The new European regulation introducing the concept of Sustainable Value (see below) for real estate in the context of bank financing has caused a stir among real estate appraisers.
For my part, I welcome this initiative. For several years now, I’ve been advocating a rethink of value, and the introduction of this concept, for the following reasons:
- 1. It has been scientifically established that standard practices for determining market value establish and perpetuate a disconnect between financial value and the market’s value judgement as to the quality of the underlying assets.
- 2. Prices are thus unable to direct capital flows towards investments that are collectively desired over the long term. This situation has become untenable for asset managers, who are now caught between profit maximization and the acceleration of ESG investments.
- 3. It is therefore imperative to introduce a new value that allows to value the long term, and to quantify the risks of capital loss linked to the short-termist biases of standard market value.
Today, RQR is the only independent platform able to offer tools for the objective determination of Market and Sustainable Values.
The value we determine is sustainable because:
- it is the result of a genuine sustainable development approach, integrating collective sustainable preferences with regard to Economic, Social and Environmental dimensions
- these sustainable preferences are chemically pure because they are scientifically revealed by surveys, outside any transactional context.
Key points of the new regulations:
- The aim is to strengthen banks’ capital requirements
- Implementation: January 1, 2025
- Market value as defined by the European Valuation Standards (EVS) will no longer be used for valuations in a banking context
- Introduces a new concept of value, which will have to be estimated using conservative assessment criteria
- The estimate will have to be adjusted to take account of the probability that the current market price may be significantly higher than what the sustainable value of the property would be until the loan matures
- The adjustment should be determined by an independent entity
