This RICS article first appeared on REACT News (04/12/23):
The international head of valuation at RICS, responds to criticism from CEO of Dashflow, arguing that the industry body’s new guidance on discounted cash flow valuation amounts to “sabotage” of the direction set in the RICS Investment Valuation Review, led by Peter Pereira-Gray.
The discounted cashflow (DCF) programme emerged from extensive industry collaboration and public consultation including clients as well as valuers. The consultation determined that a series of integrated measures would be the best way to effectively implement the RICS Investment Valuation Review recommendations. The results of these consultations are publicly available, contributing to the programme’s transparency.
As such, the recently published DCF Practice Information paper is only part of the jigsaw involved in implementing the recommendations. The DCF Practice Information is designed for a global remit and provides a diverse range of markets with technical insight. The Independent Review recommended that the valuation profession should incorporate the use of discounted cash flow as the principal model applied in preparing property investment valuations (recommendation 8i). This is not the same as mandating the use of DCF above the professional judgment of the valuer as required in both the Global Red Book and the International Valuation Standards.
RICS plans to continue developing the DCF hub and valuation upskilling programme throughout 2024, alongside a review of valuation methods in the Global Red Book standard. Integrating DCF into RICS valuation standards keeps the industry abreast of change and improves transparency. By incorporating traditional and modern methods, RICS aims to provide valuers with diverse tools, facilitating more robust and comprehensive valuation practices.
Nick Knight, head of UK valuation at CBRE, said: “RICS’ published practice information clarifies the relationship between implicit methods and growth-explicit DCF, including variations such as ‘short-cut DCF’. We encourage professionals to apply multiple valuation methods where suitable, fostering a comprehensive understanding of different analytical approaches.”
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The original Dashflow article first appeared on REACT News (28/11/23) and can be read here:
