VALUATION VARIANCE OF SINGAPORE REITS ACQUISITION PROPERTIES

Abstract

The valuation of any asset, not just property interests, involves the subjective opinion and judgments of the valuer in question. This is in addition to the multitude of external factors that may influence the final valuation figure. Although this inherent uncertainty is accepted by valuers, users of valuations, as well as the Courts, the valuation profession has still been subject to scrutiny. Valuation variance, defined as difference in opinions of value that two or more valuers may assign to the same property at any one point in time, is one of the issues scrutinized in relation to valuation, and is also the focus of this study. This dissertation examines the valuation variation of a sample of 277 pairs of valuations conducted for the purposes of acquisition and corporate financing of properties by Singapore REITs. The findings of the study are discussed in relation to the factors affecting valuation variance, as well as the eventual implications on valuation negligence. The first method of analysis is a simple assessment of valuation variance, comparing the difference between the valuations and the average of two valuations. This provides an uncomplicated basis of comparison by which the effects of property type, geography, and client is examined in greater detail. From this method, it is concluded that the average variance for all 277 pairs of valuations is 4.31%. Regression analysis is then conducted to provide a more robust statistical support for the findings in the first method. The R-squared variable obtained from the regression indicated a high level of correlation within property types and geographies while the standard deviation of logged residuals gave a deeper look into the distribution of variance. The results of the study indicate that variation in valuation is well within the acceptable margin proposed by the Courts, and have minimal potential of claims of negligence.