_Material Uncertainty Clause in all Market Valuations
Material Uncertainty Clause in all Market Valuations
Property
RICS and IVSC guidance together with collaboration between the large advisory firms has defined a material uncertainty clause for use in all valuations where appropriate, with an issue date post the classification from WHO of Covid 19 as a global pandemic.
In the Middle East generally, the markets are not as liquid as the US / UK / Europe / Asia, there are fewer institutional investors and the deal volume for commercial real estate is much lower, making it much more difficult to track value movements, and fully understand how and why the market has moved.
Factors to consider when undertaking a valuation and considering whether there is material uncertainty in the advice being provided:
- Evidence that transactions are being placed on hold or renegotiated in light of government action
- Any firm evidence of the issue having an impact on values
- A paucity of completed transactional evidence for capital and rental values
- Properties where the value is directly related to the trading potential of the asset
- The security and longevity of the income flow (are you able to safely predict covenant strength in the light of the economic outturn of this ‘shut down’?)
- Indications within the market that a lack of “liquidity” - the ability to undertake property sale transactions from start to finish - is significantly affecting the normal operation of the market. Supply and demand factors should be considered
- Whether the inability to undertake appropriate due diligence, by the purchaser or their advisors, will affect value
- The continued availability, or otherwise, of property loan finance within the given market
- Any indications of a change in sentiment from categories of property investors, such as private equity, family groups, REITS and institutions
- Occupational assumptions, particularly where a significant part of the property is vacant or the property is under development
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