COLOMBO, Jun 01, 2009 (AsiaPulse via COMTEX) -- EQY | Quote | Chart | News | PowerRating -- The real estate arm of Sri Lanka's Carsons Cumberbatch group said it was writing down the values of properties by 450.3 million rupees (US$3.9 million) as the prices slumped in the wake of tight monetary policy.
"This year has been a challenging year where we saw a significant market correction on the property prices as a result of tighter credit conditions and a change in investor and customer attitude on real estate," Equity One Ltd, a Carsons property firm said in a statement.
"The property values have reflected changes in interest rates and risk.
"Unrest in the financial markets and uncertainty in the wider economy have added to the crisis of the property market."
Under 'fair value' accounting rules - which permit asset values to be brought into a firm's profit and loss account whether or not they are actually sold and cash received - many companies have reported high profits in boom years.
But when central bank monetary policy tightens (money printing slows) and interest rates go, up asset-price inflation can reverse.
The 'fair value' concept goes against a time honoured accounting convention, based on historical cost.
Critics have said that fair value accounting is excessively 'pro-cyclical' and helped worsen the recent asset-price bubble in the world by bloating profits of banks and other firms when the Federal Reserve cut rates to one percent and fired the worst global 'boom' since the 1970s.
When central bank loose monetary policy fires asset-price bubbles, managers who wake the next day find that the asset values of their companies have gone up. After monetary policy reverses, the opposite happens.
"Having evaluated the current market conditions the company decided to defer in the interim, all of our property development activities and convert project lands which were earlier held for development, into land bank status," Equity One said.
"This resulted in bringing these lands to current market values in accordance with the accounting standards."
Equity one said it had cut the values land held by the unit Equity Property Developers (Private) Ltd by 258.6 million rupees, Equity Nine (Private) Ltd by 177.6 million and Equity Developers (Private) Ltd by 14.1 million rupees.
But the firm said other investment properties had seen an 82.5 million increase in value.
Equity One reported a loss of 365.9 million rupees for March quarter against a 382,000 rupee profit last year.
Equity Two, another Carsons firm reported a loss of 89.3 million rupees with a 90.0 million rupee write-down in investment properties.
Inflation Accounting
Inflation accounting, or current cost accounting, was widely discussed during the last century, as major central banks undermined gold-based money to help governments fight wars by printing money.
Historical cost accounting re-gained relevance again during the great depression in the 1930s, as prices fell in a deflationary collapse, like now.
In the 1970s after the US dollar broke its final link with gold and inflation raged around the world, accountants came up with formal inflation accounting standards including Britain's SSAP 16 and the USA's, FAS 33.
But the practice lost favour especially after inflation moderated in the 1980s with tight monetary policy by then US Federal Reserve chairman Paul Volcker.
There is currently an international standard on hyperinflation (IAS29) to be used in countries when central banks fail completely to issue a stable form of money and prices rocket in an uncontrolled fashion.
Critics say 'fair value' accounting is a back-door re-emergence of inflation accounting triggered by a bubble fired during the Greenspan-Bernanke years, which ended with the collapse of global markets last year.
Under a pure gold standard - before the emergence of 'fiat paper money central banking' - there was no significant long-term inflation in the world but only periods of slight inflation followed by periods of deflation.
When central banks issue stable money, wage earners manage to preserve the purchasing power of their salaries and the homeless are able to buy houses at affordable prices. Speculators make money during bubbles.
(LBO)
For full details on Equity One Inc (EQY) click here. Equity One Inc (EQY) has Short Term PowerRatings of 6. Details on Equity One Inc (EQY) Short Term PowerRatings is available at This Link.
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