Your SlideShare is downloading. ×
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective
Upcoming SlideShare
Loading in...5
×

Thanks for flagging this SlideShare!

Oops! An error has occurred.

×
Saving this for later? Get the SlideShare app to save on your phone or tablet. Read anywhere, anytime – even offline.
Text the download link to your phone
Standard text messaging rates apply

The Permissibility of Risk-Free Rate and Uncertainty in Valuation Methods from Islamic Perspective

705

Published on

Property Valuation methods under study are Comparison Method and DCF Method

Property Valuation methods under study are Comparison Method and DCF Method

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
705
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
5
Comments
0
Likes
0
Embeds 0
No embeds

Report content
Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
No notes for slide

Transcript

  • 1. CHAPTER 1 INTRODUCTION The vital credo for most of all business is property or real estate valuation. Land and property are factors of production and, as with any other asset, the value of the land flows from the use to which it is put, and that in turn, is dependent on the demand (and supply) for the product that is produced (Nick French, 2004). Valuation, in its simplest form is the determination of amount for which the property will transact on a particular date (Stephen Sykes, 1984). Will Fraser (1985) state thatfor any valuation model to have validity it must produce an accurate estimate of the market price. Then, he added, the model should therefore reflect the market culture and conditions at the time of the valuation. It should be remembered that the model should be a representation of the underlying fundamentals of the market and that the resulting figure of the valuation is “value”. Valuations that are in accordance with the Islamic Principles are called Shari‟ahcompliant valuation. There are three principal rules which need to be adhered to when analyzing valuation or activities from the standpoint of Shari‟ah permissibility. These three principal rules were generated by Chris Cook (2006) in Islamic financial view-point which also pointed out by Mohd Rahimie (2010) in Islamic fund Valuation study, hence it is logically applied in valuation of property process. The first is the absence of interest (riba‟) in the valuation. The second is the potential for „unethical concerns‟ in the valuation which includes halal or non-halal property usage. The closing part associate with the essence of the contract between parties involved. Any contract shortcoming to 1
  • 2. fasten down its principal elements (examples; price, subject matter, delivery date and others) in a mode in which the uncertainty might become reasons of potential conflicts between contracting parties is at fault of holding outrageous/absolute Gharar (also known as unacceptable uncertainty) and is null and void according to Shari‟ah context. Byrne (1989) and Aydin & Rainer (2010) had suggested that all Valuers are aware that inputs and output from appraisal and valuations are uncertain and suggest the essential to allocate the uncertainty known. After in-depth study done on various sources, uncertainty (Gharar) existed in valuation methods were reason out in few articles, hence these principal rules will be examine in valuation on whether it is permissible according to Islam or not and getting more understanding on the usage of risk-free risk rate as the benchmark in property valuation method is halal according to Islam and future views on its application according to uncertainty lies within it. The study had its prime interest since it related back to what had been earned (fee accepted) by the Muslim Professional in Valuation private practice since it is based on the percentage of total valuation done on subject property entitled. According to Abdullah ibn Masud, Radi-Allahu anhu, The Prophet Muhammad (P.B.U.H.) said: „Seeking halal earning is a duty after the duty.‟ In other words working to earn a halal living is itself a religious obligation second in importance after the primary religious obligations like prayers, fasting and hajj. Hence, seeking and knowing halal legality in our fee or salary is a must. Modern Scholars began thinking about Shari‟ah Compliant necessity in the second half of the century, and to a lesser extent Gharar (uncertainty), and on their economic and social impact. The main question of whether the prevailing fixed, predetermined rate of interest on loans in conventional banking constituted riba‟ was 2
  • 3. debated well into the 1980s, when a consensus was reached among scholars that indeed the prohibition did include such interest receipts or payments. Increasing demand for Islamic financial products and services which also includes real estate valuation for mortgage and the increasing number of people seeking halal means and sources of business dealing stimulated further research on intermediation and real estate finance (Askari, Iqbal, & Mirakhor, 2009). And this rate is part of the benchmark in property valuation method and this lead to the question, the original reason for the input of such rate in valuation and whether the uncertainty elements from the rate constitute any possibilities towards permissibility in Shari‟ah principles. Very few studies had been done by researcher in Shari‟ah compliant valuation. But, it came into limelight when this area had been discussed in the First International Conference on Real estate Valuation by Qatar Islamic Bank and CB Richard Ellis (CBRE), a commercial real estate services firm in Qatar organised early this year (2012), the session covered the legal and Shari‟ah aspects of valuation, including the legal liability in the real estate valuation process, the use of valuation in a Shari‟ah compliance context and the legal considerations in the ownership of real Estate which a professional Valuer must understand. Valuation uses in disputes and litigation also be addressed including industry best practice and process and their relation to Shari‟ah principles. Thus, this research added to fill the gap for more understanding and inputs on this relatively new field of valuation. In recent renown interest-free finance sector which had been actively promoted with diverse package offered by the Islamic Banking or Financial Institution had successfully attract Malaysian in opt for this type of financing rather than the conventional one.Nowadays, there exist 267 Islamic banks and financial institutions all 3
  • 4. over the world working under the Islamic finance principle as stated by Tarek H.Selim (2008). Those institutions are located in about forty-eight countries with value of assets of $260 billion and with an average growth rate of 23 per cent annually (Dubai Islamic Bank, 2005). Hence, interest and promotion of Islamic financial products and institutions is welcomed all over the world because it offers diversity of alternatives for investors and consumers alike (Jomo, 1992). But very little Shari‟ah-compliant valuation method being sudy, it cannot be disregard since the finance industry especially mortgage property financing backed with a sound property valuation. Valuation which merely being develop from the finance industry especially for private Valuers had create some awareness on producing valuation report that fulfill Islamic Principles. What are the areas in valuation methods does not permissible by Islamic principles? Therefore, prevailing factors in determining Shari‟ah compliant valuation method had to be address or detailed out in a research. 1.0 BACKGROUND OF THE RESEARCH Perhaps the single most important factor behind the powerful growth of the Shariahcompliant funds industry lies in the simple fact that Muslims represent about a quarter of the world‟s population (pp.5) (PricewaterhouseCoopers, 2011) This statement made towards the fund industry development. The statement also make one wonder, as a person in newly-aware with Shari‟ah compliance importance, it is a realistic dream to prospect such level of growth in valuation practice. There were not much studies or report in regard of Shari‟ah-compliant fulfillment in valuation practice. Since, in the real estate business, however, it is very common to face cases of mixed activities, i.e., permissible and non-permissible activities occurring together. In 4
  • 5. generating ideas for this research, probably it will be seen as a selfish remark, since the original intention in coming up with the objective of this research were from own curiosity and desire to know does the existing valuation fulfill the Islamic principle? Does the interest applied in valuation method used is riba‟ as pertinently mentioned by few academician met were true? Hence, the basis of idea being acknowledged and considered. Afterwards, with some reviews and reading on development of Shari‟ah compliant valuation model, there were needs to establish one reference for in depth study on factors in determining Shari‟ah compliant valuation model and critical views on the non-compliance of existence valuation model. The light of the questions on the importance of this study also came from the findings made by Muhammad Hanif (2010), he made a minor modification of risk free return in his attempt to develop a Shari‟ah compliant pricing model. Aydin & Rainer (2010) made critical review on the concept and mathematics of Islamic valuation with a suggestion on changes of riba‟ in function of valuation and inclusion of inflation of currencies, in particular they stressed out the avoidance of ribā and Gharar which literally defined as uncertainty should be applied to real economic value in the first place rather than the valuation industry itself. They also argue that ribā and Gharar may easily arise through neglect of risk or inappropriate valuation methods but there are no detailed explanatory on whereabouts of concrete validity on the existence of riba or Gharar in the valuation model. Thus, this research looking forward for these factors to evolve in factual evidence analysis. Since, there is not much research or study related in the market, this research is truthfully an exploratory one. 5
  • 6. Specific mind-consciousness on the views from the people worked in the industry and the academician raised few questions on regard of this topic, “what is wrong with the existing valuation model use? Does it have issue with the Islamic principles?” In addition, according to Bruner et al. (2002), valuations are affected by factors such as liquidity, corruption, volatility and taxes, which differ between developing markets and developed markets. Thus, does this factors partly considered in determining Shari‟ah compliant valuation model? Emphasizing the views from the interviewee on the validity of uncertainty and possibility of riba‟ existence in valuation methods and suggestive measure to concur the Shari‟ah compliance valuation with correlation with the critical review on the current valuation model would be highlighted through out the research. 1.1 STATEMENT OF THE PROBLEM Rate in Valuation Method (VM), eventually generated from prevailing interest rate in market with addition of risk premium. Doubtly, some say this interest rate is riba‟ (Minsky, 1982; Kamal et. Al, 2010; Febianto, 2010; Thajudeen, 2012), some were not (refer to Fazlur Rehman, 1960; Sayyid Tantawi, 1989) but there are limited justification on the relationship of riba‟ with rated applied in deriving value of property based on method applicable. While uncertainty is due to the lack of knowledge and poor or imperfect information about all the input that can be used in the analysis. In the context of valuation this refers to the input variable, the comparable information. French & Gabrielli (2004) suggest more work will be required to agree on issues of uncertainty in valuation, they claimed supported with others report and study (Byrne, Mallison, Carsberg et.al.), as noted earlier, absolute uncertainty or „absolute Gharar‟ is impermissible under Shari‟ah principles. But does the uncertainty in valuation is actually absolute Gharar as according to Syari‟ah law definition? Normal uncertainty is an 6
  • 7. unsurprising fact of property valuation. Hence, does normal uncertainty permissible in Islam by fact of its nature in valuation practice? But, what are the uncertainties that will affect the valuation output? How about abnormal uncertainty? The fact that there are uncertainties doubtly being reported to aide the valuation users understanding of the valuation. Does the reporting of uncertainty acceptable in Islam? Since, prescribing is one of the solutions to give justice towards valuation users hence the permissibility had to ascertain. Moreover, other factors in determining a Shari‟ah compliant validity in valuation other than riba‟ and Gharar could also be discuss as such, the timelessness of value as suggested by Islam according to Aydin & Rainer (2010) which not being considered under current valuation process. Undeniably, time is a one of the main principle in deriving valuation as being done for the past since valuation service existed. But the timelessness of value does not discuss in this study. Moreover, a reference on the reviews of existence valuation with compatibility of Shari‟ah complaint principles can be allocated in this study. 1.2 AIM OF THE STUDY There are two primary aims of this study, namely to validate the potential of nonShari‟ah compliance in existing valuation applied by industry practitioner and to enrich knowledge and information on regard of the possible variables that affect the adherence of Valuation specification towards Shari‟ah Principles. 7
  • 8. 1.3 OBJECTIVE OF THE STUDY The main objectives of this study are: (i) To review and analyse Gharar (uncertainty) in property valuation methods. The factors will also include presumably factors stated in previous research or study. This study also attempts to examine whether factors of Shari‟ah compliant exhibits certain recognisable trends as reported by previous studies. Therefore, more robust and independent results of the possible factors in determining Shari‟ah compliant valuation can be achieved by this study. (ii) To evaluate whether the existence of uncertainty and risk-free rate in property valuation method are permissible according to Islam The examination will be done in reviewing process by employing open ended discussion towards perception of the panels whom undergone thorough study on the area-related. The comprehensive justification will also unlock the issues surrounding Islamic perspective in valuation. 1.4 SIGNIFICANCE OF THE STUDY In spite of there are growth of Islamic-perceptive in financing and capital market industry worldwide, literature on Shari‟ah compliant valuation and its practicality, unfortunately, still deemed to be rather limited. Moreover, past studies have mainly based their analysis upon valuation of capital asset of financing instrument, barely very 8
