Cyclical capitalization

The aim of this work is to analyse the importance of Cyclical Capitalization models, a family of income-oriented valuation methodologies recently proposed to consider market cycle in the property valuation process. In the valuation “Valuation uncertainty should be distinguished from uncertainty risk. The possibility that the estimated value may differ from the price in an actual transaction deemed to be taking place simultaneously means that the value may be higher or lower than that price. An owner of the asset is exposed to a risk of loss (uncertainty risk) but also the benefit of a gain if the price is higher than the valuation…” (IVSC, Technical Information Paper, Valuation Uncertainty, para. 7). This is particularly relevant in the valuation of income producing properties that may often be affected by cyclical behaviour of property market. Consequently, the integration between opinion of value and real estate market cycle in real estate modelling may be an opportunity to reduce valuation uncertainty.