Valuation as a discipline plays a critical role in the global financial system and its stability. Whether it’s for institutional investors looking at the performance measurement of their portfolio, financial reporting purposes, securing debt finance, or simply banks using it for lending purposes.
As one of the most crucial asset classes, accounting for a substantial portion of personal wealth in developed economies, real estate has the power to have a significant impact on national and international economies. With $228 trillion (Dh837 trillion) tied up in global real estate, as per Savills’ latest World Research Report, failure to understand the value of assets can have severe global consequences for investors, shareholders and the public.
True value of valuation
Property valuations, for most people, are an unavoidable part of the buying process. As Jordan D’ Gama, registered valuer and Rics training manager stated, “Valuations are undertaken by the lender [bank or financial institution] when a property is purchased, refinanced or the equity is accessed. The property valuation acts as a safety net for lenders, so they don’t loan more than the property’s worth. Valuations can also provide applicants with a realistic and independent idea of the value of the asset they own or are about to purchase.”
For end users and investors to realise the true value of valuations, confidence in the process is essential.
Transparency and standardisation
As a melting pot of multiple nationalities, the UAE has attracted market professionals from every corner of the world and in the absence of clear local standards, each use their “preferred” standards, which in turn has led to inconsistency and lack of market transparency, resulting in an absence of assurance in the market.
Transparency is crucial for investors and end users to understand risks that result in greater uncertainty and slower decision-making process. Lack of it not only leads to a negative impact on the market, it also fuels disputes between parties.
With the industry evolving at a fast pace, establishing transparency of data and encouraging more accurate financial reporting is vital in supporting businesses and de-risking financial markets for the public good. To ensure accurate property valuations, a consistent standard, method and approach to valuation is important. Following the financial crisis in 2008, the International Valuation Standards Coalition (IVSC), a not-for-profit organisation, was established by sponsors, including the World Bank, United Nations, major international accounting firms, and valuation professional organisations worldwide, to create globally agreed, high-level standards, which underpin valuation for all asset types. The International Valuation Standards (IVS) was then launched by the coalition to set a consistent and transparent framework for valuation practice globally.
Ensuring best practice
High-quality valuation is an important underpinning of the global economy. Through Rics’ valuer registration (VR), valuers have the support that enables them to demonstrate to their clients that they are committed to delivering to the global standard. The regulated scheme is compulsory for any Rics professional carrying out valuations and members are monitored by Rics regulation throughout their career.
Furthermore, the “Red Book” was developed by Rics as an implementation framework for the practical application of valuation standards globally. The Red Book also ensures that Rics valuers apply professional and accountable standards that are consistent with IVS.
Robert Jackson is regional director of Rics. The views expressed here are his own.