Valuation in crisis – Art versus Science – The Science View

The Science View on Valuation

Estimating Property Values in Times of Significant Uncertainty

In times of Covid-19 pandemic, property market or fair values are harder than ever to estimate. Valuers desperately trying to find enough ‘evidence’, but property is an illiquid asset by definition and as such, transactional evidence disappears during periods of market unrest.

So, what can property valuers do in times of market uncertainty?

The International Valuation Standards Council (IVSC), whose standards have been adopted by the ‘RICS Red Book’, issued a letter in March 2020 with the title ‘Dealing with valuation uncertainty at times of market unrest’[1]. Their advice was mainly based on three points:

  • If the valuer can’t carry out an inspection due to government restrictions, clearly state it and agree this with the client.
  • If the valuer considers that it is not possible to provide a valuation on a restricted basis, the instruction should be declined.
  • Valuers should not apply pre-crisis criteria to their valuations as this approach is based on the potentially erroneous assumption that values will return to their pre-crisis levels and there is no way of predicting that this assumption in fact correct.

 As a valuer, Continue reading Valuation in crisis – Art versus Science – The Science View

Valuation in crisis– Art versus Science – The Art View

The Art View on Valuation

The life of a valuer is pretty tough at the best of times, even with the benefit of good comparable evidence. This is because valuers are carrying out transaction analysis in the most imperfect market that exists. This is why valuation is often described as both an art and a science.
Before a valuer starts to worry about the valuation methodology and analysis, the basis of value needs to be defined, this represents the fundamental measurement assumptions of the valuation. For the purposes of this article, I will focus on the most common basis of value, market value.

Market value
This is defined by Valuation Practice Statement 4 in the RICS Valuation Global Standards 2020 as: Continue reading Valuation in crisis– Art versus Science – The Art View

Online Courses Launched

In order to halt the rapid spread of Covid -19 and to try and ease the pressure on the strained NHS, we, as a country have to stay at home, to work, rest and play.

Cambridge Finance have launched online courses to continue giving you the skills and knowledge you need to better deliver your job; we were committed to this ethos before and now more than ever. We truly believe that we must keep our industry going, so we can all come out of this phase better than we were ever before.

We are however mindful that virtual learning comes with its challenges: we will not be able to replace the face-to-face rapport, it will take longer to explain the complex subject of real estate financial modelling in simple terms, and bad jokes will not make as much sense as they would in the classroom. We also understand that with schools and nurseries closures, you may be facing extra childcare responsibilities on top of trying to keep things going at work and learning new skills.

With all that in mind, the online solution will entail more CPD hours and will comprise of shorter sessions of 4 hours each with regular short breaks in order to maintain focus.

We have the following on offer as online courses: Continue reading Online Courses Launched

Will Green Credentials Impact Property Values – Let’s Go Dutch

By Morag Beers

Going Dutch does not always have particularly positive connotations; but Going Dutch in green investments is a whole other matter. The Dutch do it well, and the results are increasingly being recognised as beneficial.

dutch cycle

How do the Dutch know how to do this? I learned a joke about developers when I arrived in Holland: ‘

What is the first thing a developer does? He makes the land’. Ha ha.

The Dutch grow up to the national tune, Living with Water, not taking it for granted that our land is permanent and knowing that we are together collectively responsible for its stability. There is also the inbuilt advantage of being brought up on bicycles: as soon as you are old enough to sit up straight at a few months old, you can expect to be riding along on a seat out front on your parent’s bike. Being a very small baby projected into town traffic makes you brave in life. It is hardly surprising that these people grow up to be creative engineers and responsible investors, intuitively understanding environmental protection and not being easily fazed by life. Some of the most innovative, sustainable and thought-provoking investments and construction projects stem from Dutch activities which have served Dutch investment returns well. It is no accident that GRESB, the leading sustainability performance measurement, has its roots in Holland working with that other seat of innovation, California.