  • 9. few were based on the physical property itself. Hence, the findings were valuable in giving ideas of possible factors of non-Shari‟ah compliance in this industry since valuation property have diverse correlated with financial market but noted that the findings are generally varied and inconclusive due to various limitations and shortcomings since it involved different target and scope in the methodologies employed by past studies. This study on the other hand, attempts to investigate the issues surrounding existence valuation, whether it is fulfill Islamic principles or not. First,the study seeks to investigate the existing valuation applied by practitioner compatibility with Islamic principles by reviewing the uncertainty remark by various researcher and author. Secondly,the existence of uncertainty in property valuation is examined using openended discussion with selected panels. Thirdly, through having discussion with panels in Shari‟ah, uncertainty will be evaluate their occurrence in property valuation practice with Islamic principles. Lastly, through the comprehensive understanding of the profile and operations of existing valuation with Islamic principles, this study attempts to suggest the appropriate course of actions to comprehend the situation for the development ofShari‟ah-compliant property valuation method. The input from the panels is an added advantage of this study as it complements the qualitative analysis by broadening the scope of this study, enhancing the depth of the analysis and offers advance perspective to the issues at hand. Therefore, this study is crucial since it helps to enrich the quality of research on Shari‟ah-compliant valuation method and paves the way for future research on the development of an alternative valuation model appropriate under Islamic perspective. 9
  • 10. 1.4.1 Why we need? – Faith relevance Contrary to conventional valuation however, a pious or ethically-motivated Muslim Valuer or Muslim industry-relater player is supposedly looking beyond the mere profit maximisation objectives when doing their work scope. Instead, Islam encourages its followers to create and accumulate wealth as long as the wealth is obtained through legitimate means. Thus, although profit maximisation is allowed in Islam, it should not be perceived as the ultimate objective by Muslim that would potentially undermining their other religious obligations, or as the one that will justify any means for its achievement (Mohd Rahimie, 2010). Islamic teachings do not only place emphases on wealth creation and accumulation but are equally concerned with the manner of how the wealth is utilised. With this understanding in mind, it can be argued that the expected utility function of a pious Muslim Valuer or related practitioner should be different from the utility function of a conventional Valuer or related practitioner since the former will take into consideration his religious belief and constraints when making an investment whilst the latter‟s main concern would naturally be about the expected monetary reward from his/her work merely. Subsequently, there is a concern that Shari‟ahrestrictions may have somehow affected the return towards their scope of work unfavorably. By eliminating non-halal potential valuation from their workscope, it will certainly be deprived from enjoying the profit potential offered by nonhalal potential valuation, thus making the religious practitioner rather less competitive in terms of their potential profit making as compared to conventional practitioner. Moreover, such definite restrictions and characteristics of non-Shari‟ah compliant valuation has not theoretically and practically undermine and as mentioned earlier it is merely new in the industry. 10
  • 11. In so far as modern portfolio theory is concerned, it has been argued that such restrictions, although religiously or ethically correct, will not be acceptable (see Kurtz, 2005). Hence, it is ultimate to continue studies on the need of it as part of main concern for continuity in seeking answer of all curiosity regarding validity of our valuation in Islamic perspective. 1.5 SCOPE AND LIMITATION This section highlights the limitations of the study which are as follows: 1.5.1 Scope of the Analysis The scope of the study has mainly focused on the commonvaluation methods and its process correlation with Islamic principles. The reason for studying the methods will be further explained in chapter 2. Hence, the data and the sample selection for qualitative analysis have been specifically tailored towards achieving the research objectives under two valuation methods selected; Comparison Method and DCF Method (Investment Method), thus along this study, the „valuation methods‟ term will be refer as Comparison and DCF Method. Consequently, the study has not directly looked into the practicality within the industry that would require participation from the real practitioner since the theoretical basis had to be determine in the first place. The study also tailored limited to the property valuation segment only. Nevertheless, the study has taken into consideration the possible contributions from academician and panels having exact knowledge or interest in the subject field and ultimately in the structure of Maqasid Shari‟ah itself. 11
  • 12. 1.5.2 Definition of Elements Study 1.5.2.1 The Risk-free Rate The risk-free rate in valuation method is riba‟ as viewed by Islamic Scholars, hence it leads to one thought, the researcher herself, whether the valuation process and outcome is permissible according to Islam. There is no single rate that actually „risk-free‟ but the rate called as riskfree due to its no default risk and reinvestment risk. In DCF Method, government bonds are widely used as the „risk-free‟ benchmark. The government bond rate is also used to benchmark property returns and may be regarded as the starting point for the „all risks‟ property yield (whether it is an initial, equivalent or reversionary yield. 1.5.2.2 Uncertainty or Gharar Uncertainty is a measure of our inability to assign a single value to a possible event and defined as the variability of possible outcomes (e.g., rate of return, risk premium) around their mean (expected) value. The quantification of uncertainty is the difference between the true value of a natural outcome and an estimate of its value. Bias occurs when values are systematically over- or underestimated. Uncertainty is Islam being defined as Gharar which also known as uncertainty, doubtfulness and ignorance on certain details in a contract or transaction. The uncertainties covered under this study were gathered from various literatures and study that discussed within Comparison and DCF Methods, which their 12
  • 13. statement become basis on evaluating their permissibility with Islamic perspective. 1.5.3 Data Available on Valuation in term of Islamic perspective The findings derived based on Islamic principles towards valuation practice but it may be constrained by the limited data available for this study. For instance, the free-interest model few suggested used to represent for asset pricing and the existence of interest as a benchmark findings basically origin from the valuation of the capital asset. Hence, the findings were mostly based on indirect property investment valuation not on physical property itself. But the suitability of main points taken from these findings will be re-addressed in the primary data collection done. 1.5.4 Respondents Though the sample of respondents which comprises panels or expertonly, it is deemed sufficient since it merely cover the exploratory aspect of possible Shari‟ah-compliant valuation methods. The respondents participating are Muslims professional who may already have knowledge and interest about Shari‟ahand real estate valuation. But, the number of academician with such interest is admittedly very small in Malaysia. Furthermore, the study has purposely selected only Muslim with relevant seniority as respondents to suit the scope of the study. 13
  • 14. CHAPTER 2 LITERATURE REVIEW Real estate, because of its bulk, high unit value, and individuality, is not bought and sold like other commodities. Ordinarily, it requires considerable time to effect a real estate transaction, and it cannot be assumed that the market knowledge of buyers and sellers is complete or equal. As a result of the imperfections in the various markets for real estate, wide variations are observed in the market prices of identical properties over short periods and caused the raised of possible uncertainties or in Shari‟ah interpretation Gharar in generating value of property subjected. The application of traditional methods of valuation is exclusively and generally accepted by Malaysian Valuers with no evidence of questioning their suitability or accuracy (Md. Yusof A, 1992). The Valuer is continuing to apply the standards developed in 1930's, or before which have been made obsolete by new advances in theory and technology(A.Rahman & Sipan, 1996). Current traditional methods of valuation which are commonly practiced throughout the real estate (Shapiro, Mackmin, & Sams, 2013)worldseemed to be associated with uncertainties and subjective elements. 2.0 Property Valuation Valuation is the process of determining market value; an estimation of the price of exchange in the market place. Valuation, in its simplest form is the determination of amount for which the property will transact on a particular date (French, The Valuation of Specialised Property, 2004). While Baum, Crosby and MacGregor (1995) defined 14
  • 15. valuation is the estimate of the most likely selling price, the assessmentof which is the most common objective of the Valuer. The most likelyselling price is usually termed “open market value” in the UK. It shouldnot be confused with worth. The essence is that a valuation is an estimation of the most likely selling price on the open market, on the basis of both a willing seller and a willing buyer (Sayce, Smith, Cooper, & Rowland, 2006).Valuation is not an objective exercise, and any preconceptions and biases that a Valuer brings to the process will find their way into the value. An estimate of value is an analysis of market trends (Boykin & James, 1983). Consequently, any Valuer must have an introductory knowledge of supply and demand analysis to understand how the market functions and what interrelationships among the market forces are involved. Various literatures and reading sources emphasize that there were strong bond between the property valuation and market forces. Relying upon economic theory, Valuer generally accepted market prices as a central value concept in certain valuation purposes however after the collapse of real estate market as early as 1930s, Valuers have become increasingly reluctant to accept market prices as the appropriate measure of market value (Wendt, 1974). 2.1 Comparison Method and Investment Method as the Focus of the Study The effect of market forces towards the production of property value had caused the rise of uncertainty in the market itself contribute in the essence of valuation process. Under this study, the valuation methods that will be specifically identify its uncertainty and existence of potentially Riba‟ are Comparison Method and Investment Method. In 15
  • 16. McParland, Adair and McGreal (2002) survey conducted among four European countries concluded that Valuers in these countries favor Comparison method and Investment Method specifically Capitalisation method and Discounted Cashflow (DCF). While Fraser (1985) stated that Comparison method valuation which is the one most closely based on market evidence, is the most rational system in property valuation, while the years' purchase (YP) method seems likely to be superior in the large majority of cases. Other than that, the fact that both methods lay the uncertainties and risk-free rate (Riba‟) within the structure of the methods, became the reasons for the scope under this study. The UK valuation profession has been criticised for inconsistencies and failures to reflect risk and uncertainty in certain valuation assignments such as the pricing of urban regeneration land (Lorenz, Truckz and Lutzkendorf, 2006). Also the Investment Property Forum/Investment Property Databank specifically concluded that a new approach is needed which combines conventional analysis of returns uncertainty with a more comprehensive survey of business risks. This debate has been brought into sharper focus by the publication of the Carsberg Report (2002), which emphasized the need for more acceptable methods of expressing uncertainty, particularly when pricing in thin markets. 2.2 Nature and Characteristics of Uncertainty and Risk-Free Rate in Valuation Methods 2.2.1 Characteristics of Uncertainty in Valuation Methods As being mentioned in earlier part of study, uncertainty was tremendously discussed by previous researcher and continues to be debate at recent time, and it is one of main concern and issues to be deal in valuation practice. Waleed 16
  • 17. (2000), stated that uncertainty or according to Islam being called as Gharar, in asset valuation are one of indicator in ascertain the valuation deem to be shariah-compliant valuation. But, it is an indirect property investment valuation not on the physical property itself. Still, there was relationship between the uncertainty elements in valuation methods with the uncertainty mentioned in others asset or instrument valuation, such as verify by Rahimie (2010) which they are, the adjustment process, rate of return, premium rate and future expectation. And he stated that these uncertainties consider as Gharar in Islamic definition. Valuation uncertainty should be distinguished from uncertainty risk. According to International Valuation Standard Council (2012), valuation uncertainty is the possibility that the estimated value may differ from the price that could be obtained in a transfer of the same asset or liability taking place at the same time under the same terms and within the same market environment. RICS (2008) one of Valuer‟s representative institution, believes that valuation uncertainty as defined in Guidance Note released by them, has existed in the market for some time in many world regions, and has become more marked. A valuation is not a fact; it is an estimate of the most probable of a range of possible outcomes based on the assumptions made in the valuation process. Uncertainty in valuation methods could arise from the market uncertainty, the method uncertainty and the input of values that required within the method structured. Model and input uncertainty arise from the valuation process, are closely related and may be measureable. Market uncertainty arises because of events external from the valuation process and is not normally measureable. 17
