A summary of the current situation by Robert Grundy, Head of Housing at Savills and Richard Petty, Lead Director – Residential Advisory at JLL.
7 March 2018
When we wrote about the impact of the Grenfell Tower fire on tower block valuations in November, the tragedy’s longer-term implications for the housing sector were unclear. As government-commissioned reviews progress, this remains the case, which means that the valuation of tower blocks is also still in an uncertain state.
Why are valuations still uncertain?
The information housing providers have shared has really helped inform our view of the current value of their high-rise properties. However, the eventual costs of fire safety or other remediation works required – or which may be desirable in terms of best practice – are still unclear, and this means it is currently difficult to accurately determine the value of tenanted tower blocks.
To reflect this, and in line with RICS guidance, Savills, JLL and other valuers continue to include ‘abnormal uncertainty’ clauses in tower block valuation documents.
The use of the abnormal uncertainty clause is continually under review. As the government-commissioned reviews progress, and as further evidence emerges, matters should become clearer and allow us to bring more certainty to our valuations.
In the meantime, it is important to note that lenders and investors are accepting tower blocks as security on a case-by-case basis.
What will bring certainty back to the market?
The interim report from Dame Judith Hackitt’s building regulations and fire safety review, published in December, sets out the likely future shape of the country’s building system. In it, Dame Judith is clear that ‘the current regulatory system for ensuring fire safety in high-rise and complex buildings is not fit for purpose’.
We need to see the content of Dame Judith’s final report, due in the spring, and other reports, before commenting on their precise implications for valuations.
However, it is possible to make the following general points:
- Building regulations were strengthened in the wake of the Ronan Point tower block disaster in 1968. As Dame Judith’s interim report makes clear, we should expect at least the same in the wake of the tragedy at Grenfell Tower.
- Building regulation compliance and enforcement mechanisms will be strengthened.
- The regulatory approach for new buildings will be overhauled. It remains to be seen the extent to which new regulations are made retrospective.
- Dame Judith is clear that owners of high-rise residential buildings should not wait for further government guidance before acting to replace cladding that has been deemed inadequate. Affected housing providers will have to take a view on the most suitable replacement system.
We will continue to work with housing providers to closely monitor developments in the market.