CHALLENGES ENCOUNTERED WITH VALUATION OF A MARKET SQUARE

ESV AKANO ZACCHAEUS ADETUNJI

Valuing a market square presents several practical, legal, financial, and methodological challenges, especially in regions like Nigeria where market structures often vary in formality, ownership, and revenue consistency.
Here’s a comprehensive overview of the challenges associated with the valuation of a market square:

1. Inadequate and Unreliable Income Data

• Many market squares operate informally, without documented rent rolls or financial statements.
• Stall/shop owners or managers may not disclose actual rental income.
• Income may fluctuate due to seasonality, tenant turnover, or informal rent collection.

1. Irregular or Nonexistent Tenancy Agreements

• Most traders/stall occupants may not have formal lease agreements.
• Tenants may occupy space on a daily or weekly payment basis, which is hard to quantify accurately over a year.
• This uncertainty makes it difficult to estimate stable future income for the income capitalization method.

1. High Tenant Turnover & Vacancy

• Market squares often have high turnover due to economic instability, informal business structures, or seasonal trading patterns.
• Frequent vacancies affect the net operating income and make future income projections uncertain.

1. Inconsistent Ownership and Land Title Issues

• Many market squares are located on government-owned land, customary land, or have unclear titles.
• Legal uncertainty reduces marketability and affects investor confidence, reducing the property’s value.
• Land tenure may prohibit transfer or limit full commercial use.

1. Informality and Poor Record-Keeping

• Lack of proper books of accounts, rent registers, or maintenance records.
• Makes it difficult to apply accurate valuation methods, especially the income approach.

1. Diverse Use and Stall Sizes

• Market squares typically have mixed-use areas (open stalls, lock-up shops, temporary kiosks, food sections, etc.).
• Rent rates and demand vary across sections, making it hard to determine a uniform rental value per square metre.

1. Maintenance and Infrastructure Deficiencies

• Many markets suffer from poor infrastructure: bad roads, lack of drainage, waste issues, inadequate toilets, etc.
• These physical defects reduce functional utility and investor appeal.
• Determining the degree of physical and functional depreciation can be subjective and complex.

1. Difficulty in Estimating Depreciation (Cost Approach)

• Markets are often built incrementally over time, making it difficult to assess original construction cost and age.
• Materials may vary in quality and construction may not follow standard designs.

1. Lack of Comparable Sales Data (Sales Comparison Approach)

• Market squares are rarely sold as a whole in Nigeria.
• Where sales occur, transaction values are often undisclosed or not reflective of market reality due to underreporting.
• This makes the sales comparison approach impractical.

1. Political and Social Influence

• Many markets are managed or influenced by local governments, unions, or political bodies.
• This can affect rent-setting, stall allocation, and general market operations.
• Valuers may face difficulty accessing data or may be pressured to influence value estimates.

1. Security of Tenure and Eviction Risk

• In some markets, traders can be evicted with little notice, especially in unauthorized or temporary markets.
• This reduces investment value and complicates long-term income forecasting.

1. Environmental and Location Challenges

• Some markets are located in flood-prone or congested areas, which affect patronage and long-term sustainability.
• Environmental risks (e.g. fire outbreaks, poor sanitation) may not be adequately mitigated or insurable.
  Summary Table of Challenges:
  Category
  Challenges
  Income Estimation
  Informal rent systems, lack of documentation, fluctuating income
  Legal/Ownership
  Unclear titles, government land, customary tenure
  Physical/Structural
  Poor infrastructure, difficult depreciation estimation
  Market Data
  Few comparable sales, unreliable cap rates
  Tenancy Issues
  Short-term tenants, lack of leases, eviction risks
  External Influences
  Political interference, union influence, security issues

Conclusion:
Valuing a market square requires experience, discretion, and flexibility. Due to these challenges, valuers often:

• Rely heavily on income approach, using verified income streams.
• Use conservative cap rates to reflect the risk.
• Supplement with cost approach when income data is insufficient.
• Make adjustments for informality, legal issues, and infrastructure.