The European Central Bank’s latest Supervision Newsletter has issued a clear challenge to the commercial real estate community: we must ensure our valuations are rigorous, transparent, and aligned with the highest standards. This message resonates strongly with me and underscores the critical importance of our work at the International Valuation Standards Council (IVSC).
The ECB’s inspections have highlighted potential discrepancies between reported valuations for real estate assets by several Eurozone banks and the benchmarks set by the International Valuation Standards (IVS). This finding serves as a stark reminder that IVS, while widely recognised as global best practice, are not a panacea in themselves. Like a well-crafted tool left unused, these standards cannot promote confidence or deliver their full impact if they remain ‘on a shelf’. Their power to instil trust and ensure market stability is only realised through consistent, widespread adoption and rigorous application across all markets underpinned by well-qualified valuation professionals.
At the IVSC, we regularly interact with regulatory leaders who are showing increasing interest in valuation quality and consistency. Our recent discussions with the ECB on valuation challenges, coupled with initiatives from organisations like IOSCO to advance awareness of international standards among financial regulators, underscore the critical role that robust, consistent valuations play in maintaining financial stability.
Adopting global standards presents unique challenges, particularly in more developed markets with long-standing national codes and market-specific practices. However, the principles-based approach of IVS can enhance existing rules, bridging the gap between established practices and global standards.
Interestingly, we’re witnessing rapid uptake of IVS in regions such as Asia, the Americas, Africa, and the Middle East. Driven by a desire to enhance market transparency and attract global investment, these markets are positioning themselves as increasingly reliable destinations for international capital. This trend offers a distinct competitive advantage to those leveraging the transparency and international applicability of IVS, potentially reshaping global investment flows in their favour.
The strong support for IVS from Valuation Professional Organisations (VPOs) and other professional bodies globally is particularly encouraging and a cause for genuine optimism. The significant growth in VPO membership within the IVSC, as well as the Associate VPO community, demonstrates a shared commitment to advancing our profession and supporting global markets. The VPO leaders we speak to in emerging markets are particularly focused on adopting IVS and training their members, recognising it as a key strategy for professional advancement. This widespread engagement suggests that valuation practices are moving in the right direction, with a growing consensus around the importance of standardised, high-quality approaches.
This isn’t just a challenge for valuation practitioners and regulators. Through the IVSC’s Investor Forum, representing some $21 trillion in assets under management, we consistently hear from investors who seek valuations of comparable quality across different markets. Indeed this is an increasingly vocal criticism and frustration of the valuation community from international investors who need consistency across the valuation of all their assets under management. Their belief is that this is not quite there yet at an industry level and their choice of valuer will be dictated by those able to apply consistent methodology and approaches.
This demand further emphasises the need for IVS-compliant valuations that can be relied upon globally and the importance of high-quality local professionals who can provide these.
It’s crucial to note that adopting IVS ensures valuations incorporate and reflect the latest best practices and market dynamics. The upcoming edition, effective from January 2025, reinforces critical aspects such as ESG considerations, advanced technology use, and the importance of robust data and inputs.
This is not merely about compliance; it’s about leadership. The commercial real estate sector in Europe must rise to the challenge set out by the ECB.
The network of over 90 VPOs, comprising more than 200 members within the IVSC, plays a vital role in qualifying, monitoring, and often regulating valuation professionals to ensure competency in providing IVS-compliant valuations. It is imperative that those preparing, commissioning, or relying on valuations not only demand IVS-compliant work but also engage qualified professionals with the necessary skills to deliver it.
This is not merely about compliance; it’s about leadership. The commercial real estate sector in Europe must rise to the challenge set out by the ECB. By insisting on the highest standards and collaborating with certified professionals, we can enhance the credibility and reliability of valuations, fostering greater trust and stability in the market.
The path forward is clear. It’s time for us to collectively elevate our practices, embrace global standards, and demonstrate our commitment to excellence in valuation. The integrity of our industry and the stability of our financial markets depend on it.