6th January 2020 by Mark Aldis
Council Asset Valuations – Key Issues In The Year Ahead
Author – Guy Harbord
The valuation of public-owned UK property is complex with ongoing legislative and case-law updates, economic and political drivers, alongside an increasingly rigorous audit process. Not to mention the plethora of different asset valuation methodologies which apply depending on the classification of a property.
With this in mind, we look at the key issues Councils need to be aware of and that will impact valuations on property assets in the year ahead.
Brexit uncertainty has got to be top of the list. It has been a challenging year for businesses awaiting the outcome of talks and negotiations and there are some far reaching implications for the property market which Councils should be aware of. With the current state of confusion investors are less willing to proceed with purchasing assets as in previous years and we are witnessing less demand from overseas investment as decisions are put on hold awaiting a solid outcome. This is also coupled with increasing building and construction material costs, particularly those supplies which are imported. The cost of new builds and new projects are being driven up, something worth thinking about for Councils currently looking to invest in new build projects.
More Audit Scrutiny
Management of asset valuations has been further complicated following the removal of the Audit Commission leaving private sector accountancy firms stepping in to conduct audits. With this move has come closer scrutiny, as these firms have reputations to protect, coupled with more time and resource to invest in rigorously reviewing valuations to ensure they provide a true and accurate account.
In the past Councils were rarely queried on the valuations included within their financial returns but now every minute detail is considered, particularly following some recent high-profile financial issues reported by a handful of Authorities.
Change in council asset valuation practices and methodologies
The valuation process for Local Government assets and HRA stock valuations is complicated, ever changing and involves referring to several different sources throughout the entire process.
For council asset valuations the relevant Statements of recommended practice (SORPS) are the ‘Code of Practice on Local Authority Accounting, 2019/20’ (The Code), which is issued by CIPFA and is updated annually. Similarly, the Code is based on International Financial Reporting Standards (IFRS) with specific adaptation and interpretation for the public sector.
There are many moving parts and more recently the International Financial Reporting Standards (IFRS) originally adopted in 2010 (IFRS) were amended to include IFRS 13 for public sector accounting purposes (wef 2015). For the 2020/21 financial period IFRS 16 will also be included and there will be additional work for public sector clients during the 2019/20 process to ensure that this additional standard is reflected effectively.
Increase in council asset disposal
Following new legislation introduced in April 2016, which allows Councils to use proceeds raised from selling land and buildings they own to fund frontline services, there has been an increase in divestments of Local Authority property. According to a Local Government Lawyer article last year, more than 4,000 public buildings in England are being sold off to developers annually.
More partnerships have also been put in place with Private sector organisations as Councils realise that land assets can be enhanced prior to disposal through granting planning permissions, providing infrastructure and carrying out detailed site investigations to assist with future developments. We are effectively seeing the emergence of more commercially minded Councils who are focusing on innovative ways to drive up the value of assets and generate new revenue streams from these assets.
Regeneration and growth
Over the last few years there has been a significant increase in Local Authority staff given a remit focused around inward investment, commercial and business development, regeneration and growth. A key part of this involves reviewing existing assets and identifying assets which would be a valuable addition to the portfolio. This has been made possible through the low interest rates and loans provided by the Public Works Loan Board (PWLB), with no limits on how much a council may borrow, although this may all be about to change with the announcement of a recent rates hike.
We are starting to see instances of council chambers and properties being hired out privately for corporate events to generate additional revenue. Similarly, Councils are investing more in local business to support economic growth acquiring shopping centres, large superstores, gyms, farmland, business parks and more to protect jobs and regenerate town centres.
Asset valuations of public owned property continues to be a cumbersome and complex process. It’s imperative for Local Authorities to work with a team experienced in IFRS code requirements whom have a professional knowledge of CIPFA and RICS Asset Valuation who can give in-depth ‘under the skin’ advice for asset management planning purposes.
If you want to find out more about the asset valuation services provided by Wilks Head and Eve you can check out our last blog which defines 5 areas you should look for when appointing a supplier in this area, alternately contact Guy Harbord on firstname.lastname@example.org or call 020 7637 8471.