At the end of 2018, a foreign investment company contacted Valrus to evaluate land plots of about 44 hectares in Kaliningrad acquired for the construction of a multifunctional shopping center. The valuation report was required to reflect the value of assets in the IFRS financial statements, and had to be prepared in English in accordance with International Valuation Standards and RICS Valuation Standards.
Initially, it was planned to build a large shopping center, an office building, a hotel and auxiliary infrastructure on the site. Since the acquisition of land plots, the market has changed significantly and the initial concept of the project has become irrelevant in the current conditions. The urban planning regulation of the development has also changed. The land mass consisted of several plots that fell into functional different building zones. As a result, the main part of the territory could be considered for integrated development within the framework of multi-storey housing construction, and the commercial function had to be reduced compared to the original one.
During the valuation, Valrus specialists carried out a comprehensive work, including an inspection of facilities, a study of competition in the retail segment, a study of the land market and the volume of housing construction. Since the valuation of a land plot without a detailed development project, in the absence of detailed schedules and construction costs, is associated with high errors, a comparative approach was used as the basic approach to valuation. However, the comparative approach has been seriously refined and combined with several other techniques..
If for land for the construction of shopping centers, the application of a comparative approach is possible even for fairly large plots, then with regard to land for multi-storey housing construction, only plots for point development are presented on the market, mainly with already agreed building parameters. Their comparison with a large area for complex development, within which there will be losses on driveways, social infrastructure, courtyards, and which will require investments in the creation of networks and communications, is impossible, and the application of amendments to the area from any collections will be unprofessional. In this regard, the valuation of this part of the land mass was carried out using the DCF method, which considered not the simultaneous receipt of income from the sale of land, but gradually in accordance with the market demand and market capacity.
The report reflected in detail our approach to the valuation, and was transmitted to the Client and the audit company represented by the foreign branch of one of the Big4 firms. The depth and quality of the study were valuated by the parties. During the completion of the work, we provided explanations and answers to the auditors' questions, which fully satisfied them. As a result, the project was successfully completed, the Client completed the preparation of financial statements in accordance with IFRS standards and repeated requests to Valrus for valuation services!