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14. Investment property

The investment property can be specified as follows:

 

2020

2019

Investment property as at 1 January

7,818

7,024

Acquisitions

-

-

Capital expenditure on property

41

44

Transfer from property under construction

116

246

Property sales

(61)

(240)

Right of use assets (land leases)

26

127

Revaluation

273

617

Investment property as at 31 December

8,213

7,818

The fair value of completed investment property has been determined on a market value basis, in accordance with International Valuation Standards (IVS), as set out by the International Valuation Standards Council (IVSC).

The valuation is prepared on an aggregated ungeared basis. As set out in Note 3, in arriving at their estimates of market values, the valuation experts have used their market knowledge and professional judgement rather than relying exclusively on comparable historical transaction data.

The valuations were performed by accredited external independent real estate valuation experts with a recognised and relevant professional qualification and with recent experience in the location and category of the investment property being appraised.

The fair value of the assets is driven by the net cash flows generated by the assets, which are taken into account by the market, in combination with the discount rate development. The generated cash flow is the net rental income plus the net sales proceeds from the sale of individual units.

The following main inputs have been used in the valuation of the investment property:

 

2020

2019

Average

Sell

 

Hold

Sell

 

Hold

Discount rate (%)

5.4

 

5.1

5.8

 

5.5

Exit yield (%)

5.1

 

5.0

4.9

 

5.0

Rental growth (%)

2.1

 

2.1

2.1

 

2.3

Vacant value growth (%)

2.3

 

2.2

2.7

 

2.6

       

Sell

2020

2019

Region

primary

secondary

other

primary

secondary

other

Discount rate (%)

5.3

5.7

6.4

5.8

6.0

6.1

Exit yield (%)

5.0

5.8

7.1

4.9

5.6

6.9

Rental growth (%)

2.1

2.0

2.1

2.2

2.0

1.9

Vacant value growth (%)

2.2

2.0

2.3

2.7

2.3

2.0

       

Hold

2020

2019

Region

primary

secondary

other

primary

secondary

other

Discount rate (%)

5.0

5.6

6.0

5.4

6.0

6.2

Exit yield (%)

4.8

6.1

6.2

4.8

6.5

6.3

Rental growth (%)

2.1

2.0

2.2

2.3

2.0

2.1

Vacant value growth (%)

2.2

2.0

2.3

2.7

2.3

2.4

       

Sell

2020

2019

Rental segment

<737

737 - 1,200

> 1,200

<720

720 - 1,200

> 1,200

Discount rate (%)

5.7

5.5

5.2

6.1

5.8

5.7

Exit yield (%)

5.5

5.3

4.7

5.3

5.1

4.5

Rental growth (%)

2.1

2.1

2.1

2.2

2.1

2.2

Vacant value growth (%)

2.4

2.3

1.9

2.7

2.6

2.8

       

Hold

2020

2019

Rental segment

<737

737 - 1,200

> 1,200

<720

720 - 1,200

> 1,200

Discount rate (%)

5.2

5.0

5.1

5.8

5.5

5.3

Exit yield (%)

5.3

4.9

4.8

5.9

5.0

4.7

Rental growth (%)

2.1

2.1

2.2

2.1

2.3

2.3

Vacant value growth (%)

2.3

2.2

2.3

2.6

2.7

2.5

In cases where the discount rate is higher than the exit yield can be explained by the current market in view of increasing prices and decreasing yields for residential complexes. The opposite situation (discount rate < exit yield) in the segment “Other” is caused by the higher investment risk related to this type of real estate (less value-fixed real estate (example: residential complexes in the higher rental segment) is more sensitive to market forces).

These inputs are considered to be the most important drivers in the valuation of investment property.

In the last quarter of 2020 the appraisers have (partly) implemented the increase in the transfer tax from 2% to 8% as from January 1, 2021 in the valuations. In general they applied the current percentage of 2% for transfer tax in the appraisals because the new transfer tax only takes effect after the valuation date of 31 December 2020. But they applied the 8% to determine the value at the end of the consideration period

External independent real estate valuation experts determine the fair values using discounted cash flow models with a 10-year period. When calculating the present values, the valuation experts use discount rates in the DCF models to account for the time value of money and reflect the inherent risk with regard to the cash flows in the model. Exit yields are indicators used to determine the exit values that can be achieved at the end of the DCF lifetime. Rental growth is the average rental growth in the 10-year period of the discounted cash flow model. Vacant value growth is the average vacant value growth in the 10-year period that is assumed in the cash flow model.

Sensitivity analysis

The table below presents the sensitivity of the valuation to changes in the significant parameters driving the underlying valuation of investment property. The analysis was carried on the investment property value excluding the value of the right of use asset (land leases).

 

-100 bps

Fair value 

+100 bps

As at 31 December 2019

   

Discount rate

8,136

7,691

7,231

Exit yield

8,269

7,691

7,252

Rental growth

7,431

7,691

7,950

Vacant value growth

7,535

7,691

7,848

    

As at 31 December 2020

   

Discount rate

8,535

8,060

7,570

Exit yield

8,668

8,060

7,595

Rental growth

7,779

8,060

8,341

Vacant value growth

7,901

8,060

8,222

Right of use assets

Under the investment property the right of use of land leases are included as an integral part of the investment property value.

To reconcile the by external independent real estate valuation experts appraised investment property, the value of the investment property value presented should be adjusted by the land lease right of use.

 

2020

Investment property value

8,213

less Right of use

(153)

Valuation as per valuation report

8,060