Valuations are often treated as definitive indicators of an asset’s worth.  In reality, they are merely estimates – snapshots in time that attempt to capture a market-clearing price under specific conditions. Their accuracy is subject to numerous variables, particularly the pace of market movement. In a declining market, valuations tend to overstate asset values, lagging the reality of falling prices. Conversely, in rapidly rising conditions they may understate worth as recent comparable sales fail to reflect contemporaneous market sentiment. This inherent lag means that while valuations serve as useful benchmarks, they should never be mistaken for absolute truths.

The challenge becomes even more pronounced when dealing with specialised assets where valuation precision is often difficult to achieve. In markets where properties are largely homogeneous – such as standard residential housing or institutional-grade commercial buildings – there is a depth of comparable sales that can provide relatively reliable gauges of value. However, when an asset is unique, the margin for error increases significantly. Luxury homes are often considered stable, high quality investments; however, their very uniqueness makes them difficult to value with certainty. A waterfront property with striking views or a boutique industrial asset with highly specific tenant requirements will always have a narrower buyer pool, and thus a more volatile price range.

Case Study: Bellevue Hill

A recent case in Bellevue Hill illustrates this point. A newly built, free-standing home on Bundarra Road was valued at $15.0 million by a Tier 1 national valuer. The level of finish was exceptional and, on the surface, comparable sales supported the assessed value. Upon closer examination, fundamental discrepancies emerged. Of most significance, the home’s layout and proportions did not align with the superior attributes of the cited comparables, a flaw that significantly impacted the home’s ultimate marketability. After conducting our own analysis, HCP rejected the loan application. Several months later, the property sold on market for $8.8 million – more than 40% below the original valuation. This case serves as a clear example of the risks involved in over-reliance on valuations, particularly for assets that do not conform neatly to market norms.

Valuations are more useful in deep, liquid markets where assets share common characteristics and there is a steady flow of transactions providing clear reference points. In such cases, valuations tend to be a strong guiding tool, offering a reasonable reflection of prevailing market conditions. Even in these instances, our approach at Harbour Credit Partners (HCP) remains cautious. We do not view valuations as definitive answers but rather as one input in a broader decision-making process.

How HCP Approaches Valuation

Our approach starts with a proprietary view of value: an independent assessment based on market conditions, comparable sales, and real-time intelligence gathered from active agents. We scrutinise the methodology behind valuations, challenging the selection of comparables to ensure that they are genuinely relevant. Speaking with local market participants provides additional clarity as live market intelligence often reveals nuances that a static valuation report cannot capture. Ultimately, a valuation is just an estimate not an underwrite. It serves as a useful tool but must be weighed against deeper, more contextual market analysis.

In private credit, disciplined underwriting is the difference between protecting capital and mispricing risk. The ability to see beyond the numbers – to interrogate the assumptions that drive valuation outcomes – is a crucial component of prudent lending. True risk assessment requires a more nuanced, independent approach rather than the sheer reliance on valuations. At HCP, that independence is a core principle in how we evaluate every transaction, ensuring that our lending decisions are based not on broad market assumptions, but on an acute understanding of real-time market dynamics.

Firm Update

Harbour Credit Partners enables our wholesale clients to get exposure to commercial loans collateralised (at modest LVRs) by mortgages on real estate located in major Australian eastern seaboard cities. These loans are funded at settlement off of the balance sheet of our capital partner, the IJD Group (with IJD retaining exposure to a portion of each loan throughout its life). Until now, our clients have been able to do so on a loan-by-loan basis, choosing to take an allocation to specific deals in Bellevue Hill, Woollahra, Toorak, Brisbane, etc. as they see fit.

Spurred by demand from certain clients to be able to buy into a diversified portfolio of such loans, rather than select individual deals, we will be launching this quarter the Harbour Credit Partners Diversified Mortgage Fund. As the name suggests, this fund will comprise, at launch, exposure to 20-30 underlying loans from our portfolio. While the final composition of the fund is subject to a few dynamics, our current modeling of its composition suggests a weighted average LVR of the portfolio in the mid-50s, with a net interest rate to investors of around 9.5% p.a. Investors who do not wish to invest in such a commingled structure will still be able to invest into individual loans as available over time.

Please contact Jonathan Goll, Head of Investor Solutions, with any questions or comments that you might have, or should you need assistance with setting up an account and applying for investment with the firm.

Jonathan Goll 
Head of Investor Solutions
M: +61 438 082 247
E: jgoll@harbourcreditpartners.com

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Harbour Credit Partners Pty Ltd is the Investment Manager of the Harbour Credit Partners Master Trust. It holds a Corporate Authorised Representative authorisation CAR No.001308393 from Quay Wholesale Fund Services Pty Ltd (Quay) (AFSL No. 528 526). Harbour Credit Partners Pty Ltd also holds a Corporate Authorised Representative authorisation from Quay allowing it to provide General Product Advice.