NVFH 2020 Integrated Annual Report

NVest Financial Holdings Limited and its subsidiaries | (Registration number 2008/015990/06)
Annual Financial Statements for the year ended 29 February 2020
Notes to the Annual Financial Statements [continued]
Group
Company
Figures in Rand Notes 2020 2019 2020 2019
6. Investment property [continued]
The significant inputs and assumptions in respect of the valuation process are developed in close consultation with
management. The valuation process and fair value changes are reviewed by the group audit committee and the board of
directors at each reporting date. The directors confirm that there have been no material changes to the assumptions applied
by the registered valuers.
For property (including owner occupied), totalling R276 537 950 (2019: R163 904 035), where external valuations were not
obtained, the valuation was based on income capitalisation based on current rentals for a 12 month period, discounted at
market related capitalisation rates. The following assumptions were used:
Capitalisation rates of between 9.25 % and 11% were used depending on the type of building and the location thereof. The
average capitalisation rate came to 9.68%.
For revaluations not performed by external valuers, the directors have used capitalisation rates, comparable with the
capitalisation rates used by South African Property Owners Association (SAPOA). As one of South Africa’s largest valuation
firms, SAPOA annually values property portfolios which include shopping centres, agricultural property, residential, commercial
and industrial property. SAPOA also undertakes municipal property valuations, as well as specialised valuations such as hotels,
hospitals, bare dominiums, airports etc. The capitalisation rates take into account the location and type of property. Changes
in capitalisation rates attributable to changes in market conditions can have a significant impact on property valuations. A 25
basis point increase in the average capitalisation rate to 9.93%, will decrease the value of investment property by R15.1 million.
A 25 basis point decrease in the capitalisation rate to 9.43%, will increase the value of investment property by R2.4 million.
The valuations were determined using income capitalisation based on current rentals for a 12 month period, based on
contractual increases ranging between 7% - 10%, and significant unobservable inputs. These inputs include:
Vacancy rates: Based on current and expected future market conditions.
Maintenance costs: Including necessary investments to maintain functionality of the property for its expected useful life.
Capitalisation rates: Based on location size and quality of the properties and taking into account market data at the valuation
date.
Owner occupied property of R65 136 185 was disclosed as Property, plant and equipment - please refer to note 4.
The fair value measurement qualifies as a level 3 input in terms of IFRS 13 Fair Value Adjustment. Refer to note 34 Fair Value
Information regarding the fair value hierarchy for Investment Property.
Amounts recognised in profit and loss for the year
Rental income from investment property 43,382,284 51,437,629 - -
Direct operating expenses from rental generating property (16,635,190) (20,841,901) - -
26,747,094 30,595,728 - -
The below operating lease asset was calculated in compliance with IFRS 16 on a straight line basis.
Investment property 274,255,654 306,121,662 - -
Operating lease asset
- current 2,391,485 1,627,262 - -
- non current 3,274,435 6,906,762 - -
Fair value obtained 279,921,574 314,655,686 - -
NVest Financial Holdings Limited | INTEGRATED ANNUAL REPORT 2020 100