  • 18. Market uncertainty arises when a market is disrupted at the valuation date by current or very recent events such as sudden economic or political crises. The disruption can manifest itself in a number of ways for example either through panic buying or selling or by a loss of liquidity dueto a disinclination by market participants to trade. An outbreak of sudden trading activity in response to a crisis may cause rapid price changes that are not necessarily representative of those that would be agreed between parties acting “knowledgeably and prudently”. Model uncertainty arises from characteristics of either the valuation model, or method, used.For certain property types, more than one method may be customarily used to estimate value.However, those models may not always produce the same outcome and therefore the selection of the most appropriate method may of itself be a source of uncertainty. Input uncertainty arises where there are a number of equally reasonable or feasible inputs or assumptions that can be used from the degree of veracity that can be attached to the data inputs used in the valuation and their impact on the outcome. This study will looks on the input uncertainty in valuation methods as being studied and reported by various researcher and bodies. Uncertainty in valuation method denotes both the perception and feeling of uncertainty with regard to events in the immediate or in a more distant future. It refers to a lack of knowledge and to the decrease or lack of predictability regarding future events. According to RICS (2008), it is recognised that the valuation process is extremely difficult when there is a greatly reduced volume of reliable sales evidence. Despite these difficulties it is not appropriate for reports 18
  • 19. to feature caveats or qualifications which would cause the client or auditor to question the validity of the valuation, or to qualify a valuation report. In each local market and for each property asset type the Valuer must decide whether an element of market instability - an example of valuation uncertainty – exists. There are few elements of uncertainty in valuation methods that further explained under both methods headings. 2.2.2 Risk-Free Rate Nature in Valuation Methods . The risk-free rate natures need to be re-address its application in valuation methods in this study. Purchaser who buys propertyhas a return that they expect to makeover the time horizon that they will hold the property. The actual returns that they make over this holding period may by very different from the expected returns, and this is where the risk comes in. Risk in holding is viewed in terms of the variance in actual returns around the expected return. For a transaction to be risk free in this environment, then, the actual returns should always be equal to the expected return. There are basic conditions that have to be met in considering the rate is risk-free. One of it is that there can be no default risk. The only securities that have a chance of being risk free are government securities, not because governments are better run than corporations, but because they control the printing of currency. There is a second condition that riskless securities need to fulfill that is often forgotten. For an investment to have an actual return equal to its expected return there can be no reinvestment risk. (Damodaran, 1998). 19
  • 20. In financial markets, government bonds are widely used as the„risk-free‟ benchmark for the purpose of comparing the returns of different financial products. These bonds are a form of debt, issued by government, which are guaranteed to be repaid at a fixed date and with a fixed rate of interest. The government bond rate is also used to benchmark property returns and may be regarded as the starting point for the „all risks‟ property yield (whether it is an initial, equivalent or reversionary yield. The risk-free rate is generally measured as short-term Treasury bill rate, which is highly responsive to inflation. Capitalization rate depends on general level of inflation and interest rates. The risk-free rate applied is considered as riba‟ in Islamic views and its further elaborate under Investment method heading and context. 2.3 Concept and Theories of Valuation Methods: Comparison Method & Investment Method (DCF Method) 2.3.1 Comparison Method This method used for most types of property where there is good evidence of previous sales. Comparison method is applicable when there is similarity of characteristics between the comparable and subject properties. The most popular valuation method among Valuers is the Comparison Method ( Anuar, 2002; Fischer, 2002).The economic law of substitution would lead us to believe that in competitive markets equal market prices would be established for real estate as well as for other commodities which furnish equivalent amenities or prospects for income (Wendt, 1974). As a result of the working of this principle, the comparison method is by all odds the most widely used method in 20
  • 21. establishing values in the economy as a whole. It has already been observed that the comparison method is adaptable only when the value sought is market value. Market value as defined under in the Malaysian Valuation Standards issued by the Malaysian Board of Valuers, Appraisers and Estate Agents (1969) as “the estimated amount for which a property should exchange… between a willing buyer and a willing seller in an arm‟s length transaction…”. Market Value may or may not be equal to market price. Epley and Boykin (1983) stated that, if the transaction in the market that resulted in a market price has satisfied all of the assumptions that are included within the definition of market value, the market price that is observed is most likely very close to the market value of the property. Consequently, the comparison approach to estimating market value revolves around locating a sufficient number of recently sold comparable or similar properties to the subject property being appraised. Since this approach relies upon prices set by the market between a willing buyer and a willing seller, this estimate of market value is given considerable weight. If the comparable properties are very similar, the other estimates of market value – reproduction cost- new and income/investment-could conceivably be used as only a check on the “reasonableness” of the market value estimate derived by this approach. In the addition, the comparison approach may be given total weight if a sufficient number of comparables exist to justify the estimate of market value. 21
  • 22. 2.3.1.1 Uncertainty Elements in Comparison Method Two important steps in applying the comparison approach are the selection of the comparable properties and the adjustments that are performed to the comparables. In both steps, the elements of comparisons are used, which consist of few criteria that serve as a basis for categorizing the similar characteristics among properties. The reasons for these rules are not as simple as they may appear on the surface. Two properties located in different neighborhoods may bring different prices for no reason other than the location. Anytime the Valuer selects a comparable from another neighborhood, community, city or region, he or she must be able to prove that the two locations and their influence on the value of the property are the same. This task becomes more difficult the further removed the comparables is from the location of the subject being valued. Generally the less information, in the form of comparable sales, the more the Valuer will incline to use a model that reflects the role of property as the asset to the business (Sayce, Smith, Cooper, & Rowland, 2006). But, the adjustment element that provides rooms for rationalized the differences between comparables and subject property caused the method persistently being opted by Valuers. Comparison method which is generally considered as the best and most reliable method is full of subjective elements in the adjustment process(Richmond, 1972). 22
  • 23. The adjustment process covers the steps where the selling price of the comparable property is transformed into an estimate of market value for the subject. Several important concepts must be discussed early to assure that the nature of the adjustment process is understood. a. Place the features of the subject property into the comparable property b. Adjustments are made for the differences c. The amount of the adjustment should be market derived d. The method of adjustment can be currency amount, percent amount, or whole amount e. For convenience, the adjustments are done by element of comparison and/or distinct property features under an element of comparison. The Figure 2.1 below showed derivation of value from the comparables available, adjusted by using percentage amount. As being specified by Anuar & Asyikin (2008), if a comparable property is superior to the subject property to which it is being compared, then a negative or minus adjustment is made to take the comparable property from that superior position down to an equal level equal to the subject property. If a comparable property is inferior which it is being compared to the subject property, then a positive adjustment is made. The market itself determines whether the item is superior or inferior. In instance, the size of comparable 1 is smaller than the subject property hence, it has higher margin per square foot after divided with the consideration. In term of date, it was assume that every year, there were an increase 5% hence 23
  • 24. then concludes the total 15% were adjusted as on the date of valuation on year of 2013. From the Figure 2.1, the green highlights indicate uncertainties in Comparison Method. While the amount of adjustment were based on the work done by previous study and also based on the experience of the Valuer dealing with the different characteristics of the property. Hodges (2007) states that no specific mathematical theory exists regarding the property averaging of percentages. Eventually, these figures of adjustment are backed with fuzzy reasoning (Scott, Gronow, & Rosser, 1988). The fuzzy reasoning can be said suitable for the treatment of linguistic concepts such as „good surrounding‟, „excellent location‟ etc (as shown in Figure 2.2). The usage of linguistics phrases has constructed using such ad hoc sets of phrases. This fuzzy quantifiers being preferred because of its straightforward to applied in making adjustment justification. This type of uncertainty could produce a suitable representation of the professional judgment a Valuer may be called upon to exercise, particularly inproducing a final valuation figure, or in 'rounding' values to suitable figures. (Scott, Gronow, & Rosser, 1988).Finally Schefe (1980), a particularly strong critic, claims that this linguistic vaguenessis an uncertainty about the predicate's applicability rather than its definition. On the consideration itself, A. Rahman & Sipan (1996) stated that the principles uncertain factors during disposal phase include the sale price or the consideration of the said property. The consideration became one of the uncertainties, because of the nature situation that arise during disposal. As example, the consideration could be higher than the 24
  • 25. prevailing market value, when there is high demand for the subject property caused the property being set at such price. In other instance, after taking aside the example of below figure, in other cases James Wong (2013) mentioned the banks or developers decides on price of new property launches without the consultation from the Valuer but somehow one day the price will be consider as the comparables by the Valuer in conducting their valuation service which this situation Valuer themselves cannot comprehend the strange element in looking the best comparables to be use. Few Malaysian bankers have requested Valuers to value properties for loan purposes above their „Market Values‟ as defined in the Malaysian Valuation Standards to keep customers happy (Ernest Cheong, 2013).This provided situation create uncertainty since the Valuers does not give their true and correct professional opinion. Quan and Quigley (1991), Geltner (1993) and others have theorized that Valuers rely on previous value estimates in the face of greater marketuncertainty. Even when Islamic principle does not take into account, the ethics itself is wrong and having knowledge on the „implied‟ purpose of past valuation is not possible in some way. If this kind value or price choose as the comparables would not give justice to certain interested parties. Even so, this kind of uncertainty is something for Valuer cannot avoid since the „implied‟ purpose is not reachable towards Valuers knowledge unless it is done by them or being told so hence the value or price can be avoided. 25
  • 26. COMPARISON OF LAND VALUE DECRIPTION PROPERTY LOCATION DISTRICT LOT NO SUBJECT PROPERTY COMPARABLE 1 KELAB GOLF NEGARA SUBANG, Kelab Golf Sultan Abdul Aziz SS 7/2 KELANA JAYA, 47301 Shah PETALING JAYA, SELANGOR Petaling Jaya Bukit Raja/ Petaling Lot 741 & 742 LAND AREA 133.546 hectares TENURE EXISTING LAND USE DATE CONSIDERATION ANALYSIS ADJUSTMENT Size Date Tenure Surrounding Development Freehold Golf Club 248,000,000 COMPARABLE 2 COMPARABLE 3 Kelab Golf Diraja Selangor Kelab Golf Negara Subang Ampang/Kuala Lumpur Lot 1026 Subang /Petaling PT 221 10,910,694 sf Leasehold (99 years) Golf Club 11.11.2010 RM 121,632,000 RM RM 11.15 RM (-) 2% (+) 15% (+)20% (-) 5% (+) 28% Land Cost per sq ft RM 14.27 RM 15,546,641.68 sf Freehold Golf Club 14.6.2010 225,000,000 RM 14.47 RM 14,375,292.00 sf Freehold Golf Club 1.6.2011 248,000,000 17.25 0% (+)15% 0% (-)10% (-) 5% 13.75 RM The best comp used is comp 3 since it’s the subject property itself Land Value of our subject property Say RM 7,361,549.40 RM 7,360,000 Uncertain factors Figure 2.1: The Derivation of Land Value & the Uncertainty Elements in Comparison Method (Source: Ground work done by Researcher, 2013) 26 0% (+)10% 0% 0% (+) 10% 18.98
  • 27. F Note: Peter Wyatt (2013) Property Valuation Figure 2.2: The input of fuzzy reasoning in estimating market rent under valuation process. Anuar & Asyikin (2008), reported the problems encountered in applying comparison method in Malaysia are as follows;  There is current lack of data to guide Valuers on the preferred technique of adjustment to use, this made Valuers uncertain about which technique is more appropriate to apply  The Valuers are uncertain on which adjustment techniques are most appropriate to use  There is lack of empirical study to examine how Valuers perform the technique and what are their preferred. Certain professional Valuer support the fact that there is deplorable deficiency of precise and timely data of past transactions to apply 27
