The impact of Brexit on UK property valuations

Executive summary

On 28 June 2016, the RICS published an article entitled Valuation uncertainty post-referendum which addresses issues concerning property valuations following the vote for Brexit. While the RICS has made no amendments to the RICS Valuation - Professional Standards Global 2014 (popularly known as “the Red Book”) the article considers how best to manage current market uncertainties in the context of property valuations.

The article highlights that “valuations are an opinion based on the facts at the time, along with knowledge of the market”. As a result of the market uncertainty posed by the vote for Brexit, the RICS recognises the possibility that an opinion of value may struggle to correspond with achieved rents or completed sales as they emerge and are reported.

The rest of this article is a summary of what we believe to be the main issues raised by the article.

The Red Book

Paragraph 2.6 of the Red Book acknowledges that in times of market volatility, a reduced level of certainty may be a factor in asset valuation and accepts that it would be hard to make a firm judgment when “the reaction or future movement of the market is unknown”. In such an event, the provision suggests that each valuation should include a comment about current events, an explanation of current uncertainty and a discussion about the various possible outcomes.

Long-term uncertainty of Brexit

When addressing the long term uncertainty of Brexit, the RICS says: “As the process for exiting the EU is a long one, markets may remain uncertain for a protracted period of time, in which case valuers must continue to sound a cautionary note about the potential for longer term outcome uncertainty.”

The RICS suggests that following the vote for Brexit, valuation proposals and supporting documents should include a summary in similar terms to the following:

“Following the EU referendum held on 23 June 2016 concerning the UK’s membership of the EU, a decision was taken to exit. We are now in a period of uncertainty in relation to many factors that impact the property investment and letting markets. Since the Referendum date it has not been possible to gauge the effect of this decision by reference to transactions in the market place. The probability of our opinion of value exactly coinciding with the price achieved, were there to be a sale, has reduced. We would, therefore, recommend that the valuation is kept under regular review and that specific market advice is obtained should you wish to effect a disposal.”

Special assumptions

If any special assumptions about future scenarios or changes in the approach to valuation are agreed, they must be clearly documented in the terms of reference, report and supporting documentation. The article does, however, provide a word of caution regarding such special assumptions. They should, according to the RICS, be “realistic, valid and relevant to [the] instruction”.