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European Valuation Practices initial findings

European Valuation Practices initial findings. Leonie Koerhuis Msc, PhD student Tias Nimbas Bus. School Dr Paul Nelisse FRICS RT, Tias Nimbas Business School Prof. Dr. Aart Hordijk MRICS, Tias Nimbas Business School contact: a.c.hordijk@tiasnimbas.edu. Previous Research.

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European Valuation Practices initial findings

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  1. European Valuation Practicesinitial findings Leonie Koerhuis Msc, PhD student Tias Nimbas Bus. School Dr Paul Nelisse FRICS RT, Tias Nimbas Business School Prof. Dr. Aart Hordijk MRICS, Tias Nimbas Business Schoolcontact: a.c.hordijk@tiasnimbas.edu

  2. 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Overviews by major Valuation Firms like DTZ, JLL, Colliers, etc., mostly • as of 2000 onwards • Conclusion: Relatively Outdated 2 goto menu view | Header and Footer to change this text 22-Oct-14

  3. 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 3 goto menu view | Header and Footer to change this text 22-Oct-14

  4. For Whom ? • Practitioners • Academics • (International) Investors • Auditors • Financial Institutions • ALM Studies 4 goto menu view | Header and Footer to change this text 22-Oct-14

  5. 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 5 goto menu view | Header and Footer to change this text 22-Oct-14

  6. Contributing Countries so far France Germany Italy Netherlands Portugal Russia Spain UK goto menu view | Header and Footer to change this text

  7. Market Value 7 goto menu view | Header and Footer to change this text 22-Oct-14

  8. 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 8 goto menu view | Header and Footer to change this text 22-Oct-14

  9. Property Rights Availability 9 goto menu view | Header and Footer to change this text 22-Oct-14

  10. Freehold 10 goto menu view | Header and Footer to change this text 22-Oct-14

  11. Leasehold 11 goto menu view | Header and Footer to change this text 22-Oct-14

  12. 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 12 goto menu view | Header and Footer to change this text 22-Oct-14

  13. Regular Contractual Lease Period 13 goto menu view | Header and Footer to change this text 22-Oct-14

  14. The following Costs are Incurred by the Tenant / Landlord: 14 goto menu view | Header and Footer to change this text 22-Oct-14

  15. 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) 15 goto menu view | Header and Footer to change this text 22-Oct-14

  16. 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 16 goto menu view | Header and Footer to change this text 22-Oct-14

  17. Which sources are available for comparable investment and rent transactions? What is the quality of each source? 17 goto menu view | Header and Footer to change this text 22-Oct-14

  18. Main Similarities and Differences • Differences • - Different Lease Lengths • - Operating Costs • - Stamp Duty / Transfer Costs • Similarities • - Valuation Methods • - Underlying Variables • - Judgement of Property Magazines Relevancy 18 goto menu view | Header and Footer to change this text 22-Oct-14

  19. 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 19 goto menu view | Header and Footer to change this text 22-Oct-14

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