Hugh Innes explores differences between Australian and UK Valuation processes
“Having recently joined the Terracotta team, following a relocation from the east coast of Australia, adjustments are aplenty, from colder weather and (arguably) far better pubs.”
Hugh Innes MRICS remarks on the transition and some key differences with RICS Valuations between the two countries. Hugh is a welcomed addition to our valuations team bringing with him a wealth of experience across various sectors and geographical territories!
“Professionally speaking, valuing commercial properties in the UK and Australia has many similarities. We share common law systems and international valuation standards, but there are key differences stemming from local market dynamics, legal frameworks, and industry norms. Here's a breakdown:
Here in the UK, valuations are typically guided by the RICS Valuation – Global Standards (commonly called the Red Book). There is a strong emphasis on lease structures under the UK legal system, often with upward-only rent reviews being a noticeable feature. Additionally, VAT considerations can apply depending on the property's use or status.
Whereas in Australia, valuations follow the standards set by the Australian Property Institute (API), and more particularly the API Valuation and Property Standards. There is different state-based stamp duty regimes and land tax systems that further impact valuation assessments. Back home, there is also a greater focus on capital gains tax implications for properties.
As mentioned, leases are far more prevalent in the UK, and their structures vary also. Compared to Australia, where a 3-year lease with further options to extend are commonplace. In the UK, leases tend to be long-term, often 10–25 years, with a strong tenant focus on security of tenure. Whilst rent reviews are fairly similar between the two countries, the UK will often have “upward only” rent reviews on a full repairing and insuring basis.
When undertaking a valuation and determining an approach, we are in general agreement. However, we have slightly different names for our methods of valuation. The investment method in the UK is closely related to the capitalisation approach in Australia. Although the investment approach here also can incorporate the use of a DCF. However, in Australia we refer to this approach as doing a Discounted Cash Flow Method. A DCF is not grouped in under the same banner as it is here with the investment method.
If a straight comparisons approach is undertaken, most commonly for houses and single residential properties, here in the UK it is called a Comparable Method, which is referred to as the Direct Comparison Approach in Australia. Your Residual Method is typically applied to properties with development potential. A valuation of this type of asset in Australia is assessed essentially the exact same. But it is called the Development Method, and also considers unique state-based planning laws and construction costs.
The differences in economies and overall land mass really dictate how each countries property market performs. The UK market is seen to be heavily influenced by international investment, especially in London. This, coupled with limited land availability, particularly in urban centers, creates strong demand and price pressures. Given the rich history of the country, understandably, there are stringent planning laws and heritage considerations that can impact development value.
Brisbane CBD, South-east Queensland, Australia
Australia, on the other hand, has a more decentralized market with major cities (e.g., Sydney, Melbourne, Brisbane, Perth) each having distinct dynamics. It is no secret that we have abundant land supply in regional areas, but fierce competition for prime city assets. Given the value and size of our resource sector, it is not uncommon for sector-specific valuation trends to pop up, particularly for industrial properties and rentals in isolated mining towns.
I am thoroughly enjoying the new landscape and understanding the many London property markets, and I look forward to increasing my knowledge here at Terracotta Property.”