2.4 Investment property under construction

Investment property under construction for future use as investment property is stated at fair value. 

In line with the valuation procedure, valuations are performed as of the financial position date by external professional valuation experts using the special assumption ‘as-if completed’. This assumes that on the valuation date the project has been developed, delivered and leased. The ‘as-if completed’ valuation from the external appraiser serves as an input value to arrive at the valuation for investment property under construction. The external valuation ‘as-if completed’ is subsequently discounted from the expected completion date to the valuation date. This is also done for the remaining development costs to complete the project.

Fair value measurement on investment property under construction is only applied if the fair value is considered to be reliably measurable. If the Fund determines that the fair value of an investment property under construction is not reliably determinable when construction is incomplete, it shall measure that investment under construction at cost until either its fair value becomes reliably determinable or construction is completed.

It may sometimes be difficult to determine the fair value of the investment property under construction reliably. In order to evaluate whether the fair value of an investment under construction can be determined reliably, management considers, among other things, the following factors:

• The provisions of the construction contract

• The stage of completion

• Project/ property characteristics: standard (typical for the market) or non-standard

• The level of reliability of cash inflows after completion

• The development risk specific to the property

• Past experience with similar construction projects

• Pre-let percentage

• Status of construction permits

After the first instalment for the project under construction, an external valuation expert values the project each quarter. Gains and losses arising from changes in fair values are included in the statement of comprehensive income in the year in which they arise.