Continue reading Will Green Credentials Impact Property Values – Let’s Go Dutch

Is England’s planning system in the wrong direction?

By Victor Alarsa

From a developer perspective, sometimes the UK planning system can be quite intricate and vague. One of the reasons is due to its uncertainty at the initial stage.

Before starting a site negotiation with the landowner, the developer needs to calculate the residual land value. However, to appraise the prospective development, the developer needs to know precisely the maximum number of unities, max stories height, and all other building metrics. That is only possible if the developer officially consults the local planning authority (pre-application), which is going to charge for the information (ranging from a few dozens to thousands of pounds).

That is a dilemma: the developer needs to decide whether it is worth to pay a pre-application fee for each and every new deal to verify the residual land value.

Continue reading Is England’s planning system in the wrong direction?

An overview of the “UK-complex-housing-planning-permission-system”

By Victor Alarsa

Who’s responsible for granting planning permissions?

The planning system is designed to be applied by local authorities. There are three layers of authorities:

  • Nationally (national plan)
  • County councils (regional plan)
  • Unitary authorities such as districts, boroughs or city councils, hereafter referred as to Local Planning Authority (LPA)

LPA is ultimately responsible for designing local plans and granting planning permission.

Continue reading An overview of the “UK-complex-housing-planning-permission-system”

The UK Private Rented Sector (PRS) perspectives and Build to Rent (B2R) opportunities

By Victor Alarsa

The PRS is the fastest-growing sector in the UK properties market. It is England’s second-largest housing tenure after owner occupied, 62% against 20%, as shown below:

Image 1

Source: Alex Bate, Building the new private rented sector: issues and prospects (England), 2017

Continue reading The UK Private Rented Sector (PRS) perspectives and Build to Rent (B2R) opportunities

The benefits of SUMPRODUCT?

By Victor Alarsa

If you are one of those who loves to model using lots of “IF”, “AND” and “OR” functions, then this article is for you.

Let’s discuss the SUMPRODUCT, which literally means summing up the multiplication (product) of two or more different arrays.

For example, if you want to calculate total rental value of a property with different floor sizes and rents per square foot, then you simply need to multiply each floor size by its corresponding rent and sum up everything in the end.

Continue reading The benefits of SUMPRODUCT?

London: Density vs. Price, Challenges & Opportunities

By Victor Alarsa (valarsa@cambridgerefinance.com)
& Maria Wiedner (mwiedner@cambridgerefinance.com)

We are living in the age of the City. Larger and denser cities are likelier to be more innovative and generate more wealth. For instance, as the population of a city increases by 100%, its residents get 115% more innovative, productive and hence 15% wealthier1. This attracts more people, which, in turn, makes the city larger, denser, more innovative, wealthier. This cycle continues up until a point when pollution, house unaffordability, traffic and crime outweigh the benefits of agglomeration, i.e. when a city becomes too large for its own sake.

Density in general is massively beneficial, for example in 2015, London represented 14% of the UK population but was responsible for 23% of its GDP. However, the virtuous cycle of agglomeration needs to be accompanied by a housing expansion, which many cities struggle with. In London, finding housing accommodation is a challenge; land is scarce and restrictions in planning permission deter new constructions. Demand, on the other hand, is further growing as people want to move to London where jobs are available and the clustering of people has made public goods such as entertainment, health and transport more accessible.

Continue reading London: Density vs. Price, Challenges & Opportunities

What is covenant strength and why does it matter?

By Cleo Folkes

As House of Fraser announced the closure of 31 stores earlier this month and Debenhams issued their third profit warnings in the year today, we hear that landlords worry about covenant strength. What is it exactly that they worry about?

In property you often hear the word covenant strength when people talk about a tenant or the quality of an investment property or real estate loan. When you Google the definition for covenant it will tell you it is “an agreement” or something you “agree by lease, deed, or other legal contract”. Thus, when people talk about covenant strength, they are talking about how secure the income is coming from a lease with a tenant. Continue reading What is covenant strength and why does it matter?