The International Valuation Standards Council has released a discussion paper seeking views on the need for improved standards for valuation of investment property.
In many countries property has long been a popular investment, the London-based IVSC noted, and the rapid growth of cities in the emerging markets is creating a stream of new opportunities for both domestic and international investors. In the more mature markets, alternatives to direct investment in the sector, such as derivatives based on movements in investment property indices, are becoming increasingly popular as the market seeks ways of improving the liquidity of investments in the sector. However, this increasingly global focus is exposing inconsistency in the valuation approaches adopted in different parts of the world.
Leading this project at the council is Simon Landy, a member of the IVSC’s Standards Board and executive chairman of Colliers International in Thailand. According to Simon, the rapid increase in the amount of cross border investment over the past decade, particularly into the emerging markets, is potentially exposing investors to additional risk from poor or inconsistent valuation practice.
“Compared to other more liquid investments, investors in products backed by property are more reliant on valuations when buying or selling products,” Simon said in a statement.”The IVSC has an important role in promoting best practice and greater transparency for valuations in this sector.”
The adoption of International Financial Reporting Standards around the world is yet another factor exposing inconsistency in practice. These require any business or entity preparing their accounts to declare the value of investment property accurately, on the balance sheet as of the date of publishing. However, the absence of a specific international standard means that valuations are inconsistent between different countries making comparisons difficult.
“The rollout of the International Financial Reporting Standards is requiring valuations of investment properties to be undertaken in some markets where there has not been a long tradition of regular valuations and where there is limited transactional information and other data,” said Simon. “Our project aims to bring greater consistency to the reported values.”