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28 MAR 2022

Consideration of Material Valuation Uncertainty

UK residential ground rent investment assets

RICS has received insight from leading UK investment valuation stakeholders that material valuation uncertainty declarations are being considered and, in some cases, applied for a number of residential ground rent investment assets relating to buildings over 11m.

The decision to declare material valuation uncertainty is with the valuer. Judgements around market impacts are on an asset by asset basis and blanket assumptions and declarations should not be made.

The Building Safety Bill is currently working its way through UK Parliament and has created a significant amount of debate within and outside the house. Government have proposed a number of amendments to the draft bill. Though the result of the final bill is as yet unknown, potential market risks have been identified whereby freeholders of residential buildings over 11m in height may become liable for remediation costs at the second stage of the proposed ‘waterfall’ approach, after developers. These costs could potentially significantly impact value.

VPGA 10 of Global Red Book notes at 2.4 that unforeseen political events can form part of the criteria for material valuation uncertainty in addition to ‘inconsistent, or an absence of, empirical data, or to the valuer being faced with an unprecedented set of circumstances on which to base a judgment’. VPS 3 of Global Red Book requires valuers to expressly signal cases of material valuation uncertainty within valuation reporting.

RICS has published this article to raise awareness amongst valuers of concerns within the ground rent investment market and to promote a transparent and consistent approach in valuation reporting for the assets affected. Please contact standards@rics.org with any further queries.