Publishing Date : 10 December, 2018


Consideration of market constraints or forced sales value (section 15)

The acquisition of property in Botswana can be quite expensive as market values are usually too high for most buyers to afford. The proposed amendment seeks to use the market value instead of the purchase value in determining the duty payable. While it may not necessarily be a bad idea for immoveable property bought in an open market, the use of market value in all circumstances is not ideal. Auctions are normally an alternative to buying property in the open market as the properties at an auction are normally bought at a bargain and significantly lower than the market value, the price reduction normally ranges between 20% and 50%. 

The old section 15 appreciated that property can be bought through an auction where the property being sold are through a sale in execution of a court order. Currently properties bought through an auction are not subjected to the “proper valuation test” as the market forces in a sale in execution of a court order are very much different compared to an open market sale.

It is not only the Act that appreciates this fact, property valuers usually provide two values when issuing a valuation report, being the fair market value and the forced sales value, therefore it is necessary for the proposed amendments to also consider the same.
The International Valuation Standards Council (IVSC) defines market value as “The estimated amount for which a property should exchange on the date of valuation between a willing buyer and willing seller in an arm’s-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without compulsion.” 

On the contrary, a forced sale value is normally made under unfavorable conditions for the seller and conditions of market value are not met. Though IVSC and other property institutions worldwide are moving away from the use of “forced sale value” and prefer use of phrases such as “market constraints”, the bottom line is property sold in a sale in execution of a court order do not meet the definition of market value, especially the without compulsion and willing seller aspects. Therefore it is important that the proposed section 15 take this into consideration.



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