Valuation in Conditions of Crisis
Valuation is an important profession during periods of economic development; however, it also plays a decisive role during a crisis, when the market is less active and companies in difficulty are in need of consultancy.
Whereas during the expansion of the real estate market, consultants rushed to advise investors to buy because real estate prices rocketed, now, with an acute lack of transactions, it is difficult to estimate the value or its level of certainty regarding property. The result of this crisis is an extra pressure on the valuators as far as approaches and even standards are concerned.
The decreasing trend of the real estate market is noticeable both in the worsening of credit/bank loans conditions and in investors’ being cautious and pessimistic. Real estate property prices soared during the period 2004-2007 since the interval had a strong speculative nature at the time; prices are now subject to a dramatic decrease.
However, what we know for sure is that there is no reason for optimism, at least not on a short-term basis, as long as the country rating does not improve, the level of interest rates does not decrease, and no positive signals come from the financial centres that triggered the crisis.
We will want to forget 2009 as a nightmare for us all, including consultants, investors, and bankers. All of us will have to go through it and learn our lessons from this first great financial crisis present-day generations are facing.
The only reason for optimism is the fact that any crisis, no matter how serious it is or how difficult to forecast in terms of length, is followed by a recovery period. I would like to believe that, due to globalisation, this resurgence will be faster at other levels of the real estate market but will not take place sooner than 2010.
In the aftermath of this crisis, our world will look different; it will have a changed philosophy, regulations/ standards will play a different role and for at least a decade, we will deal with market regulations and a very different setting and evolution of values.
I hope that with hindsight after this crisis, we will all be wiser, consultants and investors as well as regulatory authorities.
Dr. ec. Adrian Crivii, MAA, FRICS