MODERN CONDITION: MARKET VALUE OR USER VALUE?

1. MODERN CONDITION: MARKET VALUE OR USER VALUE? Dr. Nikolai TRIFONOV, OM, BSV, FRICS, HonAAPOR, HonOKO, HonBSV Belarusian State University P.O.Box 11, 220029, Minsk, Belarus Tel.: +375 29 6776776, Tel./facs.: +375 17 3343608E-mail: guild@unibel.by

2. Table of Contents • Introduction • Market value • Complications in Application • User value • Algorithm of calculation Prof. Nikolai TRIFONOV ERES Conference 2010 in Milan

3. Introduction • First half of last century – traditional approaches to valuation • Last decade of the century – new essential features in emerging markets • From time of financial crisis – such features correspond to all markets Prof. Nikolai TRIFONOV ERES Conference 2010 in Milan

4. Market value Methodology of valuation most widespread now is based on concept of market value where a willing seller and a willing buyer decide to change a valuation subject for a calculated sum of money on the valuation date on the base of well-done marketing (IVS). Prof. Nikolai TRIFONOV ERES Conference 2010 in Milan

5. Market value (contd.) This is a conception of a value in exchange Based on the assumption of a stability of the market of a valuation subject (a real estate or a business). Prof. Nikolai TRIFONOV ERES Conference 2010 in Milan

6. Complications in Application Approximation of a market value looks strange for changing markets: • emerging markets with its non-transparency • all markets The stable markets exist only in imagination Prof. Nikolai TRIFONOV ERES Conference 2010 in Milan

7. Modern condition Prices are not established by what has gone before or even what exists now, but by buyers’ and sellers’ future needs and expectations. A willing seller and a willing buyer have typically ignored market value, but are interested in value in use. Prof. Nikolai TRIFONOV ERES Conference 2010 in Milan

8. Value in Use Value in use is a value of concrete property at concrete use for the concrete user (IVS). In book keeping a value in use is the value of calculated future cash flows discounted to a present situation which presumably will arise from continuation of use of an active and from its sale in the end of its term of useful services (IFRS 5, app. A). Prof. Nikolai TRIFONOV ERES Conference 2010 in Milan

9. User value Investor is not interested in value in current use, but value in the highest& best use. We have introduced this kind of value and name it the "user value". User value is a current value of the future incomes of valuation subject in highest& best use. Prof. Nikolai TRIFONOV ERES Conference 2010 in Milan

10. Algorithm of calculation • To define the highest&best use of a valuation subject. • To forecast the incomes of this use, including return of the capital by sale in the end of use. • To predict changes of capitalization rate in the market of valuation subject. • To discount future incomes to the valuation date. Prof. Nikolai TRIFONOV ERES Conference 2010 in Milan

11. Dr. Nikolai Trifonov Managing Director of the Council of Valuers’ Associations of the CIS Chairman of the Belarusian Society of Valuers Fellow of Royal Institution of Chartered Surveyors Honourary member of Associacao Portuguese de Avaliadores de Activos Fixos Honourary member of Assocation of Kyrgysian Appraisers Honourary member of Osteuropaeische Sachverstaendige Verein Order of Merit in Valuation (Russia) Prof. Nikolai TRIFONOV ERES Conference 2010 in Milan