More Than Comparables: Rethinking How Appraisers Value Real Estate

The ongoing discussion surrounding Villar Land’s reported ₱1.5-trillion valuation has prompted a renewed focus on how real estate is valued in the Philippines. One of the most common criticisms is the absence of comparable sales data to support such a figure. While that concern is valid in many contexts, it also reveals a limited view of property valuation.

In professional practice, valuation is not confined to sales comparison alone. There are several internationally and locally recognized methods—each suited to a specific type of property and development scenario. Among these, the income approach stands as a credible and often more suitable alternative, particularly for large-scale, income-generating developments.

Valuation Is a Framework—Not a Formula

Valuation is not a one-size-fits-all exercise. Instead, it is guided by established professional standards and relies on three fundamental approaches:

1. Sales Comparison Approach

This method estimates value based on the sale prices of similar properties. It is most appropriate when there are recent, comparable transactions—such as in the case of finished residential or commercial properties.

2. Cost Approach

Used primarily for new or special-use assets, this approach determines value by summing the land value and the depreciated replacement cost of improvements.

3. Income Approach

The income approach is particularly useful when a property generates—or is expected to generate—income over time. It is frequently applied to investment properties, commercial developments, and large-scale estates. Under this approach, value is based on the present worth of future net income, typically using the Discounted Cash Flow (DCF) model.

The Income Approach and Its Application

Critics of Villar Land’s valuation have asked: “Where are the comparables?” The question assumes that a comparable-based method is the only legitimate approach. However, for a 3,500-hectare master-planned estate like Villar City, the income approach may actually be the more appropriate tool.

There are few, if any, direct market comparables for a raw estate of this scale. The value of Villar City does not lie in what neighboring land is worth today—it lies in its future income-generating capacity. This includes revenue from land sales, residential development, commercial leasing, and integrated mixed-use components over a multi-year period.

In my more than decade-long career in property valuation, I encountered appraisal reports prepared by the Villar Group that rely on the income approach. In particular, these reports apply the Discounted Cash Flow (DCF) model, which estimates the present value of a development based on its projected income, discounted at a risk-adjusted rate.

The use of the income approach is not merely professionally valid—it is formally recognized across multiple valuation and legal frameworks, including:

• Philippine Valuation Standards (PVS 103)
• International Valuation Standards (IVS 105)
• IAS 40 / PFRS 13, which govern the fair value of investment properties for accounting and financial reporting
• The Real Property Valuation and Assessment Reform Act (RPVARA) — a key reform law aimed at modernizing the country’s property valuation system, under which the income approach is mandated for income-generating properties

Under RPVARA, the income approach is to be applied by the Bureau of Local Government Finance (BLGF) and local assessors when valuing commercial and income-producing properties for purposes of fair taxation, land use planning, and asset management.

This legislative recognition further affirms the method’s relevance not only for market valuation, but also for public finance, infrastructure appraisal, and national property tax reform.

Transparency: The Core Obligation

While the income approach is methodologically sound, its application—especially in the context of a publicly listed company—requires a high degree of transparency. Under Republic Act No. 8799 (Securities Regulation Code), Villar Land and any similarly situated issuer must:

• Disclose all material facts, including the valuation method and underlying assumptions (Section 17)
• Avoid any false or misleading statements (Sections 24 and 26)
• Ensure fair and accurate disclosures even in private placements (SRC Rule 10.1.2)

If a company relies on an income-based valuation to support reported profits or public market claims, it must disclose the basis of its projections, including:

1. Projected income streams and phasing schedules
2. Discount rate assumptions and market benchmarks
3. Sensitivity analyses showing value fluctuations under different scenarios
4. Infrastructure and development timelines
5. Independent appraisal reports or fairness opinions
6. Oversight by audit committees or external auditors (for fair value accounting under IAS 40)

Without these elements, even a professionally prepared valuation risks losing its credibility with investors, regulators, and the public.

The key message is this: valuation is not confined to comparables, and not all assets lend themselves to the same approach. The income approach, especially through a robust DCF model, is a recognized and appropriate method for valuing master-planned developments like Villar City.

However, the integrity of any valuation rests not only on the method chosen but on how transparently it is disclosed and explained. In capital markets and public discourse alike, methodology and transparency must go hand in hand. One without the other risks distorting—not informing—public perception of value.

In professional valuation, what matters is not just what number you arrive at, but how you got there—and whether the market understands it.