  • 28. Comparison method for suitable cases. Even in Europe the availability of information is sparse (Adair et al., 1996).Without a particular grasp on spur of the players in the market, when comparable is lacking, Valuers grueling in coming up with correct or reasonable valuation. Peto (1997) had specified three reasons why this is usually the case: (1) There may be insufficient transactions to guide a Valuer. (2) There may be a sufficient number of transactions but the information isnot made available. (3) The attributes of the properties involved in market transactions whichform the “comparable” evidence are sufficiently different from theproperty to be valued/priced as to create serious difficulties intranslating the evidence with any degree of confidence. 2.3.2 Investment Method: Discounted Cash Flow Method (DCF Method) The Investment method is applied to value income-generated vacant possession property having possibilities to generate a rental income or in situation when it is owner-occupied commercial property rent out to generate a rental income. In UK, this method considered as primary method in assessing commercial property. This method considers in todays‟ terms the net income streams that a property will produce currently and in the future. Using the present value of RM1 methodology, each of these annual income streams is discounted to arrive at today‟s value. 28
  • 29. There are five crucial components in this method; i). the passing rent, ii). The estimated market rental value as at the valuation date (this is decided from comparable evidence of latest transaction), iii) the yield (s) are determined from comparable evidence of latest transactions and derivation of year purchase multiplier and applied to the net rents, iv).the buyer‟s cost of proceeding with the transaction. The valuation yields determined on the reasoning that the return on the purchaser incorporate the cost of the transaction, vi). the span of the time period and the related costs from vacant holding to income-generating. In Investment method, there are traditional Capitalization method and Discounted Cashflow method (DCF) which the latter consider as the modern method in valuation. The circumstances under which the YP system may lead to inaccuracies are those relatively rare occasions in which evidence is insufficient to enable the Valuer to accurately identify the appropriate capitalisation yield, particularly long reversions, short leaseholds and other investments with a nonstandard pattern of income flow. In these circumstances a discounted cash flow (DCF) approach does seem appropriate, but this should be based as closely as possible on market evidence (Fraser, 1985). The capitalization method is relatively straightforward method involving a process of analyzing market information followed by application of the identified yield or capitalization rate (McParland, Adair and McGreal, 2002). Some researcher or expert refers this method as traditional implicit valuation while DCF refer as the explicit DCF method. The traditional method have different methodology in calculating for freehold and leasehold property, with leasehold property valued can be valued under single rate, dual rate or dual rate with tax 29
  • 30. adjustment. Figure 2.3; show freehold term and reversion valuation under single rate. While Figure 2.4 provide a sample of leasehold term and reversion valuation with dual rate. FREEHOLD TERM AND REVERSION VALUATION - SINGLE RATE (RM) TERM Rent Received 12,000 10 years @ 5.5% YP for RM 7.5376 90,452 Full Rental Value YP in perp @ REVERSION RM 6.5% 16,200 15.3846 249,231 PV RM1 FOR @ 10 years 6.5% 0.5327 132,772 MARKET VALUE Figure 2.3: Freehold term & Reversion Valuation (Source: Ground work done by researcher, 2013) 30 223,223
  • 31. LEASEHOLD TERM AND REVERSION VALUATION - DUAL RATE (RM) TERM RENT RECEIVED (-) RENT PAID PROFIT RENT YP for @ RM 15 years 6.7% & 3.0% 12,600 2,400 10,200 8.2804 MV 84,460 REVERSION FULL RENTAL VALUE (-) RENT PAID PROFIT RENT YP for @ PV RM1 FOR @ RM 15 years 7.6% & 3.0% 15 years 7.6% 16,500 2,400 14,100 7.7061 0.3333 36,214 MARKET VALUE 120,674 Figure 2.4: Leasehold Term & Reversion Valuation (Dual Rate) (Source: Ground work done by researcher, 2013) Andrew Baum (1996) mentioned the traditional implicit valuation continues to cause concern to many investment advisers and those in other investment markets, and property market inefficiency cannot be seen independently of valuation practice. While Peto (1997) specifically elaborates as the proposition is simply that at particular times or in particular markets, traditional techniques may result in systematic mispricing or, alternatively, sporadic specific mispricing may occur (see Greenwell et al., 1976). Further discussion on the different accounts in undertaking a valuation without explicitly addressing the input variables were explained by Nick French and Laura Gabrielli working paper on Discounted Cash Flow: Accounting for Uncertainty. But, under 31
  • 32. this study, we will focus on DCF methodology structure because of the number uncertainty in this type of method is more compare to the traditional one because of the explicit nature of its computation (refer to Mallison Report, 1994; Carsberg Report, 2002). This method, which measures income returns by subtracting expenses from gross rental income. Cash flow growth expectations are crucial to the rationality or efficiency of the property market (Hendershott and MacGregor, 2003). Valuers are, nevertheless, reluctant to use DCF method, as they are not thought to reflect market behavior. Valuers are even more reluctant to use DCF analysis linked to future forecasts of rental income, as evidence from the last 10 years showed how volatile the rental market can be over the critical first 10 years of the holding period. For these reasons, as stated by Mackmin (1997), the DCF method is primarily used as “a tool of analysis, rather than a method of valuation”. However, a DCF calculation is preferred by Valuers when comparing the value of subject property proposition with other method used. Therefore, this study will be look on the uncertainty rise in the DCF calculation. 2.3.2.1 Risk-Free Rate and Uncertainties in DCF Method The discount rate must be adopted which is at or around the majority of individual target rates, example a market-derived discount rate. The discount rate is commonly arrived at by adopting a risk-free rate and making allowances for the risk associated with property in general and the subject property, by adding a property risk premium. Valuers relate their choice of risk-free rate to rates of return on traditionally safe investments, such as government bonds (Hungria-Garcia, 2004).The 32
  • 33. reasons for such reference, because the rate had to be „almost‟ risk-free from default risk or price risk thus short-term or long-term government security rate can be reliable source to refer in valuation input. In the capital market, real estate, bonds and share are the primary asset types available. Share and real estate usually negatively correlated for the purpose of risk diversification. Unlike, real estate and bonds goes along really well in their volatility attribute. One main difference between the asset mentioned is that real estate is heterogeneous and unique and its data on transactions is not calculated same as other assets which is done on daily basis. On the other hand, bonds and share were easy to assess their performance at high accuracy levels due to their similar characteristics. Hence, the returns from this investment can be applied in DCF‟s return inputs. In relating to the study, Riba‟‟ predominately originates from debt instruments like bank loans, as well as private and public interest-bearing bonds (Rosly, 2005). Thus, the origins of Riba‟‟ usage in property valuation method applied in this part.The rate is also considered as one of the uncertainty in property valuation method (Adair & Hutchison, 2005; French & Gabreilli, 2005).To add with the risk-free rate, it must be added a yield to reflect the general risks of investing inproperty, such as illiquidity, rent risk, capital risk, depreciation and then further addition of the risk specific to the property such as lease terms, condition, location. This yield refers to the risk premium which is a premium that landowners demand an average risk in securing the property, relative to the risk-free 33
  • 34. rate. So the discount rate could be taken to be the risk-free yield, say 4.5 percent, adding risk premium 2.5 percent, producing a discount rate of 7 percent. A risk premium of the order of 2 percent is usually suggested for property (Adair & Hutchison, 2005). In the absence of a robust pricing model and data limitations it is likely that discount rates for property will continue to be estimated subjectively. The DCF computation makes details assumption as to how various elements of the calculation will change in the future, given that inflation is the norm, the changes will be the rate at which these elements will grow in the future (Shapiro, Mackmin, & Sams, 2013). Alternatively, the Valuer may rely on personal judgement as to growth rates. In the case of market rents, where the Valuer knows the ARY appropriate to a property and also the discount rate, an implied rate of rental growth can be determined and used to estimate the predicted rent at each rent review (Sayce, Smith, Cooper, & Rowland, 2006) (as shown in Figure 2.5). From the Figure of 2.5, the risk-free rate was input in all risk yield (k) and equated yield (e) computation, which act as basis in coming up with the rate. Meanwhile (g) refer to growth of rental, which calculated by using function or equation as shown in the figure. These elements, based on the past study, presumed as uncertain in input a single figure. In DCF method, estimation on exit value was done at the end of calculation period and this method also makes forecast of the flows for the same period. Normally, the period can differ from five years to ten years, depends such as, the period of lease contract. To this according to 34
  • 35. Adair and Hutchison (2003), the principal source of uncertainty is time as the forecasting of future events is difficult and becomes more unreliable as time elapses. On this premise, due to the lack of knowledge and information, uncertainty arises. Noted that, the compelling part is that the DCF estimates property market value in similar way as other assets investment analysis, based on the expected future cash flows. Looking in first sight, DCF ideally point is that it give the sense that accurate results will be generated. But, the issue arises from this model is that the capacity of expectation play its role. As no one can predict the future, future expectations always lead to uncertainty. The value hence can be totally over or underestimated, provide an incomplete idea of the liquidity of the assets over the years. In DCF method of valuation, rental growth and required return/risk premium inputs should clearly be market estimates derived from comparable evidence, preferably of sales of simple freeholds let at the estimated rental value (Baum, Crosby, & MacGregor, 1996). The level of implied rental growth can be ascertained given an assumption about the required return (the risk free rate plus a risk premium) and the differences which result from different choices of required return are usually insignificant (see Baum and Crosby, 1995; Crosby, 1986). 35
  • 36. Figure 2.5: The calculation of Rental Growth by using Mathematical Function (Source: Ground work done by researcher, 2013) Alternatively, the sale at RM 200,000 could be analysed using a simple DCF format beginning with a required return based on the risk-free rate and a risk premium. Suppose the required return ranges from 8 per cent to 15 per cent. Whichever is chosen, the implied rate of rental growth can be calculated (inthis case it will range from roughly 3 per cent to roughly 10 per cent),depending on the chosen required return (Peto, 1997). The same required return and rental growth rate can then be applied to the reversionary property. This method ensures that the appropriate yield definition is applied to different parts of the income flow. Figure 2.6 below calculate the market value by sum up all the Present Value of Income with the growth (g) has been calculated as seen in Figure 2.5. This valuation were done on office building having high occupancy 36
  • 37. and located in a prime location where growth accounted at 3.7 percent. From this figure, the involvement of uncertainty elements shown from the years applied, growth rate and equated yield (risk-free rate as basis with addition of risk premium) in deriving the market value of subject property. Years Rent 1 - 10 11 - 15 16 - 20 21 - 25 26 - 30 31 - 35 36 - 40 41- 45 46 - 50 51 onwards 10,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 20,000 Amt of RM1 Inflated @g Rent 1.0000 1.4435 1.7344 2.0838 2.5036 3.0080 3.6140 4.3421 5.2169 6.2679 10,000 28,871 34,687 41,675 50,072 60,159 72,280 86,842 104,338 125,358 YP @ e PV of RM1 Present 10% @ e Value of Income 6.144567 3.790787 3.790787 3.790787 3.790787 3.790787 3.790787 3.790787 3.790787 14.92537 1.0000 0.3855 0.2394 0.1486 0.0923 0.0573 0.0356 0.0221 0.0137 0.0085 Market Value 61,445.67 42,194.63 31,477.92 23,483.07 17,518.78 13,069.31 9,749.93 7,273.62 5,426.24 15,938.38 227,577.55 Figure 2.6: DCF Valuation on Office Building (Ground work done by researcher, 2013) In a “modern” valuation, an adjustment to the risk premium is both obvious and more transparent. As suggested earlier, the key variables (growth and risk) are considered together and not distinguished in a traditional valuation. In making adjustments to the yield, it is surely better to consider the components of that yield separately and explicitly rather than together and implicitly (Peto, 1997). Thus, the separation of elements in the modern method, rise more uncertainty which also required more prudent needs to justified and input all the figures to be accurate and acceptable towards the parties involved. 37
  • 38. 2.4 Gharar Literally, the word Gharar implies risk, danger, peril, jeopardy, uncertainty and hazard. Gharar, the English translation had applied the term interchangeably; uncertainty. In jurisprudential terms, Gharar definitions can be summarized under three headings ( Al-Darir, 1977; Al-Saati, 2003).  Gharar means doubtfulness or uncertainty as in the case of not knowing whether something will take place or not, this includes the unknown. Ibn Abidin defines Gharar as „uncertainty over the existence of the subject matter of sale‟ (shared by Hanafi and Shafi‟i schools).  Gharar also means ignorance and this can be when the subject matter of sale is unknown. Occurs when the purchaser does not know what he has bought and the seller does not know what he has sold. According to Al-Sarakhsi Gharar obtains where consequences are concealed. This view is shared by most jurists (Al-Saati, 2003). Then, the probability of undesired outcome is envisaged into three classes.  Gharar occurs when consequences are totally concealed, which means the probability takes the value between zero to one. This can be understood from the definition of Gharar by Ibn Taymiyyah that “Gharar is the unknown consequences”.  Gharar occurs when the probability of existence is equal to the probability of nonexistence. In Al-Bahr Al-Zakhkhar it is noted that “Gharar is the oscillation between the occurrence and non-occurrence neither of which can outweigh the other” 38
