Why It Matters

Improving real estate valuation

For many investors, real estate valuations serve as an important guide when it comes to making decisions on investments in real estate investment trusts (Reits) and business trusts.

This is why, more broadly, having quality valuations is crucial to safeguarding investor interest and maintaining confidence in Singapore's Reit and business trust sector - one of the largest in Asia, and a significant part of investment portfolios.

The move last week by the Singapore Exchange (SGX) to team up with the Singapore Institute of Surveyors and Valuers to review valuation practices and the reporting carried out by real estate valuers used by listed issuers is a right step in this direction.

It follows a revolt by unit holders of Sabana Shari'ah Compliant Industrial Reit earlier this year who questioned the valuation reports made by three valuers for the Reit's proposed acquisition of a property at 47, Changi South Avenue 2. The three houses had come up with the same valuation for the property.

Mr Kevin Xayaraj, chief executive and executive director of the Reit's manager, has tendered his resignation, while the proposed deal has been terminated.

At the launch of the Governance Index for Trusts in June, Singapore Exchange Regulation chief executive Tan Boon Gin said that in order for the Reit and business trust market to really flourish, investors must have full confidence in the valuations of the underlying assets.

Singapore is recognised as a leading market for Reits and business trusts. The SGX lists 49 Reits and business trusts valued at around US$62 billion (S$85 billion). A valuation determines the market worth of a property. It may not be 100 per cent foolproof, but it will help investors to better understand what their investment choices entail.

Setting the effective disclosure requirements for such valuation reports would offer investors clarity and assurance, while making sure that Singapore remains attractive as an investment hub amid uncertainties in the global economic landscape.

A version of this article appeared in the print edition of The Straits Times on August 21, 2017, with the headline 'Improving real estate valuation'. Print Edition | Subscribe