Affärsvärlden’s review shows that nearly a quarter of property companies’ property management earnings could disappear if their maintenance investments are taken into account. The situation is worst among office property companies. The paper writes this in a commentary on Monday.
Affärsvärlden notes that it is difficult for outsiders to assess maintenance needs.
“In general, it is clear that large parts of property companies’ cash flow go toward maintenance investments, which should be excluded from property management earnings in a valuation,” the paper writes.
Under the IFRS accounting standard, larger expenditures on a property can be capitalized as an investment instead of being expensed. At the same time, investment properties are not depreciated, but are generally valued at fair value.
Together, the rules mean that the cost of major maintenance never affects property management earnings. It ends up on the balance sheet and is only visible as a lower change in value, if it is visible at all.
