Annual Report 2016
153
Financial Section
16 Investment Properties
(continued)
Valuation processes of the Group
The Group measures its investment properties at fair value. The investment properties were revalued by Jones Lang LaSalle
Corporate Appraisal and Advisory Limited, BMI Appraisals Limited, Savills Valuation and Professional Services Limited, and
Knight Frank Petty Limited, independent qualified valuers, who hold recognised relevant professional qualification and have
recent experience in the locations and segments of the investment properties valued, at 30 June 2016 on an open market
value basis. For all investment properties, their current use equates to the highest and best use.
The Group’s finance department includes a team that reviews the valuation performed by the independent valuers for
financial reporting purposes. This team reports directly to the senior management and the Audit Committee. Discussions of
valuation processes and results are held between the management and valuers at least once every six months, in line with
the Group’s interim and annual reporting dates.
At each financial year end, the finance department verifies all major inputs to the independent valuation report; assesses
property valuation movements when compared to the prior year valuation report; and holds discussions with the
independent valuers.
Valuation techniques
Fair value of completed commercial, residential properties and carparks in Hong Kong and Mainland China is generally
derived using the income capitalisation method and wherever appropriate, by direct comparison method. Income
capitalisation method is based on capitalisation of the net income and reversionary income potential by adopting
appropriate capitalisation rates, which are derived from analysis of sale transactions and valuers’ interpretation of prevailing
investor requirements or expectations. The prevailing market rents adopted in the valuation have reference to recent
lettings, within the subject properties and other comparable properties.
Direct comparison method is based on comparing the property to be valued directly with other comparable properties,
which have recently transacted. However, given the heterogeneous nature of real estate properties, appropriate
adjustments are usually required to allow for any qualitative differences that may affect the price likely to be achieved by
the property under consideration.
Fair value of commercial properties, residential properties and carpark under development is generally derived using the
residual method. This valuation method is essentially a means of valuing the completed properties by reference to its
development potential by deducting development costs together with developer’s profit and risk from the estimated capital
value of the proposed development assuming completed as at the date of valuation.
As at 30 June 2016 and 2015, all investment properties are included in level 3 in the fair value hierarchy.
There were no changes to the valuation techniques during the year and there were no transfers among the fair value
hierarchy during the year.
