One of the topics occupying many of our discussions at the moment is the issue of material uncertainty around property valuations and how long it should remain a concern.
Our teams are continuing to provide an opinion of Market Value, putting forward in tandem a clear statement as to Material Uncertainty (MU) resulting from current market conditions and the economic backdrop and in line with RICS requirements and its regularly updated advice.
Even before the COVID-19 pandemic, though, it was apparent that different sectors within the UK property market did not perform or move in unison.
The retail sector is an obvious example. As far back as 2018 the RICS issued alerts about structural change but even then the valuation market as a whole, did not react quickly enough and was perceived to be out of step with market sentiment.
Roll forward to the present day, with all the UK's property sectors now facing significant uncertainty.
Transactions have continued since the Government lockdown on 23 March 2020, although many of these transactions were in train prior to that date.
Although new properties coming to the market are few and far between, we support the RICS that even in these challenging times, some sectors continue to offer opportunities despite the 2020 economic shock and should not be subject to a blanket Material Uncertainty provision within valuation reports. Long dated annuity income with at least 20-years unexpired term certain with a secure covenant such as government or very strong investment grade would be a clear example.
Other sectors however, will remain uncertain, particularly if the continuing lockdown results in a recessionary environment becoming more prevalent, extending the period before new transactions are brought to market.
We therefore expect that Material Uncertainty clauses will be released on a phased basis reflecting the characteristics of individual sectors.
The RICS Material Uncertainty Leaders Forum, of which Montagu Evans is part, will continue to review the wider property market on a weekly basis. As of today, the consensus of the forum is that reporting material valuation uncertainty may no longer be appropriate for a number of groups.
Even then, however, it is the responsibility of the valuer to ensure the actual property being valued falls within these specific sectors to be comfortable that they can lift any such clause within their report.
As always, valuer judgement is paramount, and in our view, unless the valuer is absolutely clear that they have a defensible position, they should not succumb to pressures to follow the herd. Even if it might feel otherwise in the moment, bringing independence, integrity and a strong sector specific knowledge into the valuation process is the best way to inform and serve clients long-term.
As with all valuation, the judgment and expertise of the valuer, backed by evidence, is paramount. Valuer discretion should again remain in all cases and if it is felt that any investment in the valuer’s opinion remains materially uncertain, the clause should remain in place.