PROPERTY VALUATION GUIDELINES

Best-practice property valuation guidelines are very important in securing reliable valuations that real estate fund managers can use to monitor asset and portfolio performance, or to evaluate real estate investment opportunities in the case of acquisition of new properties.

Valid and accurate valuations are extremely important for investors aiming at high returns. If the valuation overstates the value of a property, then the investor's estimates of any appreciation gains will be also overstated since the investor will be in reality purchasing a property above its true market value. In the case of existing holdings, proper and timely property valuations are necessary for effective asset/portfolio performance monitoring and active management.

The European Association for Investors in Non-Listed Real Estate Vehicles (INREV) property valuation guidelines are the following :

• The valuation method used should lead to the determination of the market value of the property.

• The property valuation report must include information on the valuation method used for investment property, for property under construction and ground leases, as well as applicable input and market assumptions.

• The valuation should result in a single number.

• Transfer tax and purchasers costs should be deducted when determining the value of a property (net market value).

• External property valuations should be performed at least once a year for all properties, with internal or external updates carried out periodically in line with the reporting frequency of the fund.

• The annual full-scale valuation must include physical inspection of the property by an external valuer.

• The external appraiser must make his own assessment of expected costs, including estimates of long-term maintenance and ground pollution costs if applicable.

• The external appraiser must be independent and if other services are provided by the appraiser to the fund, which could compromise his/her independence, they should be disclosed.

• Assessment of the re-appointment of the external appraiser should take place at least every three years.

• Any deviations from external property valuations used by fund managers should be clearly explained and disclosed.

• Compliance with International Valuation Standards (IVS) and International Financial Reporting Standards (IFRS) is considered by INREV good practice.

• Linking of the property valuation fees to be paid to an external appraiser with the outcome of the valuation should be avoided.

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