1. bookVolume 28 (2020): Issue 3 (September 2020)
Journal Details
License
Format
Journal
eISSN
2300-5289
First Published
16 May 2013
Publication timeframe
4 times per year
Languages
English
access type Open Access

Protected Collateral Value: An Approach to Valuation of Commercial Properties for Loan Guarantees

Published Online: 17 Aug 2020
Volume & Issue: Volume 28 (2020) - Issue 3 (September 2020)
Page range: 1 - 11
Journal Details
License
Format
Journal
eISSN
2300-5289
First Published
16 May 2013
Publication timeframe
4 times per year
Languages
English
Abstract

The valuation of commercial properties for the guarantee of loans is extremely relevant for financial institutions, since it directly impacts the calculation of the loan to value ratio (LTV). However, despite the vast literature on the subject, the choice of methodological basis and the definition of the type of value to be employed are not pacified issues among researchers and practitioners. In this sense, the main objective of this paper is to present a methodological approach, as well as a suggestion of the type of value for the valuation of commercial properties bound collateral.

The main methods and types of values related to the valuation of bound collateral commercial properties are presented below. Next, we propose a refinement of the income method, based on the concept of the value of the investment opportunity and under the principle of value at risk. Finally, we promote a case study with data from the Brazilian market to illustrate the application of the proposed approach.

Based on the case study, it was evidenced that the valuation approach proposed in this paper, anchored in the potential of the income generation of the property, reduces the risk of exposure to banks’ credit.

Keywords

JEL Classification

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