Are property valuations too conservative?

A BIG winner from the sale of the strata-held freehold Tanglin Shopping Centre for S$868 million that was announced early this year is City Developments (CDL), which owns 34.6 per cent of the share value and 60.2 per cent of the strata area of the property.  CDL expects to book a significant gain from this sale of strata units, which the group held for investment since 1981.

Unlike many listed property groups, CDL holds its investment properties at cost less depreciation instead of mark-to-market valuation.  CDL’s net asset value per share of S$9.28 as at end-Dec 2021 would be 69 per cent higher at S$15.70 if fair value gains on investment properties had been factored in.

Perhaps it is unsurprising that CDL will book a large gain on selling a property that is held at cost.  What is surprising is that groups, which hold their properties at valuations provided by independent valuers, report healthy gains when selling their properties.