospective net future income with discounted rate. The Discounted Rate is derived by estimating the risk involved through analyzing the historical data.
In the 30% of respondents who are property consultants, majority of 22% of them are disagreed with the statement. They believe that the differentiated this valuation technique into a unit valuation method such as residual method in Malaysia is better than the income approach built-up of three valuation techniques because it is used for the valuation for proposed development. This valuation technique is used to justify the feasibility and viability of the proposed development.
Factors that Influence the Selection of Valuation Method:
There are 92% of respondents agreed with the statement while 8% of respondents disagreed. Majority of respondents believe that the factors stated above will not affect the selection of valuation methods but they are showed in their market value.
The analysis result from interviews show the market value of hotel properties is higher when the hotel managements are doing well and the hotel rating is high. Chapter Three has determined the hotel managements will influence the profit margins and will influence hotel rating. Hotel property with higher rating are provides better facilities and services to satisfy customer demand.
The analysis result from interviews show the different type of hotel has its own market value but market value for the hotel property with fully equipped hotel accommodations and facilities is higher. Chapter Three has determined the hotel accommodations and facilities according to the types of hotels such as world class facilities is provided in luxury hotels while part of the facilities in mid-range hotels and few of facilities in budget hotels.
The Application of International Valuation Methods in the Valuation of Hotel Properties in Malaysia:
There are 74% of respondents supported the application of International Valuation Methods in the Valuation of Hotel Properties in Malaysia. They believe that the international valuation methods are suitable for the valuation of hotel property because the trend of hotel industry is internationalized.
Chapter Three has determined hotel industry in Malaysia is growing and tourism ministry has encouraged investors enter hotel industry that provides higher investment potential in property market.
Chapter Two has reviewed that the analysis results of in comparison of International Valuation Methods and Malaysia Valuation Methods shows they have the same valuation processes and similar valuation techniques.
There are 26% of respondents disagreed with the statement. They believe that the hotel properties located in Malaysia have no need of International Valuation Methods for the valuation since Malaysia Valuation Methods are functioning well to determine the market value of hotel properties.
The Sequence of Influence Factors that Affect the Market Value of Hotel Properties:
Types of Hotels:
There are 44% of respondents selected the types of hotels as the smaller influence factor that affects the market value of hotel properties. Based on their opinions, different types of hotels are located at different location and provided with different facilities that will influence the market value of subject property.
Chapter Three has determined the different types of hotels provide hotel facilities differently according to the types of hotels such as luxury hotels provided fully equipped world class facilities while part of facilities in mid-range hotels and few of facilities in budget hotels.
Besides, Chapter 3 has reviewed the different types of hotels located differently. Luxury hotels are located in popular tourist destinations surrounded by shopping areas, business district and world- famous landmarks. Mid-range hotels are located near to the business and shopping district while Budget hotels are located far from tourism hotspots that required certain travelling distance.
Hotel Ratings:
There are 40% of respondents selected hotel ratings as the bigger influence factors that affect the market value of hotel properties. Based on their opinions, hotel properties with higher rating contain higher market value because hotel properties with high rating have higher profit margin.
Chapter 3 has determined hotels are rated through star classification system based on the facilities and services provided. Hotel properties with a higher rating have provided the best accommodations and services that customers are content for their staying.
The analysis result from interviews shows the 40% of respondents believe that hotel rating is a system that shows the performance in its services and accommodations provided for customers. Thus, this factor is chosen as the bigger influence in the market value of hotel property because it reflects the type of hotel properties, location and the services and accommodations of that hotel property.
Hotel Managements:
There are 54% of respondents selected hotel managements as the biggest influence factor that affects the market value of hotel properties. They believe that good hotel managements have the highest potential to bring the highest satisfaction of customers’ needs.
Chapter Three has determined that hotel managements play an important role that bring a track in develop plans to achieve the profit targets through efficient use of human resource and technology. Hotel managements have been computerized in hotel accommodations and services management, administration management, working capital management, and employee benefit programs.
Based on the selection by property consultants, there is a shape of ‘V’ from the smallest influence towards the biggest influence. 8% of property consultants select it as the smallest influence factor. They believe that the effect of this factor is not significant because the market value of hotel properties with good management that located far from the tourist hotspot are lower than hotel properties with poor management that located near the tourist hotpot.
Hotel Accommodations:
There are 50% of respondents selected hotel accommodations as the smallest influence factor that affects the market value of hotel properties. They believe that the accommodations are provided in according to the types of hotel properties.
Chapter Three has reviewed the accommodations for hotels are classified into full-service and limited services that are considered by their customers. Hotels with limited-services provide part of facilities and moderate accommodations that they targeted their customers are who willing to have lower room prices while full-services hotels provide various facilities and higher class accommodations.
The analysis result from interviews shows the 50% of respondents believe that different class accommodations are provided by different types of hotels in according to different hotel development plans. This factor is chosen as the smallest influence in the market value of hotel property because it is according to the type of hotel properties, location and hotel management.
The Sequence of the Factors that Affect The Valuation of Hotel Properties:
From the selection of the smallest influence factors affects the market value of hotel properties, there are 50% of respondents selected hotel accommodations because they believe that the accommodations are provided in according to the types of hotel properties.
From the selection of the smaller influence factors affects the market value of hotel properties, there are 44% of respondents selected the types of hotels because they believe that different types of hotels are located at different location.
From the selection of the bigger influence factors that affect the market value of hotel properties, there are 40% of respondents selected hotel ratings because they believe hotel ratings have reflects the type of hotel properties, location, services and accommodations provided in that hotel property.
