Regulatory pressures for unlisted property funds in Europe to adopt Fair Value accounting are increasing. IFRS 9 and IFRS 13 are now effective, and will be mandatory in 2015 and 2012 respectively as progress is made towards the introduction of Solvency II.
The sector has traditionally used NAV as its valuation benchmark and great strides have been taken to try and harmonise accounting policies. Yet, as outlined below, NAV is seldom a good yardstick of Fair Value and, as funds come under increasing pressure to conform to best practise, this has potentially for reaching implications for the industry.
However, this is an issue that does not appear to have reached the consciousness of many in the sector and with time running out to address the issue, CBRE's Real Estate Finance team examines the effectiveness of NAV and how Fair Value might best be arrived at, if not by NAV.
Source : CBRE