VALUED INSIGHTS

Invaluable Valuation Knowledge for the Real Estate Stakeholder

SERIES:
Beyond Borders: A Global Perspective of International Real Estate Valuation
CHAPTER
  1. Navigating Cultural Differences in International Valuation Practices
    (Published: June 27, 2024)

  2. Comparing Valuation Standards Across Different Countries
    (Available: July 16, 2024)

  3. The Impact of Global Economic Trends on Property Valuations
    (Available: July 23, 2024)

  4. Legal and Regulatory Challenges in International Property Appraisals
    (Available: July 30, 2024)

  5. Best Practices for Cross-Border Collaboration in Valuation Advisory
    (Available: August 6, 2024)
  6. Adapting Valuation Approaches to Diverse International Markets
    (Available: August 13, 2024)

  7. Understanding the Influence of Political Stability on Property Values
    (Available: August 20, 2024)

  8. Valuation Challenges in Emerging Markets: Lessons Learned
    (Available: August 27, 2024)

  9. Applying International Valuation Standards (IVS) in Practice
    (Available: September 3, 2024)

  10. The Interplay Between Currency Exchange Rates and Property Valuations
    (Available: September 10, 2024)

  11. Commercial Property Valuation in Developed vs. Developing Nations
    (Available: September 17, 2024)
SERIES:
Beyond Borders: A Global Perspective of
International Real Estate Valuation
CHAPTER:

Valuation Challenges in Emerging Markets:
Lessons Learned

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Author: Bruce D. Greenberg, FRICS | MAI | SRA | ASA | ARM
Published: August 27, 2024

Conducting valuations in emerging markets presents unique challenges that require valuation professionals to adapt their methodologies and approaches. These challenges stem from factors such as limited data availability, macroeconomic volatility, regulatory uncertainties, and cultural nuances. By learning from past experiences and case studies, valuation professionals can better navigate these complexities and deliver more accurate and reliable valuations in emerging markets.

Limited Data Availability and Transparency

One of the primary challenges in emerging markets is the limited availability of reliable and transparent data. Financial reporting standards, corporate governance practices, and data disclosure requirements may not be as robust as in developed markets, making it difficult to access accurate and consistent information for valuation purposes[1][2].

Bruce D. Grennberg
FRICS | MAI | SRA | ASA | ARM
Managin Director | Principal
+1-480-440-2842 EXT 01

Lesson Learned: Valuation professionals must develop strategies to overcome data limitations, such as leveraging local expertise, conducting thorough due diligence, and triangulating information from multiple sources. Additionally, they should be prepared to make reasonable assumptions and adjustments to account for data gaps or inconsistencies.

Macroeconomic Volatility and Country Risk

Emerging markets are often characterized by higher levels of macroeconomic volatility, including fluctuations in currency exchange rates, inflation rates, and economic growth patterns. These factors can significantly impact cash flow projections and risk assessments, making it challenging to accurately forecast future performance[3][4].

Lesson Learned: Incorporating scenario analysis and sensitivity testing into valuation models can help account for potential macroeconomic shifts and country-specific risks. Valuation professionals should also consider adjusting discount rates or cash flow projections to reflect the heightened risk profiles of emerging markets.

Regulatory and Political Uncertainties

Emerging markets may experience frequent regulatory changes, political instability, or shifts in government policies that can directly impact business operations and valuations. These uncertainties can introduce additional risks and complexities into the valuation process[1][2].

Lesson Learned: Staying informed about regulatory developments, political landscapes, and potential policy shifts is crucial. Valuation professionals should incorporate scenario analysis to assess the potential impact of regulatory or political changes on valuations. Additionally, they should maintain flexibility in their valuation approaches to adapt to evolving circumstances.

Cultural Nuances and Local Market Dynamics

Emerging markets often have unique cultural nuances, business practices, and local market dynamics that can influence valuations. Understanding these nuances is essential for accurately interpreting data, assessing risks, and making appropriate assumptions[5].

Lesson Learned: Collaborating with local experts, industry professionals, and cultural advisors can provide invaluable insights into the local market dynamics and cultural nuances that may impact valuations. Valuation professionals should be open to adapting their approaches to align with local practices while maintaining professional standards.

Best Practices and Strategies

To navigate the challenges of valuing assets in emerging markets, valuation professionals should consider the following best practices and strategies:

  1. Develop robust data collection and validation processes, leveraging local expertise and triangulating information from multiple sources.
  2. Incorporate scenario analysis, sensitivity testing, and risk-adjusted discount rates to account for macroeconomic volatility and country-specific risks.
  3. Stay informed about regulatory developments, political landscapes, and potential policy shifts, and incorporate their potential impact into valuation models.
  4. Collaborate with local experts, industry professionals, and cultural advisors to gain insights into local market dynamics and cultural nuances.
  5. Maintain transparency and clearly communicate assumptions, limitations, and potential risks in valuation reports and client interactions.

Conclusion

By embracing these lessons learned and best practices, valuation professionals can navigate the complexities of emerging markets and deliver valuations that are accurate, reliable, and aligned with industry standards.

Sources:

[1] Gilbertson, B., & Preston, D. (2005). A vision for valuation. Journal of Property Investment & Finance, 23(4), 368-397.

[2] Mallinson, M., & French, N. (2000). Uncertainty in property valuation: The application of modern valuation techniques. Journal of Property Investment & Finance, 18(1), 13-26.

[3] Lorenz, D., & Lützkendorf, T. (2008). Sustainability in property valuation: Theory and practice. Journal of Property Investment & Finance, 26(6), 482-521.

[4] Amidu, A. R., & Aluko, B. T. (2007). Ethics and professionalism in the valuation practice: The Nigerian experience. International Journal of Strategic Property Management, 11(2), 85-98.

[5] Levy, D., & Schuck, E. (2005). The influence of clients on valuations: The clients’ perspective. Journal of Property Investment & Finance, 23(2), 182-201.

Citations:

[1] https://www.linkedin.com/advice/1/how-do-you-deal-lack-transparency-governance-some-emerging

[2] https://www.onetoonecf.com/valuing-companies-in-emerging-markets/

[3] https://www.hbs.edu/ris/Publication%20Files/
Valuation%20in%20Emerging%20Markets_e648e979-7deb-4611-8088-45093210b10e.pdf

[4] https://www.rvoicmai.in/e-book/emerging-markets-xywqpQX2rlkssk

[5] https://www.mckinsey.com/capabilities/strategy-and-corporate-finance/our-insights/dont-overthink-your-approach-to-valuation-in-emerging-markets