  • 39.  Gharar occurs when the non-existence of the subject matter outweigh its existence. Occurs when there is a possibility of two things occurring, the most likely is the one you fear to occur. 2.4.1 The Prohibition of Gharar Though there is no verse in the Qur‟an to proscribe Gharar explicitly, vanity (al-batil) is forbidden in many verses: “And do not eat up your property among yourselves for vanities, nor use it as bait for the judges” (2:188). “O you who believe! Eat not up your property among yourselves in vanities; but let these be amongst you traffic and trade by mutual good will” (4:161). There is a consensus among interpreters of verses that Gharar is vanity. Ibn Al-Arabi explains that vanity is unlawful because it is prohibited by Shari‟ah such as Riba‟‟ and Gharar. While Al-Tabari, considers vanity as eating up other‟s property in a manner which was not permitted by Shari‟ah. The Sunnah forbids Gharar sale, and there are many transactions which can be considered vanities yet not mentioned explicitly in the Qur‟an and Hadith but left to good Muslim‟s judgement to consider it. In real life Gharar like uncertainty cannot be avoided totally. Al-Shatibi says “to remove all Ghararfrom contracts is difficult to achieve, besides, it narrows the scope of transactions. Jurists agree that the Gharar which affects the contract is the excessive Gharar, as it impairs the validity of the contract while a slight Gharar has no impact at all. With the absence of concept to measure 39
  • 40. Gharar, wide differences exist among jurists in classifying Gharar and its applications (refer to Al-Saati, 2003). Some jurists try to lay down a rule for excessive and for slight Gharar. According to Al-Baji, the slight Gharar is that (from which hardly a contract is free while excessive Gharar is that which dominates the contract that it comes to characterize it). Thus, valuation seems fall under this category since the methods itself exist with the uncertainty and cannot be avoided. But the characterization of contract as “Gharar Contract” is subjective and inevitably influenced by differences in technology, time, societies, and individual taste and preferences. This includes the possibilities in computing uncertainty by using all the computer application and software such as Regression Analysis and the ignorance of the Valuer themselves in stating the uncertainties in the valuation report for reasoning purpose. In terms of degree of permissibility of Gharar is Islamic transactions, Gharar can be classified into four types: 2.4.1.1 The Prohibited Gharar This is the gambling type of Gharar which includes the idea of voluntary and deliberate Gharar taking, also involving sterile transfer of money or good between individuals, with no value added or created from the transaction. Ibn Taymiyah and Ibn Al-Qayyim consider exorbitant Gharara type of gambling. According to them “Gharar obtains where consequences are concealed, selling with excessive Gharar is Maysir which is gambling. 40
  • 41. 2.4.1.2 The Permissible Gharar According to Shatibi, the Hadith (which prohibits Gharar) does not intend to prohibit all Gharar because jurists permit some transactions which have Gharar such as selling what is hidden in the ground, selling a house though its foundation has not been seen. The Hadith intends to prohibit Gharar which can cause dispute and cannot be tolerated. The Hadith intends to prohibit Gharar which can cause dispute and cannot be tolerated. According to him this is the essence of the rule (manat al-hukm) Istihsan, which is, according to Ibn-al Arabi “to abandon exceptionally what is required by the law, because applying the existing law would lead to departure from some of its own objectives”. Istihsan is used by jurists to permit some Gharar transactions, and they stipulate conditions to reduce the cause of dispute to acceptable level (Askari, Iqbal, & Mirakhor, 2009). According to al-Shatibi, (n.d.), Imam Malik and Abu Hanifa consider istihsan as particularization of general on the basis of stronger evidence which is either obvious or implied. This was inclined by Imam Malik on the basis of maslahah, which means giving preference to a particular maslahah over the general ruling of qiyas. This departure can be from an obvious qiyas to a hidden qiyas, and must rely on specific evidence, which may be ruling of the text, general consensus, nessessity, public interest or custom, it must be persuasive enough to convince the mujtahid that there is a case of istihsan. 41
  • 42. According to Al-Saati (2003), Gharar can be permissible when there is no general agreement among the schools of jurisprudence that this Gharar is prohibited and the contract that involves this Gharar is invalid. If at least one school permits it with or without conditions, then it is considered permissible Gharar. Thus, in term of property valuation since there is no general agreement made, this type of uncertainty could possibly applied to the property valuation‟s uncertainty. 2.4.1.3 The Acceptable Gharar The Islamic scholars had adopt the conventional definition of risk to be the measure of uncertainty about the frequency and the consequences of an unpleasant or unacceptable event or (the probability of undesired outcome expressed in money terms) and uncertainty arises whenever a decision can lead to more than one possible consequences. In the Islamic context jurists define Gharar to mean risk, and some of them tend to prohibit all risks and Gharar but we found that only gambling and gambling-like activities are prohibited. In this context risk and uncertainty are considered synonyms to Gharar. Meanwhile, almost all economics activities involve uncertainty or commercial risk or Gharar as the profits out of them are uncertain. As we know Allah and His messenger do not prohibit every risk (Gharar). It can be said that when the endogenous or the exogenous uncertainties are the main sources of Gharar then this Gharar can be considered acceptable Gharar. The elements in property valuation contain all the endogenous or the exogenous uncertainties as example 42
  • 43. exogenous uncertainty are market values, rental values, property prices, and the endogenous uncertainty, the professionalism of the Valuer themselves, the rate reference or the knowledge or experience of the Valuer in justifying their input. 2.4.1.4 The Mandatory Uncertainty For this type of Gharar, as stated by Al-Saati (2008), is a prerequisite to the validity of the contract. This is based on the Islamic legal states “Damage and benefit go together”, that is to say, that a person who obtains the benefit of a thing takes upon himself also the loss from it and the Islamic legal maxim which is based on the Prophet (pbuh) saying “Revenue goes with liability”. It can be said that as according to the types of uncertainty/ Gharar as above mentioned, the uncertainty in property valuation‟s method lies within the description of permissible and acceptable Gharar, but to validate the suitability, experts views will be assess to confirm the hypothesis. 2.5 The Discussion on the Uncertainties in Methods Studied In simplified manner, the risk-free rate and uncertainty in both valuation methods study were shown under Table 2.0, the Islam views and perspective were based on the secondary data available and the characteristics are reason out on causes these elements ascertain under both elements studied. 43
  • 44. Table 2.0: The Characteristics of Risk-Free Rate & Uncertainty and Islamic Views according to Elements of Permissibility in Comparison & DCF Methods Elements Studied Risk-Free Rate Characteristics Input in DCF Method based on historical data Rate taken from various sources; e.g government bond rate Also consider as uncertainty Uncertainty - Gharar Comparables Comparison Method Adjustment Rate & Risk Premium DCF Method Forecasting Indicative value, unsuitable comparables, misguided previous valuation Subjective manner, fuzzy reasoning, lacking well-defined guidance Depended on economic performance, subjective, significance with outcome result Future expectation is unpredictable, explicit nature Islamic Views & Perspective *Riba', it is non-permissible to applied *Islam does not limit return making *The rate as benchmark, and it is permissible for necessity *If the amount of uncertainty is insignificance towards economic as a whole, it is acceptable and permissible gharar according to Islam *Must backed with analysis (Source: Ground work done by Researcher, 2013) In financial markets, on the objective of contrasting the return of varying financial products, the government bonds are widely used as the „risk-free‟ benchmark. The government bond rate is also used to benchmark property returns and may be regarded as the starting point for the „all risks‟ property yield (whether it is an initial, equivalent or reversionary yield)(Nick French, 2004). This yield is eventually as stated in earlier subtitle were one of key element in Investment Method. The variables which have the greatest impact on the site value are reflected in the "All Risk Yield" (A.Rahman & Sipan, 1996). A high risks will represents a higher yield. Use of the „all risks‟ yield (and this term may include the initial yield, the equivalent yield or the reversionary yield) is widely accepted for the purposes of analysing transaction evidence, but it may serve to mask some of the fundamental assumptions 44
  • 45. that investors are making about properties (Bywater, 2011). In decision making process, the central tandem of its working is the relationship between possible of level of risks and the assumptions on income and capital growth. The purchaser will demand higher return, when there is higher probability of the transaction failing to deliver anticipated cash flow returns. An investor in land and buildings (landed property) will be aware of the other forms of investment available and of the yields to be expected from them. Investors will, therefore, judge the yield they require from a landed property they require property investment by comparison with the yields from other forms of investment such as insurance, building societies, stock and shares. Although the principles governing yields discussed above are as applicable to landed property as to other forms of investments, certain additional features have to be considered. In actual valuation, the yield must be derived from the market evidence. The prominent looks on the existing valuation model is the inclusion of interest in most of the valuation model applicable such as Investment Method. Islam has strictly prohibited interest which also called as Riba‟‟ (refer to Minsky, 1982; Kamal et. Al, 2010; Febianto, 2010; Thajudeen, 2012). Various verses from Quran mentioned how Allah S.W.T. totally forbid Riba‟‟ in our life. However, Shari‟ah does not prohibit the making of a return on capital if the provider is willing to share in the risks of a productive enterprise (Hosen, 2010). As mentioned earlier, the risk-free rate applied in valuation meant for yield purpose. The conclusion then is that whenever capital is “lent” rather than “invested”, interest (Riba) is the return rather than profit. This particular interest had to be known or ascertain and the reasoning process in choosing the rates had to be reported for adequate transparency, and concurrently subjected rates derived from the Islamic 45
  • 46. rates since it involved shared risk. Moreover, as Islam prohibits financial gain without the assumption of some measure of risk it would appear that efficient markets and the random walk behavior of financial assets and commodities are implicitly, if not explicitly, subsumed in Islamic teachings (Askari, Iqbal, & Mirakhor, 2009). As according to one of the hadith of Rasulullah (pbuh), he does not want to limit the profit able to make in trading, as long as the profit range is within the market range, it is allowable (Abd Rahman, 2009).Since, the yield is based on the prevailing risk-free rate hence the yield does fulfill the condition of within market range substanstial. Does the basis of yield in property valuation method is permissible according to Islam? It will be confirm in Chapter 4. Valuation need to be emphasized on the validity and transparency of contracts. Any contract failing to pin down its key components (e.g. price, subject matter, delivery date etc) in a manner in which the uncertainty may cause a dispute between the contracting parties is guilty of containing “Gharar” (Unacceptable Uncertainty) and is null and void in the eyes of Shari‟ah. French and Gabrielli (2004) mentioned suggested further research on more work will be required to agree on the pertaining issues of uncertainty in valuation. Therefore, there is indeed a need for in-depth study on the possibility of uncertainty in valuation. The principal problem as argued by the Mallinson Report (2000) is that that all valuations are uncertain. Mallison also added a valuation figure is an individual valuer‟s estimate of the exchange price in the market place; it is an expert‟s opinion. Regardless of this, the end-user and client prone to belief that the figure outcome from valuation is a fact. Strangely, for other areas of asset valuation, fully acknowledge that valuation is an estimation. But, for real estate there are common views that valuation figures are final and accurate. Uncertainty in valuation will change according to market conditions and property type and this uncertainty characteristics pertaining to them is not being fully known by most people involved in valuation. 46
  • 47. Historically, the only reference to uncertainty in the RICS‟ Red Book (RICS, 1996) is a specific reference to “abnormal uncertainty”. The Valuer should refer in report when there is range of uncertainty which may be greater than normal and lack of information to a particular condition, therefore the client or end-user can decide the magnitude of uncertainty in recount to the estimated value output. The strange side is that this referral was made towards „uncertainty greater than normal‟. This supported by Mallison, French and Gabrielli (2006) which hold the same idea that uncertainty should be reported for a better decision making and assist the end-user apprehend or figure out the valuation concept. The reporting requirement does inline with a character of the Valuer or depends on the Valuer professionalism. A Valuer may or may be not a Muslim should be a person to whom people can trust and these people include the end user of valuation. The Quran makes trust and trustworthiness, as well as keeping faith with contracts and promises which includes contract in appointment as a Valuer, obligatory and has rendered them inviolable, excepts in the event of an explicitly permissible justification as mentioned by Iqbal and Mirakhor (2007).Therefore, Valuer should being obliged to the needs to report such uncertainties in their valuation report, after all being trustworthy is a sign of faith. French and Gabrielli (2004) extend their suggested model on to incorporate the extra variable of rent with their concern on input uncertainty variables in valuation model. However, as noted by them, these inputs are not independent and thus it is necessary not only to consider the range of uncertainty, but also the inter-relationship of the two variables, rent and ARY. The variable, ARY which rate as discussed earlier is also part of Gharar in valuation in this context. 47
