I think that it is fair to say the effect of the coronavirus worldwide is something that is unprecedented in our careers. I know that there are a few survivors of the “Spanish flu” of 1918/19 who are still alive but for most of us, this is beyond our own experiences of the financial and real estate markets.
Ironically, at the beginning of January, I was asked, together with many other market players and commentators, to give a forecast for the 2020 Real Estate Market for the website Property Solvers.
My thesis was that after a period of three years of Brexit uncertainty, that the markets were already reacting positively to the relative certainty now that Brexit had extensively, if not completely, been exercised. Indeed, the predictions and forecasts of the other authors mirrored, to varying degrees, my own conjectures; 2020 was going to be a positive year for the property market.
“What a difference a day makes” or rather a couple of months. Since the spread and impact of the coronavirus has subsumed the globe, our financial and real estate markets have changed beyond any recent recognition. Perhaps the only things that I said in my January article that stood the test of this short time was that “Businesses and Finance Markets do not like uncertainty” and “Move over Brexit, a new bigger uncertainty is on its way”. The second forecast could be seen to be apocryphal if I had been referring to the current pandemic but I wasn’t, I was referring to the impact of climate change which, as with all things non-Covid 19, is a challenge to wait for another day.
But I digress; the point of this article is to discuss the new and unprecedented uncertainty that is impacting real estate markets worldwide and, specifically, the impact of that uncertainty on the “Market Value” of property (and other assets).
Valuation is the process of estimating price in the market in the absence of an actual sale. The expertise of the property valuer is to take market evidence of previous similar sales, called comparables, and interpret these sale prices relative to the current market sentiment of possible or potential investors in that type of property.
You cannot value effectively with comparables alone and the adjustment of these historic sales by market sentiment is integral to the valuation process. So Market Value is an estimate of price; that is to say at what figure, in today’s market, will the seller “sell” and the buyer “buy”.
Even in a market with lots of transactional evidence and lots of “chatter” about investment sentiment, the estimated figure will have a degree of uncertainty. The Royal Institution of Chartered Surveyors (RICS) states within its Professional Standards: