The accuracy of valuation reports is critical to ensure the real estate market’s stability and protect investors’ rights. To enhance confidence in these reports, the Authority has required that valuation reports for real estate associated with the Saudi Investment Fund Investment Trusts be transparent and objective.
The Authority has outlined a set of standards and procedures that valuers must follow to ensure the quality of these reports and to ensure that investors receive accurate information to help them make informed investment decisions.
What are investment funds?
Investment funds collect money from multiple investors to purchase various assets, including stocks, bonds, and real estate. A professional investment manager oversees these funds, making investment decisions to achieve strong financial returns based on the fund’s strategy and objectives.
Real Estate Investment Trusts (REITs) are funds that invest in real estate assets and offer investors the opportunity to invest in real estate without having to own it directly. REIT investors trade shares on stock exchanges, ensuring high liquidity and allowing retail investors to enter the real estate market.
About the Saudi Investment Fund
The Saudi Investment Fund was initiated as part of the Kingdom’s Vision 2030, an ambitious plan to diversify the economy and reduce dependence on petroleum. The fund seeks to achieve this goal by investing in promising real estate projects, spread across major cities and emerging regions of the Kingdom.
Properties are valued to determine the market value of the properties based on several factors including location, condition of the property, and market trends. This valuation is essential for the Saudi Investment Fund to identify the most viable investments and ensure returns.
The relationship between valuation and the Saudi Investment Fund.
The REITs’ strategy is based on selecting real estate that shows high growth potential. This is done through a rigorous valuation process that takes into account economic, social, and environmental factors. This strategy contributes to enhancing the value of the real estate market by developing projects that enhance infrastructure and create new job opportunities.
Key factors in the valuation of real estate associated with the Fund.
- Location: Strategic locations play an important role in determining the value of real estate. The Fund targets areas with opportunities for economic growth and urban development, such as Riyadh, Jeddah, and Dammam.
- Market trends: Current trends in the real estate market include the growing demand for residential and commercial real estate, especially in light of population and economic growth. These trends contribute to increasing the value and attractiveness of real estate for investment.
- Economic indicators: Economic indicators such as economic growth, inflation, and unemployment directly affect the value of real estate. These indicators are carefully assessed to ensure successful and sustainable investments. Despite successes, the Fund faces challenges in valuing certain real estate, especially in emerging regions that lack well-developed infrastructure.
The government is addressing these challenges by optimizing infrastructure and ensuring the availability of basic services to attract investors. The real estate market is expected to maintain positive trends, driven by increased demand for residential and commercial projects. The Saudi Investment Fund seeks to capitalize on these opportunities through strategic investments in high-growth areas.
Valuation of real estate associated with the Saudi Investment Fund
An accurate valuation is based on valid and documented data. Data validation, which requires meticulous accuracy, is the first step towards an honest and fair valuation report. A certified real estate valuer not only prepares the report but also verifies the validity of the data on which it is based.
The investment fund manager is responsible for providing the valuer with all the necessary information about the real estate, and the valuer must ensure the reliability of this information. If there are any gaps in the data, the valuer must inform the fund manager and take suitable action, whether it is supplementing the data from other sources or apologizing for preparing the report.
The evaluation criteria set out a set of conditions that must be met for the information used in the evaluation, the most important of which are: The information must be relevant to the purpose of the evaluation, reliable and derived from expert sources, and independent of any party with an interest in the outcome of the evaluation.
Compliance with other legislative requirements is not a conflict with the International Valuation Standards. If legal or regulatory requirements differ from the Standards, the valuer must comply with the legal requirements, which ensures compliance with the International Valuation Standards.
The requirement of the REIT Regulation is that when valuing a real estate property, it is necessary to analyze market supply and demand and measure risk. Therefore, while adhering to the International Valuation Standards, the certified valuer must research and verify the required data, provide analyses of market supply and demand, quantitatively and qualitatively analyze risks, and explain the impact on the value of the property in the report.
Conclusion
Real estate valuation in the context of investment funds is somewhat different from valuing property for individuals. Ensuring the protection of investors’ interests requires greater accuracy and reliance on specific criteria.