  • 48. Richard V.Ratcliff (1972) suggested the application of statistical analysis to deal with uncertainty in value prediction, which results from imperfection and lack of market knowledge. Byrne and Cadman (1984) defined uncertainty as anything that is not known about the outcome of a venture at the time when the decision is made. It is generally agreed that uncertainty is due to the lack of knowledge and poor or imperfect information about all the inputs that can be used in the analysis (French & Gabreilli, 2004). In the context of valuation this refers to the input variables; the comparable information. If we are unable to confirm the veracity of the inputs then the resulting outcomes (valuation) are partially uncertain. Conversely, where there is a lot of comparable transaction data (either in the form of capital value and/or rents/yields) then the Valuer will value without reference to the original thought process of the occupier(Wendt, 1974). Does this reference is part of the uncertainty? Some Valuers differentiate between risk and uncertainty along the lines that risk can be quantified about the outcome but uncertainty, cannot (Byrne and Cadman, 1984). The principle uncertain factors at the disposal phase are sale price, rent and investments yield (A.Rahman & Sipan, 1996). Probability theory is a way of measuring uncertainty (Byrne and Cadman, 1996). It allows the user to identify a range of outcomes for the most important variables and to assign probabilities to these variables. Simulation is a further development of probability analysis and Monte Carlo simulation has been an important component of quantitative risk since 1960s (see Hertz, 1964). In the form of discrete distribution (histogram) or normal distribution the results of simulation being illustrated. Through this, its allow the Valuers to have a clue about the range of the outcomes and the probability of the values at each point of the distribution (Evans, 1992). 48
  • 49. Byrne (1989), suggesting that all Valuers are aware that inputs and output from appraisal and valuations are uncertain, used a technique for risk analysis (and a package called @Risk) in a discounted cash flow (DCF) model to provide a better decision-making model for property investments. This was echoed by Kelliher and Mahoney (2000) who used a Monte Carlo Simulation to model outcomes in the context of a long-term investment decision. This was further developed by Fraser (2004) who also suggested the use of a DCF analysis to generate a number of outcomes via a simulation model. The precision of the simulation rely on the data‟s quality applied in the model. Still, the problem remains of the capability to lay down the real range of the inputs and their probability distribution, mainly towards the professionals‟ practitioner who are not familiar with the statistical measures. The importance of uncertainty for the valuation profession become under spotlight under the examination done by Royal Institution of Chartered Surveyors (RICS) on studying how uncertainty can be applied to together with the value. Also, therehas been some debate in the literature about valuation variation and the margin oferror in valuing properties (Adair et al., 1996; Crosby et al., 1998). But somehow, this errors and variation is cause from the Valuers ways of valuing the subject property themselves and not so much from the methods itself. The uncertainty in valuation which also arised from the market could cause from the fixed predetermined, interest rate mechanism as its core- is inherently fragile and prone to periodic instability (Minsky, 1982). The institutions ordained by Islam reduced uncertainty and ambiguity to ensure predictable behavior. Malaysia having dual system, 49
  • 50. conventional and Islamic creates a challenge in achieving as prescribe institution. Although the current property valuation prone to the market condition basically from the conventional environment but it seems unavoidable as the demand and supply of property is depends on the economic of a country hence both micro and macro economics had to be together to avoid much bigger externalities towards Malaysia as a whole. The important component in valuation itself is the date of valuation became obvious of the fact that the valuation should reflect the market condition at that time. 50
  • 51. CHAPTER 3 RESEARCH DESIGN / METHODOLOGY Since there is limitation of knowledge or research available in this scope of study, this research is an exploratory study. An exploratory study involves extensive preliminary works in order to build a comprehensive understanding on what is going on followed by rigorous analysis to explain and address the impending situation. On the other hand, a case study is a research approach that involves an “in-depth, contextual analyses of matters relating to similar situations in other organisations” (Sekaran, 2003: 125). This strategy is especially useful if a researcher intends to obtain greater insights and understanding of the context of a particular situation. Based on the nature of the subject interest being investigated and the research process involved, this study can be categorised as a case study analysis with a combined research purpose of exploratory. This study attempts to examine the existence valuation process compatibility with Shari‟ah Principles. To enhance the robustness of the analysis, this study employs case oriented analysis on the primary data (open-ended discussion) and content analysis from secondary data. 3.1 It is an exploratory Research Given the fundamental nature, exploratory research often concludes that a perceived problem does not actually exist. Hence, an in-depth study were done on the secondary data available that discuss on the issues that believe exist potential in against the Shari‟ah principles. It is an exploratory research since the research is based on the researcher own curiosity and questions, hence due to limitation of data, it is deemed as 51
  • 52. exploratory one. The study had to be done through a qualitative approach such as informal discussions with the industry practitioner, academician and others individual sources. At first, the study happens to be too general, under the scope of Shari‟ah compliant valuation; but after going through numerous articles on property valuations issues, the subject pertaining non-Shari‟ah being more specific thus lead to formulation of relevant hypothesis for more definite investigation, and they are the risk-free rate and uncertainty. The results of exploratory research are not usually useful for decision-making by themselves, but they can provide significant insight into one doubt and act as reminder towards practitioner to be professional not just towards other parties involved within their working surrounding but also which most importantly towards their Creator, Allah S.W.T. This study was an exploratory research since the topic or issue is new and the data is difficult to collect even in finding suitable interview/respondent is merely challenging to be done. 3.2 Data Analysis The qualitative analyse the primary data obtained from open-ended discussion is analysed using both the statement analysis and content analysis methods. The statement analysis is used to analyse the interview transcripts whilst the content analysis is used to analyse research, books, newsletters, magazines, newspapers and other relevant publications. The content analysis will foreseen on two different field, the property valuation industry and Shari‟ah development industry. 52
  • 53. 3.2.1 The Qualitative Analysis Method The qualitative analysis attempts to explore the permissibility of uncertainty and risk-free rate in current practice of property valuation methods. More importantly, some issues pertaining to scope of study actually can be explained by merely analysing the secondary data but as the researcher does not come from Shari‟ah or Islamic studies background hence conformity with the academician is required to ensure the validity of the findings. Instead, such validity can only be acquired by directly approach expert, this is what the qualitative analysis of this study is designed for. By emerging the findings from qualitative analysis and literature reviews, a comprehensive study pertaining to the permissibility of uncertainty and risk-free rate in property valuation practice and conclusion on issues surround the permissibility of valuation according to Shari‟ah can be accomplished. 3.2.1.1 Research Tool in Qualitative Analysis Method This analysis uses open-ended discussion, face-to-face interview and through online interactive discussion with academician with Islamic background from various higher institution learning and in industry within Malaysia as its research tool. By definition, an interview is “a purposeful discussion between two or more people” (Kahn and Cannell, 1957) that “involves questioning or discussing issues with people” (Blaxter et al., 2001). The face-to-face interview method and internet interactive discussion is 53
  • 54. selected in favour of other research tools such as telephone interview, survey questionnaire, personal observation or due to the following reasons: (i) Face-to-face interviews provide direct access with the main subject of this research namely the academician themselves; (ii) Since the issue being investigated in this study i.e. Shari‟ah principles adherence involves a broad and practical area, a more flexible format of questions or style of questioning is needed in order that the issue can be discussed more thoroughly with the respondents. This includes the ability to modify, alter or vary the interview questions immediately (during the interview session) or to quotes impromptu questions in order to adapt to the academician responses. A survey using questionnaires, for example, is lacking this important flexibility; (iii) The interview will allow the researcher to detect nonverbal cues by observing the body language of the respondents when they answer a particular question. The body language is crucial since it may contain implicit messages that may not be revealed verbally. Therefore, equal emphasis should be given to respondents‟ verbal answers and body language in order that any meaningful message conveyed through the body language may be revealed. This is to ensure that the respondents are replying to each of the interview questions clearly and honestly, thus minimising any potential errors 54
  • 55. when the message from the response is extracted and analysed later. (iv) The interview will help to minimise potential errors resulting from misunderstanding or confusion as it allows the researcher to repeat, rephrase or elucidate an interview question whenever necessary in order to ensure that the respondents fully understand the question. This gives a significant advantage of interview over other modes of data gathering methods such as questionnaires or survey (v) The internet interactive discussion were one of the means in conformity with the interviewee since, the interviewee and the researcher unable to conclude a suitable time for a face to face interview. Hence, to ensure data still able to be collected from the respective interviewee this tool been call upon under such circumstances. Prior to conducting the interview, respondents were reminded of the purpose of the interview and were given the assurance that information obtained from the interview would be treated as confidential and be used solely for the purpose of the study. In addition, the confidentiality terms were also stated in the invitation letter and again at the opening of the interview session where respondents were reminded of their right not to answer any questions in unlikely event that the question may have compromised their interest. Therefore, it is assumed that the willingness of respondents to take part in the interview signified their consent. Each interview session will be 55
  • 56. determine later on and the interview was recorded using a digital audio tape recorder to ensure that respondents replies were fully recorded and to help minimise any possible loss of data during data transcription process. To safeguard the respondent interest, the full transcript of the interviews was kept confidential. 3.2.1.2 Panels / Interviewee The interview process begins with the selection of Shari‟ah expert having adverse knowledge on Islamic background as panel and under this study context, the researcher acted as valuation practitioner. The selection was done on random basis with decision based on their understanding on property valuation industry, more than 20 years of experience, well-versed in Shari‟ah studies and practicality, and panel in Shari‟ah-compliant supervisory Board. They also knowledgeable in terms of issues and challenges in practicing rules and principles of Islam. The panel came from three prominent of Institution of Higher Learning in Malaysia. The expert or panel is assessed from their work done or research interest that involved or related with Shari‟ah compliances on economic and finance industry, since there is no single expert having direct knowledge on property valuation with Shari‟ah background. Subject to the limited panel and expert having in-depth knowledge in this scope of study, therefore, only three panels being selected 56
  • 57. Table 3.1: Panel Designation Ref. Nos Background Highest qualification Economic Studies, Conventional and 1 Phd Islamic Economics 2 Islamic Law, Islamic Finance Phd 3 Fiqh, Usul Al-Fiqh and Muamalat Phd These respondents will be sent a letter inviting them to take part in the interview. It is worth mentioning here that all the respondents are Muslims hence there is potential bias in the outcomes of the interview analysis. Unfortunately, attempt to obtain non-muslim panel is impractically can be done since the objective of this study, required the respondent to have some ideas on Islamic principles and faith with it, hence it does not recommended in including them. It must be known that the limitation under this scope of tools is the panel does not have adverse knowledge and expertise in property valuation process and its method. But, they do have minimal understanding on current property pricing method and issues pertaining on real estate industry in Malaysia. That is why, at introduction of the interview session, the panels being introduced with property valuation methods with a simple presentation and the uncertainties and the application of risk-free rate being allocated as focus elements in the explanation. Then, the open-ended discussion start after the panels having ideas on the subjected issues. 57
