Friday 24 May 2019

Paul McNeive: 'Check everything - the new, old world of valuations'

The right moves

Paul McNeive
Paul McNeive

Paul McNeive

Valuation work has turned full-circle again, with valuers telling me that most fee income is arising from asset valuations for transaction purposes, rather than insolvency.

Not surprisingly, I'm told that the banks are focusing strongly on detail and in making sure due diligence is properly done. This, of course, is because of disastrously sloppy lending practises and short-cuts that flourished through the Celtic Tiger era, which ended up almost breaking the taxpayer.

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In many cases, the banks were procuring no independent valuation at all when lending. As one senior banker once told me: "We don't back the horse - we back the stable."

The result when the market collapsed was that banks found themselves repossessing properties on which they had little information, and title and planning flaws were common.

Solicitors, under pressure to get deals closed, had given undertakings that could not be complied with.

Property dealers, and those involved in agency, are now saying that the pendulum has swung back too far, and that it is taking an inordinate amount of time to get deals signed off.

Although, as one valuer said to me: "The banks are doing now what they should have always been doing."

The next biggest area of work, for the larger firms is the recovery in preparing valuations for property funds, which must be carried out on a quarterly basis. The third strongest area now appears to be valuations of portfolios of properties in loan book sales by the banks, which continue.

Valuers are on both sides of these deals - valuing for the bank or the purchaser. 'Sell-ons' of properties out of these loan books create more valuation work. As one valuer described it: "We value on a wholesale basis in the loan book, and then on a retail basis when the properties are being sold-on."

The huge growth in the private rented sector (PRS) is producing some big-ticket valuation work, either for the fund acquiring or for a bank if debt is being raised. There is still an amount of Nama-related valuation work going on, usually on the instructions of a receiver, but a fraction of what it has been over the last ten years.

A hobby horse of mine, for years, has been the ludicrous position that a bank lending money to buy a house must legally procure an independent valuation.

However, for a commercial property, costing hundreds of times more, they are not required to do so. Government should make it compulsory for a lender to secure a valuation to 'red book' standards for every commercial loan.

Meanwhile, with a new generation of staff lending for the banks, they'd be well advised to run a series of workshops on the pitfalls in property lending.

Chief among these pitfalls would be questioning the standard assumptions when it comes to a valuation; for example, that "the property has full planning permission and building control approval".

Well, does it? Changes of use, mezzanines and extra toilets are all easily missed. Another risky assumption is that "the site is fully serviced".

It may be surrounded by development, but if the local treatment plant is at capacity, you can't get planning permission. Check everything.

HHHHH

My thriller, 'The Manhattan Project', will be launched in Covent Garden, London, this evening, by the Chief Medical Officer for England, Professor Dame Sally Davies.

The Chief Medical Officer is a world authority on antibiotic resistant bacteria (AMR) and co-chairs the United Nations task force tackling the crisis. She is supporting the book as she believes that "it does a fantastic job of conveying the very real threat of AMR in a captivating way".

'The Manhattan Project' is about a terrorist attack on New York and the theme of antibiotic resistant infection was inspired by my own experience with this scourge.

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