VVO Group plc
Value development of investment property results from investments, changes in market prices and parameters used in valuation as well as from expiry of restrictions on some properties.
Some of the investment property is subject to legislative divestment and usage restrictions. The so-called non-profit restrictions apply to the owning company, and the so-called property-specific restrictions apply to the investment owned. The non-profit restrictions include, among other things, permanent limitations on the company’s operations, distribution of profit, lending and provision of collateral, and the divestment of investments. The property-specific restrictions include the use of apartments, the selection of residents, the setting of rent and divestment of apartments, and they are fixed-term.
Fair value measurement of investment property is based on an internal estimation process carried out quarterly. An external expert issues a statement on the applicability of the valuation methods as well as on the quality and reliability used in valuation of rental apartments and business premises in the rental apartment buildings. Latest statement is given of situation at 31 March 2015.
Investment property is measured initially at its cost, including related transaction costs. Subsequently it is carried at fair value, and resulting gains and losses arising from changes in fair values are recognized in profit or loss as they arise. Fair value refers to the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The fair value of investment property determined by VVO Group is based on: transaction value, income value and acquisition value.
Properties of which apartments can be sold by VVO Group without restrictions, are measured using transaction value. The value as of the measurement date is based on actual sales prices of comparable apartments for the two preceding years. The source of market data applied by VVO Group is price tracking service provided by The Central Federation of Finnish Real Estate Agencies (KVKL), including pricing information on sales of individual apartments in Finland provided by real estate agents. The resulting transaction value is individually adjusted based on the condition, location, and other characteristics of the rental property.
Yield value is applied, when a property is required to be kept in rental use based on state-subsidised loans (so-called ARAVA loans) or interest subsidy loans, and it can be sold just as an entire property and to a restricted group of buyers. Yield value is determined by capitalising net rental income, using property-specific required rate of net rental return. The method also considers the impact of future renovations and the present value of any interest subsidies.
VVO Group estimates that cost of properties under construction, interest subsidised (long-term) rental properties and state-subsidised rental properties (so-called ARAVA properties) approximate their fair values. State-subsidised and interest subsidised (long-term) rental properties are carried at historical cos, deducted by the depreciation accumulated up to the IFRS transition date and any impairment losses.