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15. Investment property

The investment property can be specified as follows:

 

2022

2021

Investment property as at 1 January

9,540

8,213

Capital expenditure on property

64

82

Transfer from property under construction

75

149

Property sales

(47)

(99)

Right of use assets (land leases)

3

(10)

Revaluation

(187)

1,205

Investment property as at 31 December

9,448

9,540

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:

 

2022

2021

Average

Sell

 

Hold

Sell

 

Hold

Discount rate (%)

5.8

 

4.9

5.2

 

4.8

Exit yield (%)

4.5

 

4.5

4.4

 

4.2

Rental growth (%)

2.4

 

2.3

2.2

 

2.1

Vacant value growth (%)

2.0

 

2.0

2.8

 

3.0

       

Sell

2022

2021

Region

primary

secondary

other

primary

secondary

other

Discount rate (%)

5.7

5.9

6.4

5.2

5.2

5.9

Exit yield (%)

4.5

5.0

5.2

4.3

4.8

4.8

Rental growth (%)

2.4

2.3

2.3

2.2

2.1

2.2

Vacant value growth (%)

2.1

1.9

2.0

2.8

2.6

2.8

       

Hold

2022

2021

Region

primary

secondary

other

primary

secondary

other

Discount rate (%)

4.9

5.1

5.5

4.8

5.1

5.3

Exit yield (%)

4.5

5.1

5.2

4.1

4.8

5.3

Rental growth (%)

2.3

2.2

2.3

2.2

2.1

2.1

Vacant value growth (%)

2.1

1.9

2.2

3.0

2.9

2.8

       

Sell

2022

2021

Rental segment

<763

763 - 1200

> 1200

<752

752 - 1,200

> 1,200

Discount rate (%)

5.4

5.8

5.7

5.1

5.2

5.2

Exit yield (%)

4.6

4.6

4.3

4.5

4.5

4.1

Rental growth (%)

2.3

2.4

2.4

2.1

2.2

2.2

Vacant value growth (%)

1.9

2.0

2.1

2.8

2.7

2.8

       

Hold

2022

2021

Rental segment

<763

763 - 1200

> 1200

<752

752 - 1,200

> 1,200

Discount rate (%)

5.0

4.9

4.9

4.3

4.9

4.8

Exit yield (%)

5.5

5.5

4.3

5.3

4.3

4.0

Rental growth (%)

2.3

2.3

2.5

2.1

2.2

2.2

Vacant value growth (%)

1.8

2.0

2.2

2.3

3.1

3.0

During the first half of 2022 the housing market was still strong and the market values increased mainly driven by vacant value development but during the second half of the year this trend changed.

Values dropped in the second half of 2022 mainly because of rising interest rates and uncertainty because of rent regulation (mid rent), high inflation, higher transfer tax and higher housing costs because of high energy prices.

In the last quarter of 2022 the appraisers (partly) applied the increase of the transfer tax from 8% to 10.4% as from January 1, 2023 in the valuations.

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 2021

   

Discount rate

9,921

9,397

8,856

Exit yield

10,108

9,397

8,890

Rental growth

9,133

9,397

9,664

Vacant value growth

9,168

9,397

9,625

    

As at 31 December 2022

   

Discount rate

9,827

9,302

8,762

Exit yield

9,996

9,302

8,798

Rental growth

9,013

9,302

9,594

Vacant value growth

9,083

9,302

9,522

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.

 

2022

2021

Investment property value

9,448

9,540

less Right of use

(146)

(143)

Valuation as per valuation report

9,302

9,397