What is it about?
Discounted cash flow (DCF) analysis is widely taught and internationally recognised, yet it is rarely used in South African secured‑lending property valuations, where implicit income‑capitalisation methods dominate. This study investigates why the adoption of DCF as a supplementary approach remains limited and whether exposure to a structured, semi‑digitised DCF workflow can influence professional valuers’ decision‑making in practice and inform lenders’ requests for additional cash‑flow‑based analysis to support credit risk assessment. Using interviews and survey evidence from valuers and bank risk specialists, the research examines behavioural, data, and regulatory factors that shape method choice in practice. Income‑capitalisation models explain Market Value clearly by reflecting prevailing market evidence through capitalisation rates, but embedded assumptions may not always make forward‑looking risks explicit. This study does not advocate replacing these models or pursuing regulatory reform. Instead, it supports incremental clarification on how supplementary analytical outputs (alongside Market Value) — such as DCF‑based income trajectories — can be used internally by lenders to enhance risk insight while remaining consistent with established valuation practice.
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Why is it important?
Property valuations play a central role in credit risk assessment, capital allocation, and financial stability. Where valuation assumptions are implicit, the timing and nature of forward‑looking risks may be difficult to identify, test, or explain within bank credit processes. This study is important because it clarifies how supplementary analytical outputs, such as DCF‑based income trajectories, can be used alongside Market Value to improve risk visibility without undermining professional judgement. Rather than advocating regulatory reform, the findings support incremental clarification on how such outputs may be used internally to strengthen banks’ credit risk models. The study is therefore relevant to valuers, lenders, regulators, and educators concerned with transparency, defensibility, and forward‑looking risk insight.
Perspectives
I undertook this research to bridge the gap between academic valuation theory and the realities of secured‑lending practice. Through working closely with both valuers and bank risk teams, I observed that limited use of discounted cash flow models is driven less by regulation and more by complexity, data constraints, and established professional habits. This study reflects my interest in how digital tools can complement secured‑lending valuation practices by making risk assumptions more transparent, thereby supporting improved credit risk management, and how these practices can evolve incrementally while remaining credible, practical, and defensible.
Wynand Pohl
University of Pretoria
Read the Original
This page is a summary of: Reassessing discounted cash flow valuation: industry adoption and regulatory challenges in South Africa, Journal of Property Investment & Finance, March 2026, Emerald,
DOI: 10.1108/jpif-08-2025-0113.
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