Academic journal article Journal of Real Estate Literature

Valuing Historical Land Claims and Its Loss of Use

Academic journal article Journal of Real Estate Literature

Valuing Historical Land Claims and Its Loss of Use

Article excerpt

Abstract

Historical land claims commonly arise in disputes between government and the former inhabitants of the land. These claims typically relate to a past damage caused either by inadequate compensation or by inappropriate taking of the land. There are opinions voiced in the literature that these claims should be valued differently by the prospective and retrospective approach, respectively. This paper shows the deficiencies and perverse motivation for claims including the optimal timing of the claim induced by the retrospective approach. A new way of valuing the damage that is in the spirit of the prospective approach rooted in modern financial theory and option pricing is suggested and justified. This approach alleviates some deficiencies and spares the need for a long sequence of historical asset prices that are not readily available. Hence, it makes settling such disputes easier and increases the likelihood of arbitration instead of costly court cases.

(ProQuest: ... denotes formulae omitted.)

Historical land claims commonly arise in disputes between governments and the former inhabitants of the land. Such claims have surfaced in countries such as Australia, South Africa, the United States, and Canada, among others. They typically relate to damages incurred a few decades ago, either by inadequate compensation or by expropriation (inappropriate taking of the land), either indefinitely or for a period of time. Hosios and Smith (2006) (HS) suggest that these two types of claims should be valued differently by the prospective and retrospective approach, respectively. This paper shows the deficiencies and perverse motivation for claims, including the optimal timing of the claim, induced by the retrospective approach. A new way of valuing the damages that is in the spirit of the prospective approach and is rooted in modern financial theory and option pricing is suggested and justified. This approach alleviates some deficiencies and spares the need for a long sequence of historical asset prices that are not readily available. Hence, it makes settling such disputes easier and increases the likelihood of arbitration instead of long and costly court cases.

Historical claims usually refer to events that occurred a few decades ago and in remote areas where a liquid market for the asset(s) at hand has not been in existence. Hence information about historical prices, as well as the evolution of prices throughout time, is very sketchy.

The ''prospective approach'' advocates that in the case of an alleged inadequate compensation at the time the land was confiscated, the value of the land in dispute as of the expropriation time should be reassessed and brought forward to the time of the claim. Both the reassessment and the future factor coefficient necessary to calculate the current value of the payment deficiency are estimated given only the information known at the time of the (inadequate) compensation and brought forward to the time of the claim.

In the case of inappropriate taking over a certain period, loss of use for the intervening period should be valued. The ''retrospective approach'' in such cases is based on the trajectory of the realized evolution of the price of the land during the intervening period and a ''rental rate'' offered by the land each year, which generates an annual cash flow. The value of the cash flow is brought forward to the end of the intervening period and added to the value of the land at that time. The total of these two components is brought forward to the time of the claim.

The purpose of this paper is to examine the validity and implications of the way the retrospective approach is executed in practice, comparing it to the prospective approach. In instances where a competitive market exists for a land similar to the land in dispute throughout the intervening period, the realized yearly rental rate and the trajectory of prices are readily available. Consequently, the loss of use is easily calculated when the future value coefficients are also available. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.