The purpose of this research is to study the impact of g (growth) on the real estate discount rate in real estate valuation and to understand how professional valuers estimate this variable in practice, including how they incorporate future price change expectations into present value estimates, with particular focus on the Portuguese residential market.
The archival research method (with data from the EUROSTAT) is followed, combined with a self-completed questionnaire survey of real estate valuers in Portugal for explanatory research.
The findings suggest that most professional valuers interpret g as the implicit growth in the numerator of the Gordon Growth Model (GGM) formula and use market comparable data when they have to use/estimate it. However, this study also shows that valuers seem to apply comparable cap rates without determining what growth rate is being implied, which can potentially lead to results that are not accurate and harmful, particularly in implicit valuations and when estimating the residual value (which generally represents the majority of the value of the asset).
One limitation of our study is the size of the sample, namely the number of complete answers to the questionnaire. Also, it is not clear how valuers collect comparable data from the market and estimate growth regarding sources of information and models used.
This paper revisits the literature on the GGM used in real estate valuation with a special focus on the residential market; it isolates the impact of g and its definition in the discount rate; it makes suggestions on how to deal with g in practice in discounted cash flow (DCF) analysis and in the yield method for residential valuation, framing it under the EVS 2025, RICS 2025 and IVS 2025 valuation standards.
While the GGM has traditionally been applied to commercial property valuation, it is increasingly being examined within residential valuation; this paper looks at the discount rate used in this context from the perspective of the GGM combined with a build-up approach, providing practical insights and guidelines to professional residential valuers who act in accordance with the EVS 2025, RICS 2025 and IVS 2025 valuation standards and identifies a clear need for standard adaptation and training to residential valuation.
