A staggered and open public consultation process was adopted and the JSE released a simplified consolidated version of the Requirements containing the proposed amendments. These amendments are subject to the Financial Sector Conduct Authority’s (FSCA) approval.

As it exists, Section 13: Property Entities of the Requirements details the additional and different requirements for property entities with respect to financial information, valuation reports and other property-specific disclosures. Non-property entities that carry out property related transactions are also subject to additional requirements, principally relating to valuations. Below, we provide a summary of the proposed changes to the valuation report provisions in terms of the draft amendments to Section 13: Property Entities, and the rationale given by the JSE:

The approach taken by the JSE in these amendments is based on the rationale that properties which are held by property entities to produce rental income are not distinct from other businesses that use their assets to produce income. Shareholders are familiar with using financial information, and property entities should be treated no differently in the way in which they present financial information reflecting those business activities.

2. Valuation reports are only required for a new listing or category 1 transaction where the property does not have 12 months’ rental revenues in terms of arm’s length lease agreements, with a less than 10% vacancy level.
3. Undeveloped property and owner-occupied properties would still require valuation reports. The rationale given for this is that an independent valuation for properties that do not produce “independent” rental income streams (e.g. vacant land for development or an own use building) is useful information. Given the specialist nature of such an exercise, it is likely that the board would seek to obtain a valuation in any event.
4. Valuation reports are not required for category 2 related party transactions, given that the fairness opinion requirement for such a transaction provides the necessary regulatory safeguards.
5. Where a valuation report is required, the preparation of a separate summary valuation report is not necessary. Having regard to advances in technology and investors being able to easily access the detailed valuation reports and extract the information they need, the JSE’s view is that preparing this summary creates an unnecessary burden and time delay for issuers to effect transactions. The information previously contained in the summary valuation report will largely be included in the property-specific information disclosures and through the obligation introduced for the board to confirm legal title for new listings.
6. In terms of financial reporting, considering the advances in International Financial Reporting Standards (IFRS), particularly in terms of rigour and disclosures through IFRS 13 Fair Value Measurement which the JSE monitors compliance with, the obligation to obtain valuation reports on a rolling three-year basis is removed. It is the board’s responsibility to ensure accuracy of the values and compliance with IFRS.
7. For non-property entities, the threshold for when such an entity would need a valuation report (for the same limited circumstances set out in point 2 above) is changed from 25% to 50%, limited to an asset test. The wording of this requirement is positioned outside Section 13. The reasoning given for the threshold increase is that it provides a better level to distinguish between transactions of “property” and “businesses that use properties”, since many non-property entity issuers hold properties for their own use, and the worth to the business is not tied to a market value that they could obtain on disposal, but rather on the use of the assets within their operations, for example factories, warehouses or hotels.
8. For purposes of regulating the independence of the valuer in a more effective manner, clear detailed criteria are set out for the independence of the valuer providing the valuation report, coupled with the board’s obligation to sign off on such independence and to provide confirmation of no material changes in circumstances affecting the valuation.

Our current understanding of the status of the JSE’s Simplification Project is that an application has been made to the FSCA for approval, which entails publishing the amendments for a further and final round of public consultation through the Government Gazette prior to obtaining such approval