In my experience as an architect and property valuer for over 25 years, I’ve seen how property valuations can turn into a frustrating game of numbers. Even for the same property, the final value can swing wildly depending on who’s doing the math and what assumptions they choose to make. This is particularly true in a complex market like Malta, where properties differ greatly even from one street to the next, and factors like cap rates, profit forecasts, and finishing standards can completely change the picture. The result? What should be a straightforward process often becomes a source of confusion and uncertainty, especially when buyers, sellers, and investors are left scratching their heads at the wide valuation gaps they receive.
One key element is the choice of capitalization rate, or “cap rate,” which is crucial in determining a property’s value based on its income. But who actually decides the cap rate? The answer is a blend of market conditions and the valuer’s judgment. A prime commercial property in Sliema might attract a cap rate of 3-4% because of high demand and low risk, whereas a similar property in a quieter town like Mosta or Birkirkara might be valued using a higher cap rate of 5-7% due to perceived higher risk and lower rental demand. These rates can change further depending on factors like tenant quality, lease terms, and even local economic conditions. Ultimately, while market trends set the general boundaries, it’s still up to the individual valuer to decide exactly how much a cap rate should vary. Even a small adjustment, like choosing 5% over 6%, can have a massive impact on the final value. That’s why cap rates are as much about the valuer’s giudizio d’arte—their professional judgment—as they are about data.
One major culprit of valuation variability is the use of the profit method, especially for assets like hotels. Take a small boutique hotel in Valletta. One valuer might assume a 70% occupancy rate at €150 per night, while another might use 50% at €120 per night. The resulting annual revenues could differ by over €400,000, causing the property’s value to vary significantly based on whose projections you believe. All it takes is a slight change in assumptions—say a new manager boosts bookings, or competition opens up nearby—and the entire calculation goes haywire.
To make matters worse, when applying reductions to account for subpar finishes or less-than-ideal locations, subjective decisions start piling up. How much should be taken off for an outdated kitchen in a prime Valletta penthouse? Is a poor outlook really worth a 15% reduction? One expert might argue that a particular flaw knocks €100,000 off the price, while another dismisses it as inconsequential. This isn’t hard math—it’s giudizio d’arte, a matter of professional interpretation.
Because of this, insisting on a single, “precise” valuation figure is often misleading. In reality, a range—say €1.4 million to €1.8 million—is much more honest and reflects the true variability in assumptions and conditions. Presenting a range acknowledges that different scenarios and perspectives can yield different values, especially when there’s so much uncertainty in profit-based projections or subjective elements like quality of finishes.
Ultimately, property valuations aren’t just about plugging numbers into a formula. They’re influenced by experience, perception, and a deep understanding of the local market. So while factors like cap rates, reduction percentages, and profit forecasts might seem logical, they should always be approached with a healthy dose of scepticism. After all these years, I’ve learned that embracing a range—rather than clinging to a single figure—is the most transparent and realistic way to deal with the unavoidable subjectivity in property valuation. It doesn’t mean we’re indecisive; it means we’re respecting the complexity of the property and providing a more honest picture for everyone involved.
