5 INVESTMENT PROPERTIES
(continued)
Fair value hierarchy
The fair value of investment properties is determined by external, independent property valuers,
having appropriate recognised professional qualifications and recent experience in the location
and category of property being valued.
The fair value measurement for investment properties of $7,510,000,000 (2013: $7,276,000,000)
has been categorised as level 3 fair values based on inputs to the valuation techniques used.
Level 3 fair values
The investment properties are classified in level 3 of the fair value of the hierarchy.
Reconciliations from the beginning balances to the ending balances for fair value measurements
in level 3 of the fair value hierarchy are set out in the table above.
Valuation technique
Investment properties are stated at fair value based on valuations performed by independent
professional valuers. In determining the fair value, the valuations are prepared by considering
the estimated rental value of the property by applying i.e. the capitalisation method and
discounted cashflow method.
The capitalisation approach is an investment approach whereby the estimated gross passing
income (on both a passing and market rent basis) is adjusted to reflect anticipated operating
costs to produce a net income on a fully leased basis. The adopted fully leased net income is
capitalised over the remaining term of the lease from the valuation date at an appropriate
investment yield. The discounted cash flow method involves the estimation and projection of a
net income stream over a period and discounting the net income stream with an internal rate of
return to arrive at the market value. The discounted cash flow method requires the valuer to
assume a rental growth rate indicative of market and the selection of a target internal rate of
return consistent with current market requirements.
In determining the fair values of investment properties, the valuers have used the above
valuation methods which involve certain estimates. The Manager reviews the key valuation
parameters and underlying data including market-corroborated capitalisation rates and
discount rates adopted by the valuers and is of view that they are reflective of the market
conditions as at the reporting dates.
Significant unobservable inputs
The following table shows the key unobservable inputs used in the valuation models:
Group and Trust
Type
Key unobservable inputs
Inter-relationship between
key unobservable inputs and
fair value measurement
Investment property
Commercial properties for
leasing
• Capitalisation rates from
4.0% to 7.5% (2013: from
4.0% to 7.5%)
• Discount
rates from
7.25% to 8.0% (2013:
from 7.5% to 8.25%)
The estimated fair value would
increase/(decrease) if the
capitalisation rates and
discount rates were
lower/(higher).
Leading with Confidence | 167
