European Valuation Practices initial findings
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Transcript of European Valuation Practices initial findings
20 Apr 2023
European Valuation Practicesinitial findings
Leonie Koerhuis Msc, PhD student Tias Nimbas Bus. SchoolDr Paul Nelisse FRICS RT, Tias Nimbas Business SchoolProf. Dr. Aart Hordijk MRICS, Tias Nimbas Business School
contact: [email protected]
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Previous Research
• European Valuation Practice, Alistair Adair et al, 1995
• Real Estate Valuation in Global Markets, Appraisal Institute, 1996
• Overviews by major Valuation Firms like DTZ, JLL, Colliers, etc., mostly
as of 2000 onwards
Conclusion: Relatively Outdated
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Why ?
• Improve Transparency
• Crossborder Comparison
• Higher Profile of the Valuation Profession
• Stakeholders Demand
• Need for Dynamic System, to be updated regularly
• “Lonely Planet” of Valuation
• Looking for the “True” Capital Growth
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For Whom ?
• Practitioners
• Academics
• (International) Investors
• Auditors
• Financial Institutions
• ALM Studies
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What ?
• Compact Survey, focus on main items
• Similarities and Differences in this presentation :
- Market Value
- Property Rights
- Measurement
- Lease Conditions
- Operating Costs
- Transfer Costs
- Valuation Methods
- Reliability of market evidence
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Contributing Countries so far
France
Germany
Italy
Netherlands
Portugal
Russia
Spain
UK
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Market Value
Do you apply Market Value (Red Book definition)?
67%
33%
Always
Mostly
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Do you use any Other / Alternative Definitions?
• Value in Use
• Liquidation Value
• Fiscal Value
• Charte de l'Expertise en Evaluation Immobilière
• Fair Value
• Private Purchase
• Verkehrswert
• No
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Property Rights Availability
Information on property rights is available from the Land Registry
50%50%
Yes, all information
Only limited information
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Freehold
Property is held freehold
17%
83%
Always
Mostly
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Leasehold
Property is held leasehold
83%
17%
Sometimes
Never
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The Regular Approach to Measurement of Surface is:
• Gross External Area
• Gross External Area - Warehouse
• Kind of Gross External Area for Construction Permits
• Gross Internal Area
• Net Usable Area
• Net Usable Area for Leasing
• Net Internal Area
• ITZA (Retail)
• GLA (Gross Leasing Area)
• Net Leasable Area
• Depending upon the Asset Type
• Depending upon which of the 16 Bundesländer
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Regular Contractual Lease Period
0 5 10 15 20
France
Spain - office
Portugal - office
Italy - residential
Spain - residential
Netherlands
Portugal
Portugal - retail
Italy - commercial
Spain - retail
Italy - hotels
UK
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The following Costs are Incurred by the Tenant / Landlord:
0% 20% 40% 60% 80% 100%
Local taxes
Taxes over rent
Insurance
Internal repairs
Maintenance
Repairs to the structure
Letting fees (including rent review costs)
Services energy
Services non energy
landlord
landlord and tenant
tenant
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Transfer Costs
Transfer Costs are in the following Ranges:
• Stamp Duty / Transfer Tax: 0.8% (France) - 7.0% (Spain)
• VAT: 8.0% (Spain) - 21.0% (23% in 2011, Portugal)
• Real Estate Agent: 0.35% (Portugal) - 4.0% (Italy)
• Notary Fees + Registration: 0.2% (Spain / Portugal) - 6.2% (France)
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Income Approach to Market Value
• Calculation Components (i.e. Rental Income, Yield) are similar
• Usually 10 or 15 Years DCF
• Notable Difference: due to Full Repair Leasing in UK, therefore in the UK most emphasis on Net Yield
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Which sources are available for comparable
investment and rent transactions? What is the quality of each source?
0 0,2 0,4 0,6 0,8 1
inhouse database
third partydatabase
propertymagazines
land registry
informal network
No
Yes, but poor
Yes, moderate
Yes, good
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Main Similarities and Differences
• Differences
- Different Lease Lengths
- Operating Costs
- Stamp Duty / Transfer Costs
• Similarities
- Valuation Methods
- Underlying Variables
- Judgement of Property Magazines Relevancy
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Conclusions and next steps
• Further research necessary
• Expansion with more countries
• In-depth analysis of the data
• Quantification of the differences
- measurement : use of EU NEN 2580 as a norm to adjust space
- operating costs : UK as the starting point to adjust
- transfer cost : once of correction on the investment
• Qualitative
- good – poor information : risk premium on the cap/discount rate (?)
- lease length : effective lease length and difference in risk premium (?)
Main goal : looking for the “true” capital growth