  • 58. 3.2.1.3 Open-ended Discussion The interview was done on five stages subject of discussion to ensure the data can be gather efficiently and effectively. The stages of discussion are; First: Casual conversation for making the panels feels comfortable and feels at-ease and willing to talk openly. Asking names, scope of study and expertise and interest. Second: Introduction on the Property valuation. Asking on accountability with any property valuation parts within the industry. Bring up the general topic of property valuation by giving time for the panels in responding and reflect their knowledge on the study. Third: The conversation and question becoming more specific on the valuation methods discussed under the study. Discuss on the pertaining subject of Gharar and Riba‟ as the benchmark in Shari‟ah context. Make mini presentation on the preliminary study done on uncertainty in property valuation methods and Gharar. One of the key in presentation is shown in Table 3.2, where emphasize all elements studied under both valuation methods; Comparison method and DCF Method. The possible type of Gharar being mentioned during discussion, as also shown in the Table 3.2. The Table 3.2 act as guidance to express towards the panels on the issues in valuation methods that there are possibility those elements is not permissible according to Islam. 58
  • 59. Table 3.2: Risk-free Rate and Uncertainty Elements in Both Valuation Methods with Possible Verification of Gharar Categorization Elements Comparison Method Uncertainty/Gharar Comparable Values/Prices DCF Method Elements Risk-Free Rate Riba'/ as benchmark Acceptable Gharar Rental Growth Adjustment Process Permissible Gharar Forecasting Risk Premium Characteristics Uncertainty/Gharar Permissible Gharar Input in DCF Method based on historical data Rate taken from various sources; e.g government bond rate Also consider as uncertainty, benchmark in rate of return Indicative value, unsuitable comparables, misguided previous valuation Permissible Gharar Used function/equation in generating the value Subjective manner, fuzzy reasoning, lacking well-defined guidance Permissible Gharar Future expectation is unpredictable, explicit nature, assist.in calculation Permissible Gharar Subjectively done, possible risk carried based on types of property (Source: Ground work done by researcher, 2013 Fourth: Key part of the interview. Asking on the permissibility of the uncertainty and riba‟ existence in property valuation method according to Shari‟ah principle. Discuss on the basis of conformity and remark. Five: Close the discussion by give panels final word. Give interview a chance to summarize their positions and views. 3.2.1.4 Data Analysis in Qualitative Analysis Method Since this study uses an open-ended questions approach, a set of questions was prepared to stimulate discussion and to ensure that the interview process would collect all information required and would not go 59
  • 60. astray. In brief, the respondents were asked specific questions revolving around the following issues: (i) The understanding towards existence valuation includes the responsibility of Valuer, process of valuation, methods available to apply. (iii) Uncertainty in valuation. How much the uncertainty being consistent with the interpretation of Gharar according to Islam? (iv) Evaluation on the permissibility of the riba‟ existence‟, uncertainty and other raised unethical concern according to Islam in property valuation (v) Justification on unethical concern according to Islam as laid in valuation practice. (Example; non-halal property usage, conventional bank as panel bank in valuation firm etc.) (vi) Opinion on valuation practice, fulfilling Shari‟ah compliance (vii) Opinion on elimination of haraam/non-Shari‟ah compliance in valuation practice. The qualitative data in the forms of interview transcripts or observation notes obtained from the interviews were analysed. Under this approach, the original data is transcribed into written format which is then categorised and explore themes, patterns and relationships with the studies done on the secondary data. The primary data will set as justification on the available information as prescribe from the content analysis. 60
  • 61. CHAPTER 4 RESULTS AND DATA ANALYSIS This Chapter covers the result of discussion done with the Panels within the scope of study. The quotation retrieved from the voice recorder mentioned below, according to the reference number of Panels as tabulated in panels designation (refer to Table 3.1). One of the principal interests of the Valuers is the requirement to verify that valuations are put forward to client in a comprehensible and unambiguous means. Provided that clients had change towards becoming cutting-edge in their decision whether to purchase or sell the real estate, therefore the valuation model applied to assess the most possible trade price should contemplate their thought process to the magnitude that the process and result would influence the market.In the last 30 years, there have been many court cases that have questioned the veracity of the Valuer‟s valuation (see Crosby et.al, 1998). Hence, this study does not only look on the permissibility of the uncertainty and risk-free rate in valuation method according to Islam, but its also reviewing the issues of possible uncertainties arise from the earliest years of valuation existence. It must be acknowledge by the Valuer to be responsible on all course of action in undertaking in valuation assessment. From the study on the available secondary sources, the risk-free rate applied in the valuation method is used for the purpose of benchmark. Through open-ended discussion with the panels, the rate as mentioned by them, acted as guidance for the 61
  • 62. derivation of property‟s value. The study done on the content sources were supported by the panels, as stated by Panel number 1; “We live in a commercial world, where the execution of assessing the performance or the value of an asset by weight up the return and risk to an appropriate-structures benchmark is well established in a centralized-market of financial system…and markets are magnificent in providing credible, measureable and compatible benchmarks for distinct asset group and securities. In Islam, the economic system recommends the application of return in the real sector as a benchmark for the return on financial industry, hence it also as well applicable in the property valuation sector….” To add with that, Panel number 2 also stressed the important to regards the rate as benchmark for maslahah and he stressed the needs for Islamic benchmark development; “Even though this practice has been accepted according to the law of necessity and also in the lacks of better benchmark, it is believe that more people have brought up the need to create or develop benchmarks based on the Islamic modes of rate of return” The basis of ascertaining the input of risk-free rate in valuation method as benchmark, it is anonymous based on the consistency answered by the all the panels, the benchmark was required to assist the computation of market value of subject property since without the benchmarking, Valuers will have no standard to be refer and could cause moral hazard among Valuers in deciding the appropriate yield since appropriate will have a different interpretation for each people. In the end, as stressed by 62
  • 63. Panel number 1, without referring the risk-free rate as a benchmark could lead to magnificent Gharar which will make the valuation as a prohibited Gharar, nonpermissible one. Furthermore, Panel number 2 also said, “….after all, the benchmarking done after analysis done on the prevailing market condition not simply taking the rate out of nowhere…”. This statement also denounce another reminder that each Valuer had to justified their analysis in the valuation report and avoid taking an easy means of simplicity. In terms of uncertainty behind the input of risk-free rate, as validate by all three Panels it is considered as permissible Gharar. Added by Panel number 3, “Instead of concerning substitute the benchmark with other option of Islamic mode of return, care should be more on each valuation had to be more transparent, justifying and prudent to ensure faith in all valuation done by professional Valuers”. As according to Askari, Iqbal & Mirakhor (2009), they also relates with the practice of return from the interest in prevailing conventional market by addressing direct conflict by several researcher on the practice of using interest-based benchmarks such as the London Interbank Offer Rate (LIBOR) in Islamic financing. Other different kind of models can estimate the rate, such as Capital Asset Pricing Model Hence, for the development of Shari‟ah-compliant valuation, the application of risk-free rate could be substitute with potentially Shari‟ah-compliant rate of return such as the Islamic Bond rate. But on 2008, Shari‟ah Board of Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI) printed a testimonial signifying that musharakah and 63
  • 64. mudarabah Sukuk (Islamic Bond) with the “credit enhancement approach” instruments as applied by the market was not in accordance with the Shari‟ah principles. Hence, it seems the future for a better benchmark cannot take place within the next few years, since the developing of such rate might take few years to create and other years for acceptance. With supported hadith from Rasullullah (pbuh), there were no means or level of yield appropriate for each asset trading in the market. Rasullullah (pbuh) does not want interfere the allocation of ceiling return in market since it would cause injustice the traders or sellers, but as explained by them during the years of Rasullullah (pbuh) the price is determine fairly unlike nowadays in Malaysia where the market is unfair towards certain people in the society. The market is mix with speculation, even such element existed but with analysis back up in valuation done, the amount uncertainty still allowable. Then, the interview lift up to the uncertainty in both valuation methods. Unlike riba‟, Gharar is not definite therefore, it requires expert justification to ascertain its permissibility with Islam law. The uncertainty lies in Comparison Method is permissible Gharar as mentioned by Panel number 2,” …..Islam accepts price differences especially after consider the location variability and even with such indicative value or price determination without professional advice, the cases were not absolute that affect the total average price or values in the market.” 64
  • 65. Hence, they evaluate the uncertainty of price or sale price in comparison method as permissible Gharar, but cautious towards the Valuers to ensure all adjustment, analysis and justification was made especially during thin market where the suitable comparables data is very limited or applying other method to support the valuation. While uncertainty within the adjustment process, the issue of uncertainty lies from the incompetency of the Valuers and lacks of proper standard of guidelines. Hence, as suggested by the Panel number 1; “…intensive study on the economics forces within real estate and the current condition of market in a country, at the last semester or year could benefit the Valuer before entering the industry, and proper mathematical theory in adjustment allocation could be establish as guidance for potential Valuer…” For each assumption it is extracted from past valuation after conducted adjustment on appropriate comparison using similar professional discernment. The assumption amount were believed to be most suitable, but for each inputs there will be no 100% confidence due to market anticipation of future and future is uncertain. This uncertainty had to be relay to the end-user or client. It is now accepted that the fact is valuation is uncertain and it is not the downward side or the end of professional judgement but alternatively, a beneficial enhancement to the process as it enable the valuation user to understand the valuation figure in certain circumstances. As a good reminder to all the Valuers, careful analysis had to be done on the comparables use since as the market comprises speculated price or price that will bring injustice towards other party, the Valuers had to gather means in allocating the area or 65
  • 66. properties have such elements to avoid using it as comparables, but it is not fair to provide Valuers more responsible effort without other authority concern. The recommendation on involvement from other entity will be further mention in next chapter. Without overlooking on the uncertainty lies in the DCF Method, the forecasting elements in the valuation is actually assist the valuation in more detail manner, Panel number 2 relates this element with the financing calculation method as such Bai‟ Bithaman Ajil (BBA), where involved forecasting in number of years at certain predetermined rate annually. As said by the Panel; “…the forecasting also required analysis at certain S.O.P (standard and procedure) hence it is permissible and acceptable to conduct such way even in property valuation…” The third interviewee added “….Property Valuation in Malaysia still in a development process, possibly this uncertainty can be reduce with more certainty in futures by having conclusive and more property analysis after more property data available in the market which this data make analysis such as property index is possible to be release”. The other uncertainties in DCF methods; risk premium and rental growth which the uncertainties arise from the market forces but since it is unavoidable the elements of Gharar in both part is considered as normal phenomenon in the market as concluded from the discussion. This type of Gharar as mentioned by Zaharuddin Abd Rahman (2008), Gharar can be considered minimal, if it is not outrageous or absolute in the contract and where the consequence on the economy and society. This kind of element is more or less impossible to get rid of from the market and it is accepted by Shari‟ah. A 66
