UNIVERSITY OF THE WITWATERSRAND

SCHOOL OF CONSTRUCTION ECONOMICS AND MANAGEMENT

BUQS 3020 Property Studies
SEMESTER TEST
Examiners Prof Yewande Adewunmi and Mr Ryan Mapfumo
Date: September 2023
Duration: 1 Hour
Total: 20 Marks

SECTION A: Please select by marking the appropriate answer or answers in each question

The following are the main areas of real estate EXCEPT 0.5 mark
a. Property management
b. Building design
c. Valuation
d. Brokerage
e. Finance

The following are characteristics of real estate markets 1 mark

a. Heterogeneous goods
b. A large number of market participants
c. Informed buyers and sellers
d. New information works its way into prices
e. Relative lack of information

Which of the following statements are TRUE about location and residual land value? 1
marks
a. Land derives its value from only factors of production
b. Residual land value is the remaining value of land after some items are taken out of
the land
c. Values are normally recorded in municipal bills/rolls
d. Competition does not necessarily improve services or products; it normally leads
to price “wars

The two ways of achieving real estate principles are through 1 mark
a. Generating income flow
b. Generating investments
c. Generating capital return
d. Generating expenses
e. Generating value

Which of the following concepts IS NOT associated with market analysis? 0.5 mark

a) Vacancy
b) Market rent
c) New construction
d) Absorption
e) Cash flow
What is not a lease contract? 0.5 mark
a) Contract between the holder of property rights and consumer/user of at least some of
those rights, covering a specified period of time
b) Sale of the use of space for a predetermined period
c) Leases usually give possession and usage rights but not redevelopment rights
d) lease specifies other rights and responsibilities of landlord and tenant for ground
lease

Which of the following does not classify feasibility problems in real estate? 0.5 mark
a) A use or user looking for a site
b) A site in search of a use
c) An investor in search of an opportunity
d) A site in search of a developer

1. What is the term used to describe the difference between the market value of a
property and the cost to build it? a. Depreciation
b. Amortization
c. Capital Gain
d. Capital Expenditure
2. What does the term "capitalization rate" represent in property valuation? a. The
interest rate of a mortgage
b. The rate at which the property appreciates
c. The rate at which income generated is converted to property value
d. The rate of tax levied on the property
3. What is often the best method for valuing a unique property with no comparable sales
data? a. Residual land value approach
b. Comparable sales method
c. Depreciated replacement cost method
d. Income capitalization method
4. According to the Municipal Property Rates Act, what is exempt from being rated? a.
Commercial buildings
b. Municipal properties
c. Vacant land
d. Residential buildings
5. When is a property's Net Operating Income (NOI) the lowest? a. When the
capitalization rate is high
b. When the capitalization rate is low
c. When the operating expenses are high
d. When the gross operating income is low

ANSWERS
Multiple-Choice Questions
 1. What is the term used to describe the difference between the market value of a
property and the cost to build it?
 Answer: c. Capital Gain
2. What does the term "capitalization rate" represent in property valuation?
 Answer: c. The rate at which income generated is converted to property value
3. What is often the best method for valuing a unique property with no comparable sales
data?
 Answer: c. Depreciated replacement cost method
4. According to the Municipal Property Rates Act, what is exempt from being rated?
 Answer: b. Municipal properties
5. When is a property's Net Operating Income (NOI) the lowest?
 Answer: c. When the operating expenses are high

SECTION B.

Highlight the components of a lease. Two marks

Name of landlord and tenant
Description of the leased property
Consent to transfer possession of property from landlord to tenant
Specification of the tenancy period
Amount and timing of rental payments
Signature of the parties

What is bubble, burst and boom market in the property market? Summarily discuss
three marks.

Bubble is when the real estate price reaches a certain level

Boom is when prices show an upward trajectory/path
Burst is when the price declines below a certain level

Highlight the concepts discussed in the paper by Mooya Two marks.

Characteristics of the SA property industry: transformation, economic duality and

institutional pluralism, emerging economy status. Characteristics of the SA property industry:
analytical frameworks, key research issues, and property research in SA.

Short Calculation Questions

1. A property has a gross operating income of R200,000 and operating expenses of
R90,000. Calculate the Net Operating Income (NOI).
2. Using the NOI from question 1, and assuming a capitalization rate of 7%, what is the
market value of the property? Round your answer.
 3. A comparable property is valued at R600,000 and has one less bathroom than the
subject property. The valuer estimates the bathroom accounts for a 5% difference in
value. The subject property also has a balcony, estimated to add an extra R50,000 in
value. What is the subject property's adjusted value?

Short Calculation Questions

1. A property has a gross operating income of R200,000 and operating expenses of
R90,000. Calculate the Net Operating Income (NOI).
 Answer: NOI = Gross operating income - Operating expenses = R200,000 -
R90,000 = R110,000
2. Using the NOI from question 1, and assuming a capitalization rate of 7%, what is the
market value of the property? Round your answer.
 Answer: Market Value = NOI / Capitalization Rate = R110,000 / 0.07 =
R1,571,429 (rounded)
3. A comparable property is valued at R600,000 and has one less bathroom than the
subject property. The valuer estimates the bathroom accounts for a 5% difference in
value. The subject property also has a balcony, estimated to add an extra R50,000 in
value. What is the subject property's adjusted value?
 Answer: Adjusted Comparable Value = R600,000 * 1.05 (for the bathroom) =
R630,000
 Subject Property Value = R630,000 + R50,000 (for the balcony) = R680,000