Historical Value
- purchase price
- does not change, ever
- in the books: actual ≤ historical, never higher than historical value
Exception under IFRS
- IAS 40, IFRS
- if real estate is held for investment purposes you can choose fair value
Fair Value
- current market value when selling to neutral buyer
- may fluctuate according to market value
- how to find the market value?
- active market → stock price, copper price
- compare to market → my glass sphere tells me price X if I would sell now
- formulas → discounted Cash Flow of the next years (e.g. with buildings it would be rent)
- not allowed in most European GAAPs (AT, DE, etc)
Signa Overvalue Case
- Donald Trump did not do the same, he probably just made up numbers for the banks
- real estate firm going bankrupt
- overvaluing occured because of
- Discounting with discounting rate of almost 0
- it is allowed to value the asset at the expected value after an e.g. sanitation project
- very optimistic planning of projects
Example - 1st Discrict
- bought a house in 1st District for 50.000 → historical
- current fair value would be 50.000.000
- historical value caps value at 50.000 → except if under IAS 40
- fair value would be relevant to investors anyway