Long Term Sustainable Real Estate Appraisals/Valuations - How far have we got in the UK

In the aftermath of the global financial crisis, the role of real estate appraisals/valuations within secured lending has been increasingly scrutinised. Some countries were very slow to realise that processes within the real estate industry may have some part to play in trying to ensure that the GFC was not replicated in the future. For example, in the UK, real estate was quickly implicated as a major part of the problem but slow to be included within suggested solutions (Vickers, UK Independent Commission on Banking Chair, 2011).But during 2012/13 the UK central bank and the UK real estate industry started developing commercial property responses to the financial stability agenda. This resulted in a 2014 “Vision for Real Estate Finance in the UK” from the Property Debt Group of the Property Industry Alliance with visible support for the process by the Bank of England. One strand was directly aimed at property valuations underpinning secured lending decisions and subsequent work by this same group was published by the Investment Property Forum in 2017; allied with a further research agenda for 2018 (IPF/CREFC, 2017). At the same time the Bank of England commenced publication of a series of commercial property market valuation based indicators of over and under-pricing within their Financial Stability Report, commencing in December 2015).Market valuations have underpinned loan decisions in many countries and only in a few countries such as Germany has there been any substantial attempt to depart from this tried and trusted concept and basis of valuation. However, the secured lending valuation research agenda within the Vision paper, mimicked elsewhere in Europe and across the world, is investigating whether a long term, more sustainable valuation basis is conceptually and practically possible to either supplant or support the market valuation basis valuation. The latest UK research has identified a number of models and analysed how they might have fared in the past and whether they gave early warning indicators to the market and to regulators. This paper will summarize this research and the current research agenda.