UK/GLOBAL - The inconsistent valuation process is one of the main challenges facing the real estate industry at the moment, according to experts at the IPD/IPF Property investment Conference 2008 held in Brighton last week.
Ian Mason, head of UK property fund management at Schroders, referred to the valuation system as the "big elephant in the room," and suggested valuers were reluctant to take into account the increasing negative sentiment and preferred to assume all the transactions taking place were by foresellers, making the valuation process more inefficient and inconsistent for investors.
"The result has been that there is now a huge, great gap opened up between the indices and the peoples' perception of where the market is actually operating, to such an extent that many users of valuers - auditors as well as managers and investors - have actually lost confidence in the valuation process," said Mason.
He suggested the gap between the top and bottom valuation of properties over the three months was around 10% but insisted the word on the street was that it was more like 20%.
According to academics, valuers' different interpretations and how they turn these into numbers is one of the main issues influencing the depreciation of the office investment property in Europe.
Neil Crosby, professor of real estate at Reading University, said: "If there are different interpretations on rental values, there are different interpretations on the benchmark."
Some experts proposed suspending valuations could potentially help deal with the turbulent market.
"I'm not a valuation expert but it would seem to me that if the market didn't have such frequent valuations at this particular cycle there would be more breathing room to try and resolve some of the situations," said Ian Gleeson, chief investment officer of Global Multi Manager at CB Richard Ellis Investors.
That said, not everyone shared his view that suspending valuations would benefit investors and help lift the market.
Ian Cullen, co-founding director of IPD and head of systems and information standards, referred to the notion as "stupid" and "unreal".
"Is it widely wrong? Is that just complete rubbish? Is a comparison between transaction evidence and valuations irrelevant? I think not," said Cullen.
"Frankly transparency is essential in hard times. We do not ask valuers to stop. We ask them to do it better," he added.
Experts also argued there needs to be greater consistency across Europe, and Mason claimed there is the need for a "mechanism" where valuers could qualify their valuations and acknowledge that during times of extreme circumstances and rapid market movement their valuations may be unsuitable for certain purposes.