Valuation is an integral part of market transactions and it ensures that all stakeholders have an informed knowledge of the asset.
Broadly, valuation estimates the economic worth or market value of the asset or business for a variety of reasons. Determining the value of an asset or a company is a complex process which involves less guesswork and a lot more legwork – and that is why appraisals are done by qualified and experienced professionals.
Stella Seow, Executive Director of Advisory and Valuation Services at Colliers International, says, “The objective of valuation is to obtain an independent and professional opinion of an asset’s value at a certain point of time. Valuation is an integral part of market transactions and it ensures that all stakeholders have an informed knowledge of the asset.”
When do you need valuation?
Valuations are required for a myriad of occasions. Some of the typical situations would include:
- Buying and selling of assets
- Liquidation and distress sales
- Obtaining bank financing or raising equity
- Mergers and acquisition
- Dispute resolution and litigation
- Listing and de-listing
- Financial reporting
- Rental assessment
- Property tax and land premium evaluation
- Marital separation
- Compensation for loss of earnings and impairment in value
- Compulsory acquisition
Colliers’ team of experienced valuers in Singapore and across Asia appraises a wide range of assets, from artefacts to commercial office and retail malls, residential to casinos, hotels and theme parks. This is based on a clientele that are typically high net-worth individuals, real estate investment trusts (REITs), developers, institutional investors, corporates, tenants and occupiers, home owners, financial institutions and government agencies.
"Knowing the fair market value of assets – be it land and buildings, plant and machinery, plantations, factories etc – will facilitate effective asset management, transaction negotiation and guide investment and/or disposal decisions in achieving optimal outcomes."
Ms. Seow adds, “Valuation requires very specialised skills. A valuer also needs to be observant, be a good listener, have the ability to communicate with diverse groups of stakeholders, analytical thinking and the resourcefulness to be able to obtain a wide variety of information and data that are so important in what we do. In addition, every valuation poses different challenges because you are dealing with different assets. Simply put, valuers must be versatile.”
Value add considerations?
A valuer can typically use one of three approaches to appraise the value of an asset: Comparison method, income approach, and cost analysis.
The choice will ultimately be down to what is the most appropriate to that asset. In the course of their work, the valuers would take into account factors such a location, condition of the property and land size.
Colliers Review asks the firm’s valuers to list the top four factors that would impact an asset’s value:
General location: As the saying goes, location, location, location. This is true for any real estate, be it land plot, residential units, retail malls, or industrial and commercial properties. A property that is well-served by public transportation or located near amenities would typically have a higher value than one that is in a secluded area away from the city centre and in many instances, this is a key difference in being a primary or secondary asset in terms of desirability.
- Land Tenure: Properties can have different land tenures, most typical of which is freehold and leasehold. Tenure, for example, could range from 99 years, 999 years to freehold for residential properties, or shorter lease terms of 30 years for industrial land. Local ownership laws would also have an impact on value. For example, properties in Singapore that are not freehold (i.e. leasehold tenures) will revert to the state upon lease expiry.
- Land zoning: Land zoning, which is usually determined by the city's urban planning authority, will affect valuations. In Singapore, a site that is zoned commercial – where a high-rise office tower can be built – will naturally command a higher value than a plot zoned for parks and green spaces.
- Age and condition of the property: The age, condition of the building and its physical attributes are also important. A well-maintained property would probably retain value a lot better than a comparable one – of the same age – that is rundown and poorly kept.
Apart from those key factors, the valuation could also be influenced by the overall market conditions within which the property sits and the stage of the investment cycle at the time of the valuation.
“There is no one-size-fits-all approach to valuation. It is a highly customised process depending on the asset being valued and its particular attributes. One thing that is crucial in all valuation projects is robust market data and information. However, some assets are rarely traded in the market and the absence of comparable transaction data can make valuations challenging. These assets include nursing homes, places of worship, golf courses, schools and casinos,” Ms. Seow notes. This is when specialists show their true worth.
"There is no one-size-fits-all approach to valuation. It is a highly customised process depending on the asset being valued and its particular attributes. One thing that is crucial in all valuation projects is robust market data and information."
Generally, valuation can be carried out anytime, as and when it is needed. However, under listing rules, listed companies and REITs are required to provide updated value of their assets in their respective annual report to keep shareholders informed.
Having a good grasp of a company or asset’s value is a key plank in any strategic business review and will enable decision makers to better navigate the constantly shifting sands of the real estate investment cycle.
Check in with Colliers today to find out more about our valuation services.
Contact our Colliers Editorial team here.