MKH Annual Report 2020

238 FINANCIAL STATEMENTS ANNUAL REPORT 2020 45. FAIR VALUE HIERARCHY (CONT’D) The estimated fair value would increase/(decrease) if: • Estimated rental/average rental rate per square feet per month were higher/(lower) • Estimated price per parking bay per month were higher/(lower) • Estimated outgoings per square feet per month lower/(higher) • Rent growth rate per annum were higher/(lower) • Void rate lower/(higher) • Term yield rate lower/(higher) • Reversionary yield rate lower/(higher) • Sinking fund rate lower/(higher) • Construction price per square feet higher/(lower) Fair value reconciliation of biological assets measured at level 3 are as follows: The Group 2020 RM 2019 RM Biological assets At beginning of year 5,181,734 5,960,459 Changes in fair value (913,440) (1,170,893) Effect of movements in exchange rate (35,027) 392,168 At end of year 4,233,267 5,181,734 Direct comparison method Under the direct comparison method, a property’s fair value is estimated based on comparison of current prices in an active market for similar properties in the same location and condition and where necessary, adjusting for location, accessibility, visibility, time, terrain, size, present market trends and other differences. Fair value of properties derived using direct comparison method have been generally included in Level 3 fair value hierarchy due to the adjustments mentioned above. The most significant input into this valuation approach is price per square feet of comparable properties. Investment method In the investment method of valuation, the projected net income and other benefits that the subject property can generate over the life of the property is capitalised at market derived term yields to arrive at the present market value of the property. Net income is the residue of gross annual rental less annual expenses (outgoings) required to sustain the rental with allowance for void. Cost method of valuation In the cost method of valuation, the market value of the subject property is the sum of the market value of the land and building. The value of the building is assumed to have a direct relationship with its cost of construction. The cost of construction is then adjusted to allow for cost of finance, profit and demand to reflect its profitable present market value.