UAE | Housing & Property

Tighter property valuations on the agenda

Dubai moves to ensure right pricing techniques and better transparency levels

  • Nicole Walter, Features Editor
  • Published: 13:29 September 7, 2009

  • After the sharp correction in Dubai, properties could be more in sync with real values.
  • Image Credit: Supplied

With opinion divided sharply in industry circles as to whether real estate values in Dubai have touched bottom or not, it becomes all the more imperative for the marketplace to have proper valuations in place.

Unfortunately, there are no proper structures in place and this has created a climate of mistrust among developers, property evaluators, investors and banks offering mortgages.

“Valuations are always based on market evidence which is difficult to obtain in this part of the world,” laments Robin Teh, director of valuations and research at Chesterton International.

“Short of actual transactions, valuations have to be adjusted more if comparables are taken from ‘listed’ or ‘asking’ prices or from earlier transactions.

These adjustments are then based on the knowledge and gut feeling of the valuer in regard to how much that particular sector of the market can move in a month.”

In the heady days of pre-market correction, and especially during the first three quarters of 2008, property valuations in Dubai were based on activity taking place over a week, if not days, rather than a whole month. Of course, this never allowed the property to reflect its intrinsic value.

“Agents also tend to hype up their properties in the hope of obtaining a higher price, which in turn gives them a higher commission. This makes the comparables unrealistic and an experienced valuer must take note of these variables,” Teh adds.

 In sync with real value

Now that the market has gone through a sharp correction, there is an opportunity for properties to be more in sync with their real value rather than perceived. But that does not mean the task of valuers is made any easier.

“In uncertain times, comparing (property) is made more difficult, although we do have some transactional data it is not always transparent and we have to talk to many trusted brokers to verify figures,” says Ronald Hinchey, head of professional services at Cluttons Middle East.

A fair value does not just include the land and its cost but also the market value, though the latter is a rather subjective matter. The Royal Institution of Chartered Surveyors’ (Rics) Red Book sets out its valuation standards and guides valuers to come to an as objective a conclusion as possible.

This prompts them to not just go by asking prices — which can vary by up to 70 per cent — or heed the words of individuals that their property is worth more, but hard transactional data and proper calculations tailored to the property in question.

This is vital when dealing with any property being sold off-plan.

This has to take into account variable such as likely upgrades, the build quality, realistic rental expectations, the facility management services available and so on.

“With off-plan, it is a bit of a leap of faith as we have to make some assumptions,” Hinchey adds, ruefully. “The biggest problem at the moment is re-valuation — property portfolios will have a much lower value at the end of this year wiping hundreds of millions of dirhams of peoples’ assets.”

Cause for delays

An all-encompassing valuation procedure should not take more than five days, but incorrect or unattainable floor plans and locked up properties with the owner out of reach can cause delays. Then again, some developers are not even allowing chartered surveyors on-site.

Such hardened attitudes will not be around for long. Declaring the wrong sales transaction amount on a property to reduce registration fees is a practice which has not escaped the Dubai Land Department’s attention. If the agency suspects that a property is being registered at a lower price, it has the right to place internal valuers on the case.

Clearer process

Moreover, government agencies are preparing to ensure that everyone employs the right valuation techniques and thus raise transparency.

While the Real Estate Regulatory Agency (Rera) has a MoU with Rics to pave the way for a clearer valuation process, the Real Estate Appraisal Centre (or Taqyeem) which was set up by the Land Department recently plans to introduce regulations, a code of ethics, accreditation courses and will be licensing related companies and individuals.

“There is no approved standard of measurement at present,” says Alan England, director for Rics responsible for the Menea territory.

“You cannot change matters overnight, but eventually all valuers might require — banks already do — professional indemnity insurance. The regulation benefits the public, it helps to raise trust and they will have an authority to direct their complaints to.”  

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