From the selection of the biggest influence factors that affects the market value of hotel properties, there are 54% of respondents selected hotel managements. They believe that good hotel managements have the highest potential to bring the highest satisfaction of customers’ needs.
Thus, the sequence from the smallest influence factor to the biggest influence factor that affect the market value of hotel properties is hotel accommodations, types of hotels, hotel ratings and hotel managements.
The Selection of The Best Valuation Method for The Valuation of Hotel Properties:
The Condition of Hotel Property:
This is a condition where fully-built hotel properties undergo valuation process to determine the market value of those hotel properties to be transacted.
There are 66% of respondents who select profit method as the best Malaysia Valuation Method while there are 52% of respondents select income approach as the best International Valuation Method because they believe that these two valuation method have included the value of profit potentiality or service potential. Based on their experience, the transaction of hotel properties mostly are built-operate transfer.
There are 34% of respondents who select cost method as the best Malaysia Valuation Method while there are 46% of respondents select cost approach as the best International Valuation Method. The analysis result shows that there are transactions where the owner would like to disposal his hotel properties. However, this situation is less than built-operate-transfer.
Under-Construction Hotel Property:
This is a condition where under-construction hotel properties undergo valuation process to determine the market value of those hotel properties to be transacted.
There are 60% of respondents who select residual method as the best Malaysia Valuation Method while there are 66% of respondents select income approach as the best International Valuation Method because they believe that these two valuation methods are used because they can justify the future profitability for those under-construction hotel properties.
There are 24% of respondents who select cost method as the best Malaysia Valuation Method while there are 34% of respondents select cost approach as the best International Valuation Method. Based on their experience, there are disposal of under-construction hotel properties due to financial problem of that proposed developer. However, that situation is less. These two valuation methods are mostly used for the purpose of fire insurance.
Proposed Hotel Property:
This is a condition where proposed hotel developments undergo valuation process to determine the market value of those hotel properties to be transacted.
There are 88% of respondents who select residual method as the best Malaysia Valuation Method while there are 94% of respondents select income approach as the best International Valuation Method because they believe that the market value of hotel properties determine by these two valuation method have considered development potential with undergo the determination of feasibility and viability of that proposed development.
Chapter Two has reviewed that the valuation technique of residual method is similar to one of the valuation techniques in income approach which is named Discounted Cash Flow Technique. The prospective income generated apply in valuation process are estimated based on the principle of highest and best use through analyzing by comparable data.
The Purpose of Hotel Valuation:
Lending Purposed:
Chapter Three has determined that valuation of hotel properties for lending purpose is required by the banks and other financial institutions for loan security, mortgages or debentures used for hotel development. The market value of charged property is determined with undergo market study and feasibility study to ascertain the level of demand of that subject property and the viability of that proposed project.
The analysis result for the best Malaysia Valuation Method in the valuation of hotel properties on lending purpose, there are 86% of respondents selected residual method.
The analysis result for the best international Valuation Method in the valuation of hotel properties, there are 92% of respondents selected income approach.
From their opinion, these two valuation methods undergo discounted cash flow technique that the market value of hotel properties has involve development potential after the feasibility and viability of that proposed development is determined.
Fire Insurance:
Chapter Three has determined valuation of hotel properties for fire insurance purpose is needed for fire insurance contract and policy or renewal of fire insurance contract and new policy. The market value of subject property that determined in this valuation is the reinstatement cost for a new. It may be valued for a new policy or a renewal for that fire insurance contract.
The analysis result for the best Malaysia Valuation Method in the valuation of hotel properties on lending purpose, there are 82% of respondents selected cost method.
The analysis result for the best international Valuation Method in the valuation of hotel properties, there are 84% of respondents selected cost approach.
From their opinion, these two valuation methods determined the market value of property by the replacement value through analyzing the cost of the land and building. They are the best valuation method to determine the property value as new.
Financial Reporting:
Chapter Three has determined valuation of hotel properties for financial reporting purpose requires companies show their balance sheets of the subject property held under investment or business. The market value of subject property has included the profit potentiality or service potential.
The analysis result for the best Malaysia Valuation Method in the valuation of hotel properties on lending purpose, there are 56% of respondents selected profit method.
The analysis result for the best international Valuation Method in the valuation of hotel properties, there are 72% of respondents selected income approach.
From their opinion, these two valuation methods determined the market value of subject property is determined by multiplying the net operating income with capitalization rate from the analysis from the balance sheets. They are suitable these type of business properties which are not recently transacted such as theme park, golf course, cinema, hotel etc.
Sales and Purchase:
Chapter Three has determined valuation of hotel properties for sale and purchase purpose requires companies show their balance sheets of the subject property held under investment or business. The market value of subject property has included the profit potentiality or service potential.
The analysis result for the best Malaysia Valuation Method in the valuation of hotel properties on lending purpose, there are 82% of respondents selected cost method.
The analysis result for the best international Valuation Method in the valuation of hotel properties, there are 78% of respondents selected cost approach.
From their opinion, these two valuation methods determined the market value of subject property is determined by multiplying the net operating income with capitalization rate from the analysis from the balance sheets. They are suitable these type of business properties which are not recently transacted such as theme park, golf course, cinema, hotel etc.
Submission for Securities Commission:
Compulsory Acquisition:
Rating Valuation:
The Business Proposal of Hotel Development:
Joint-Venture:
Management Contract:
Corporation:
The Selection of The Best International Valuation Method:
The Selection of The Best Malaysia Valuation Method:
The Comparison between The Best International Valuation Method and The Best Malaysia Valuation Standard:
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