  • 67. bulk feature of Gharar in commercial activities is forbidden according to Shari‟ah since it will influence the legality of a transaction. Once again, mindful of that unlike riba‟, Gharar is an exceptional issue which is free for adaptability on different situation. As stated by Panel number 2 “…due to technology development and its changes over time, what comprise Gharar in a certain place or time might not be Gharar in other certain situation or state of affairs….” The used of technology in property valuation method is already discussed in the literature review, as by applying the technology it is believe these uncertainties effect could be reduce and bring valuation becoming more transparent in providing reasoning for all the input computed in the process done. Ultimately, the uncertainties in valuation is permissible according to Islam and the existence of risk-free rate in the valuation method act as a benchmark to assist Valuers in coming up with an appropriate yield and output. But some recommendation and improvement to reduce amount of uncertainty were stressed out by the panels, and those suggestion will be stated in the next Chapter. 67
  • 68. CHAPTER 5 CONCLUSION AND RECOMMENDATION The uncertainty in property valuation method is unavoidable since, the uncertainties arise from the market forces and the nature of the method itself. The use of risk-free rate consider as benchmark not as riba‟ as defined by Ulama‟ or Shari‟ah expert to ensure the price is competitive in the market. But still other technique or other reliable source could be suggested in come up with Islamic mode of risk-free rate. Definitely, the development of Shariah-compliant valuation is still new and it is not preferred to be discuss on the necessity, but there were issue on the use of profit method in the valuation of non-shariah compliance business activities such as bars, clubs or cigarshop is questionable since its base on the activities not the space, hence as according to Islam such application is not permissible. Hence, the application of valuation method should also being accordance to the activities not solely on the purpose of valuation according to Islamic principles. The uncertainty from the comparables could be minimise from the involvement from the authority especially from the government as stressed by the first panel, since the market existed speculation or as mentioned in literature review, the price from the selling of property is not from the professional advice or guidance, therefore, the government had to intervene from the ground to avoid the inappropriate price or values being opt as comparables. The price or value need to be control so that the selling price is determined fairly. 68
  • 69. As mentioned by Wahbah Zuhaili (2009) in his book, one of property type, residential is a basic needs towards each people in the earth. In Islam, government act as a trustee on property belongs to Allah S.W.T. As a trustee, government had to divide the property and others wealth resources in the earth for the use and enjoyment of all human beings according to the laws stated by Allah S.W.T. Likewise Islam recognizes and acknowledges the rights and freedoms of an individual to own property in a way that allowed. As far as we concern, the yield as applied in valuation method were analyse and input at allowable means, as long as the computation and analysis done were justify in the report. But, towards adjustment done in valuation, an improvement had to be done in creating or providing a guideline to all the potential Valuers and the existed Valuers on how much and how to justify or reason out all the adjustment done, hence the subjectivity or the uncertainty from the knowledge or experience of the Valuer can be reduce. It is, without doubt, the valuation methods required an impeding guidelines or standard in assisting new and existed Valuer entering industry. By preference, at the essence of the problem rest the issue of transparency and clear-cut of the outcome from valuation process (no matter which valuation method used) such as means in which Valuers convey their assumptions, statement for uncertainties and liaise the outcomes of the valuation process to the client or end-user of the report. Therefore, each Valuers must have a manual how to come up with the adjustment, not simply by thoughts or senses. Since valuation is much related with the market condition therefore, all pertaining analysis done in allocating the uncertainty should be appended with the valuation report. 69
  • 70. In those circumstances where uncertainty are reported according to RICS Appraisal and Valuation Manual (RICS, 2996) or Red Book the Valuer can claim, with some justification, that best practice has been satisfied, not just from the valuation industry itself but from the Islam context also being satisfied. More specifically, the interviewee also concluded that an alternative method is required that integrate the analysis of uncertainty with thorough probe on property and market uncertainty. Carsberg (2002) emphasized the need for more acceptable methods of expressing uncertainty, particularly when information is deficient. The report stated that professional bodies representing bodies representing both Valuers and end users should agree an acceptable methodology for reporting uncertainty within the valuation, which can be readily communicated to third parties. It is stressed that the methodology should being understandable and should not confuse end users. 1996 Red Book seeks to lay down clear standards and guidelines which will assist both the Valuer and the client in interpreting the valuation in the correct context. This Book had to known and refers by all the Valuers in conducting their valuation. It should be apparent that, for all the uncertainty discussed, there is no exact technique that Valuers can deal to make the uncertainty become certain, but there are ways to minimize in instance, from the use of probability theory but still the application is being critique on the reliability towards technology rather than the human systems. Mallison and French (2000) suggest adopting, statistical approach to the resolution of the uncertainty issue. In relation to the range of the most likely observation it is recommended that the Valuer should set the upper and lower figure in elements which they believe having potential uncertainty. In other way, Scott, Gronow and Rosser (1988) 70
  • 71. suggested to reduce the uncertainty amount in valuation method they came up with a system that regarded as a number of sub-systems serving the main valuation program as shown in Figure 5.1. Within each of the sub-systems clear-cut feedbacks to the main program which produce the valuation figure. But the treatment on the use of this system, should be seen where it is applicable and needed such as when the market just facing a bubble in the property segment. Figure 5.1: The Modular Expert System (Source: Scott, Gronow and Rosser, 1988) Some way, this research paves the way for the introduction of new method, which would be easily understood and be applicable across all property. 71
  • 72. Gharar in valuation method is consider in the face of necessity for the valuation can be done, given that this need is both general and specific and there is benefit (Maslaha) from the given method and valuation.Individual Valuers must take the issue of uncertainty into their own hands and offer the end user or client what they feel is their best price estimate from the method applied. Refer back to primary book of review, Quran which to establish a moral social order on earth. It requires human kind to work on the basis of brotherhood and cooperation with as sense of God consciousness. Even in conducting valuation, the Valuers or other related interested interest in property valuation should therefore be driven by these Quran realities. As such, when there is defect on the property, Valuer should not hide it from the knowledge of the client or end user as it is consider as Haraam according to Syara‟ as Rasulullah S.A.W said; “A Muslim is the brother of another Muslim. Should not be for a Muslim to sell something to his brother while the goods have its defect or flaws unless he explains to his brother the defects”. Thus, any input that would cause injustice towards the client or end user had to be reported. All Valuers had to be aware and knowledgeable on the existence of uncertainty in valuation methods used. Therefore, they can avoid making errors and injustice towards the end user. The two valuation methods; comparison method and DCF method of uncertainty is permissible after considered the favorability of both methods compared with others and the uncertainty elements is required and assist the computation of property value. But, much improvement on existed methods or creation of other method to ease in appending justification or reasoning on the methods were required in order the valuation process is clear and transparent to give justice to all interested individual. In each 72
  • 73. property valuation work depends on the data available and how much certain for each input, choosing appropriate method would give justice if the element of uncertainty is minimal. The government also plays key roles in controlling the prices and value of the property in the market. The authority also should initiate work on constructing property indices or other property-related benchmark to guide people in the industry and other key players. With this, the property market is fairly value and traded among different income-group of people. This research suggests further study on shariah-compliant valuation model and property-related index requirements in future. 73
  • 74. REFERENCES 1. A. Jobst, A. (2007). The Economics of Islamic Finance and Securitization. MOnetary and Capital Market Department, IMF . 2. A.Rahman, R., & Sipan, I. (1996, December). Objectivity in Valuation Technique. Jilid 7 Buletin Ukur , pp. 190-197. 3. Abd Rahman, Z. (2009). Wang, anda dan Islam. Kuala Lumpur: True Wealth Sdn Bhd. 4. Abd.Karim, M. R. (2010). Analysing the Characteristics and Performance of Islamic Funds: A Critical Review of the Malaysian Case. Durham theses . 5. Adair, A., & Hutchison, N. (2005). The Reporting of Risk in Real Estate Appraisal Property Risk Scoring. Journal of Property Investment and Finance , Vol. 23, No. 3, pp. 254-268. 6. Alias, A., & Nor Hanapi, N. H. (2008). Comparison Method - Preference of Adjustment Techniques Among Valuers. Journal of Property Valuation . 7. Al-Saati, A. R. (2003). The Permissable Gharar (Risk) in Classical Islamic Jurisprudence. Journal Islamic Economic , Vol. 16, No.2, 3-19. 8. Askari, H., Iqbal, Z., & Mirakhor, A. (2009). New Issues in Islamic Finance & Economics, Progress and Challenge. Singapore: John Wiley & Sons (Asia) Pte. Ltd. 9. Askari, H., Iqbal, Z., & Mirakhor, A. (2009). New Issues in Islamic Finance & Economics, Progress and Challenges. Singapore: John Wiley & Sons (Asia) Pte. Ltd. 10. Aydin, N. S., & Rainer, M. (2010). Concept and Mathematics of Islamic Valuation and Financial Engineering. Islamic Economics and Finance . 11. Baum, A., Crosby, N., & MacGregor, B. (1996). Price formation, mispricing and investment analysis in the property market : A response to “A note on ‘The initial yield 74
  • 75. revealed: explicit valuations and the future of property investment’”. Journal of Property Valuation and Investment , Vol.14, No.1, pp.36-49. 12. Boykin, D. R., & James, E. H. (1983). Basic Income Property Appraisal. US: AddisonWesley Publishing Co. 13. Bywater, N. (2011, June). Reflecting Uncertainty in Valuations for Investment Purposes. London, UK. 14. Cadman, D., & Byrne, P. (1984). Risk and Uncertainty and Decision Making in Property Development. London: E & F.N Span, London. 15. Crosby, N. (1983). The Investment Method of Valuation: A Real Value Approach. Journal of Valuation , 1: 341-350 and 2:48-59. 16. Crosby, N., Lavers, A., & Murdoch, J. (1998). Property Valuation Variance and the 'margin of error' in the UK. Journal of Property Research , 305-320. 17. D. C., & Byrne, P. (1996). Risk, Uncertainty and Decision-Making in Property Development. London: E & F.N. Spon. 18. Diaz III, J., & Hansz, J. (1997). How Valuers Use the Value Opinion of Others. Journal of Property Valuation and Investment , Vol. 15, No. 3, 256-260. 19. Fraser, W. (1985). Rational Models or Practical Methods? Journal of Property Valuation and Investment , 253-258. 20. French, N. (2004). The Valuation of Specialised Property. Journal of Property Investment and Finance , 533-541. 21. French, N., & Gabrelli, L. (2004). The Uncertainty of Valuation. Journal of Property Investment and Finance , 484-500. 22. French, N., & Gabrielli, L. (2004). The Uncertainty of Valuation. Journal of Property Investment & Finance , 484-500. 23. Hanif, M. (2010). Risk and Return under Sharia Framework : An Attempt to Develop Sharia Compliant Asset Pricing Model- SCAPM. Emerging Markets:Finance eJournal . 75
  • 76. 24. Hassan, M., Alhena, Y., & Merdad, H. (2011). The Relative Performance of Debtrestricted REITs: Does Faith Matter? Networks Financial Institute . 25. Hoesli, M., Jani, E., & Bender, A. (2006). Monte Carlo Simulations for Real Estate Valuation. Journal of Property Investment and Finance , Vol 24, No. 2, pp. 102-122. 26. Hungria-Garcia, R. (2004). Property Yields as Tools for Valuation and Analysis. Stockholm: Royal Institute of Technology. 27. Ismail, A. G., & Tohirin, A. (2010). Islamic Law and Finance. Humanomics , Vol.26, pp. 178-199. 28. J.Schacht. (1982). An Introduction to Islamic Law. London: Clarendon Press, Oxford. 29. Lewis, J. P. (n.d.). An Integrated approach to Investment Valuation. Journal of Valuation . 30. Lin, C. S. (2013, June 28). The price is right, or is it? What happens when bank valuations are lower than negotiated prices? Malaysia. 31. Mallison, M., & French, N. (2000). Uncertainty in Property Valuation: the Nature and Relevance of Uncertainty and How it Might be Measured and Reported. Journal of Property Investment and Finance , 13-32. 32. Newell, R. G., & Pizer, W. A. (2003). Discounting the Distant Future: How Much do Uncertain Rates Increase Valuations? Journal of Environmental Economics and Management , 52-71. 33. Nick French, L. G. (2004). The Uncertainty of Valuation. Journal of Property Investment & Finance , 484-500. 34. Peto, R. (1997). Market Information Management for Better Valuations. Journal of Property Valuation and Investment , Vo. 15, No. 5, pp.411- 422. 35. Property Investment. (2013, June 28). Retrieved July 3rd, 2013, from The Star Property: www.thestarproperty.com.my 36. Richmond, R. (1972). Valuation for Real Estate Decision. Democrat Press. 76
  • 77. 37. Rosly, S. A. (2005). Critical Issues on Islamic Banking and Financial Markets. Kuala Lumpur: Dinamas Publishing. 38. Sayce, S., Smith, J., Cooper, R., & Rowland, P.-V. (2006). Real Estate Appraisal. UK: Blackwell Publishing. 39. Scott, I., Gronow, S., & Rosser, B. (1988). The Nature and Use of Uncertainty in Property Valuation Expert Systems. Journal of Property Valuation , 218-247. 40. Shapiro, E., Mackmin, D., & Sams, G. (2013). Modern Methods of Valuation. London: Routledge. 41. Wendt, P. F. (1974). Real Estate Appraisal Review & Outlook. US: University of Georgis Press. 42. Wilson, R. (2007). Islamic Finance in Europe. RSCAS Policy Papers , No.2. 77

×