Abstract
The growing number of distressed banks in Nigeria and the recognition of mortgage valuation as a measure of investment performance of collaterals to mitigate the risks of loan underwriting process necessitates this study. It examined whether open market valuations of mortgage properties were a good proxies for their sale prices. Pooled data, involving 121 open market sales during the period 1994 to 2002, on property transactions in the study area with their corresponding contemporaneous valuations were gathered from the estate surveying and valuation firms, the lending institutions and the Nigerian Deposit Insurance Corporation. The data emanating therefrom were analysed with the aid of multiple regression models. The study revealed, amongst other things, that open market valuation for mortgage is a good proxy for their transaction price in the study area; although, the accuracy is not as good as what obtains in U.K, U.S.A. and Australia.
Highlights
Availability of credit has been frequently described as the lifeblood of any real estate development
In recent study by Harvard (2001) on commercial valuation reliability and valuer behaviour in the UK, the findings revealed that the normal behaviour of valuers and the procedures followed by valuation firms lead to a high risk of an unsupportable valuation being reported to a client
Since R2 =0.61, it indicates that prices of those properties accounted for 61% of inaccuracy in their values
Summary
Availability of credit has been frequently described as the lifeblood of any real estate development. Mortgage valuation is fundamental to bank lending decisions (Loveli and French, 1996). For example, the underlying philosophy is to assess the open market value of the assets on which the loan is based and to ensure that the former is greater than the amount borrowed. The number of distressed banks in the country had been on the increase from 7 in 1991 to figures as high as 60 and 57 in 1995 and 1996 respectively out of 115 banks. Because of importance of valuations to property performance measurement and loan underwriting process, coupled with an increasing interest in property investment on the part of institutional investors and an increased exposure to property by the banking sector, a serious challenge is posed to estate surveyors and valuers in the country. The ability of valuers to make effective estimations of value, as obtained worlwide, has been subjected to intense scrutiny by academic, the media and the courts and, the apparent lack of a coherent and consistent result from the valuation process has damaged the reputation of the valuation profession
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