The implementation of long-term prudent valuation models across the UK and Mainland Europe for financial regulation purposes (March 2023) Report




Short Paper

The IPF Research Programme jointly funded this research paper with the Property Research Trust. The paper builds on IPF research in 2020 (Long-term Value Methodologies in Commercial Real Estate Lending) and other research undertaken around the same time.

The overall aim of the research paper was to assess the practicality of implementing a long-term prudent value model as an alternative to the market valuation model for use within UK and European Commercial Real Estate lending markets. The approach was to:

  • Identify methodologies for the development of long-term valuation models and make recommendations for a preferred methodology.
  • Identify how that might be developed across individual countries within Europe and further develop previous findings on data requirements and availability.
  • Examine whether a common harmonised approach across individual countries within Europe is feasible and whether it needs to be applied at an individual property or market segment level.
  • Provide guidance to national professional valuer organisations on their role in supporting the development of a rational and deliverable long-term value methodology.  This may vary significantly for different national professional valuer organisations.

The findings are that the gains from disaggregation are relatively minor as different segments of real estate markets tend to behave similarly through time and are highly correlated.  But there is some variation between the capital value changes of different segments and the scale of the movements can also be very different.  However, it is still an encouraging preliminary finding as data availability in less mature markets tends to be sparse and aimed at the larger real estate market segments such as capital cities.