Should Qatar adopt International Valuation Standards?

Following the financial crash in 2008, a major enquiry found poor property valuation practices was a major factor in the crisis. It was found that banks had over-extended their loan commitments based on real estate security yet in many cases, the assets valued for lending purposes had been over-inflated. Once the crisis struck and real estate values came under scrutiny, many true values were significantly lower than the ones used for lending purposes.

“This is a growing issue that needs to be addressed and adopted,” Edd Brookes, general manager, DTZ Qatar, said, “There has to be a benchmark in standards, especially important given the financing decisions made on the basis of valuations.”

As a result, International Valuation Standards (IVS) has become the centre of attention and is being adopted by numerous stakeholders ranging from governments to banks, financial institutions asset managers and owners as a means to mitigate risk and more diligently assess the value of built assets.

Although majority of international real estate advisory practices with a presence in Qatar adopt a standardised approach to real estate valuation, there are many local valuers who continue to follow their own regulatory standards.

Industry professionals in Qatar have often voiced concern that current valuation practice is contributing to an artificially inflated real estate market, which is impacting on asset values and also rental prices.  

Nick Witty, director, Real Estate, Deloitte & Touche, said, “The lack of standardisation is widespread and often problematic in so far as inconsistencies or lack of the application of the International Property Measurement Standards (IPMS) and the non-standard approaches to valuation may result in a lack of transparency, comparability and confidence in the valuer’s report.”

Brookes agreed that the adoption of IVS in Qatar is absolutely crucial in terms of ensuring consistency, stability and accountability within the local real estate market. “Without its whole-hearted adoption and adherence, the amount of foreign direct investment in the Qatar real estate market will be limited,” he said.

Within the region, however, many real estate stakeholder groups including several governments are now adopting IVS and implementing a regulatory framework, which supports its adoption. In Kingdom of Saudi Arabia, for example, the government has introduced a valuer registration scheme and law, which is mandating compliance with IVS for all valuers in the Kingdom. Abu Dhabi and Dubai are also actively working on the introduction of reformed valuation practices in recognition of the market risks, which currently exist.

Witty added, “Outside of the United Arab Emirates, real estate within the majority of the regional markets is not highly regulated and as such there is no requirement for valuers to adhere to any specific set of guidelines or the rules of professional conduct of a governing body.”

It is important that the relevant authorities and regulatory bodies in Qatar work to address this and create a more transparent market capable of attracting local, regional and international investment.

Industry professionals in Qatar have often voiced concern that current valuation practice is contributing to an artificially inflated real estate market, which is impacting on asset values and also rental prices.

 

The banking and finance sector can also play a key role in this positive transition and in support of their risk mitigation initiatives, they must ensure that they pay due diligence to lending against appropriate valuation reports undertaken by competent and experienced professionals.

With the real estate industry and the financing that supports the sector being very much a global industry, research confirms that increased adoption of international standards and regulations plays an underpinning role in driving market transparency which in turn drives investor confidence and investment activity in the world’s real estate markets.

Adoption of IVS as a basis for valuation supported by industry guidance documents such as the RICS Red Book not only enables cross-border comparability and consistency but mitigates risk for financial institutions as well as providing transparency and conformance in built asset valuations on company balance sheets reported under International Financial Reporting Standards (IFRS).

If Qatar’s real estate markets are going to be able to compete with other major regional and global markets and provide investors, owners and occupiers with an appropriate level of confidence then relevant international standards need to be adopted including not only IVS but also the new IPMS and the impending International Ethical Standards.

Robert Jackson is the regional director for RICS, MENA region.