Comments on the Hand Book on Policy Standards

and Procedure for Real Estate Valuation

By Er. SC Thukral
FIE(I) MBA FIV, FICA
Jammu scthukral@rediffmail.com

The Real Estate sector have witnessed a sharp growth in the last decade
and it have became a highly profitable venture, the Banks and Financial
Institutions have been much liberal in the funding of mega Real Estate Projects,
funds worth billions of Rupees have been tied up in these projects but the
situation was not as rosy as projected by the Mega builders and promoters of
these projects, in many cases the Banks have burnt their fingers and as usual
the Valuer is the first person to be the scapegoat, it was observed that the
valuation procedure for the valuation of real estate projects was not adequate to
serve the changing business environment and there is an urgent need to study
the system and prepare a guide lines for the procedure involved in valuation
which is required in the
process of funding real Estate Projects.. For this
purpose a high level committee was formed under the chairmanship of a high
ranking eminent Banking Professional, Shri Sridhar, Chairman Central Bank of
India and MD National Housing Board, assisted by Prof. Dr. PSN Rao HOD
Housing, Delhi School of Planning and Architecture, based on the study a
document prepared
named as Hand book on Policy, Standards and
Procedures for Real Estate Valuation by Banks and HFIs in India the contents of
this document are available on the web and comments have already been
offered by fellow Valuers through the pages of Indian Valuers, definitely the
Valuer fraternity, particularly the Institution of Valuer must have concern about the
events activities taking place in the National and International level directly or
indirectly affecting the Valuers profession, however it is a state of sorry that
Institution of Valuer who have National and International presence, having pool of
more than 20,000 multi disciplinary expert Valuation professional continuously
working in this profession for the last more than 40 years was not consulted at
all.
It is important to conceptualize the fundamental of Valuation, we
can say that the process of Valuation is as old as human civilization, it started
with the exchange of goods and services in the society, may have been with the
exchange of goats with cows, but with the overall expansion in the size of
Economy, liberlisation and globalization the Valuation have become very vast
subject, it cover almost every thing which have value as on today or in the near
future, all types of assets, Semi Tangibles, Tangible and Intangible assets, today
the services of Valuers are needed not only in the housing sector but needed to
the Micro Small and Medium enterprises, large corporate Sector, which add to
the production Distribution and services, in Agricultural sector, in the valuation
of Gems and Jewelry, Art work, Financial instruments as shares, debentures,
Hundis receivable, the scope of Valuation have enlarged to Hydel Projects.
Entertainment Parks, ship Building, dock yards, Nuclear Plants, Space shuttle

and so on, in general services of valuers are required in every sphere of

economic activities and not only limited to Real Estate sectors It seams the
Valuation Hand Book study have bean focused on Real Estate only that is of
course an important part of the Valuation works but do not covers the subject as
a whole.
Therefore a comprehensive policy procedure is needed on the process
and parameters of valuation covering all aspects of asset put under screening,
not only its physical state but its economic usefulness and marketing strength,
which go on changing with the changing environment in the society and it is also
required to forecast the future possible changes affecting the value of asset.
Again the procedure adopted should be convenient purposeful and objective in
nature to suit the size of Enterprise nature and value of the asset, MSME may
be operating in Trading, Manufacturing or it may be a service provider it would
like to avail the services of a valuer under one roof from where he could get the
valuation services of his all the assets, ie his office Building, Factory Shed,
Process Machinery or Utilities, it may be stock inventory or any other asset and
valuation may be through a single valuer or multi disciplinary group of
professional.
As far as the valuation of real Estate is concerned, the modern Buildings
are not only four walls and roof, but the development of Technology have made
these more complex in nature, these have come out with the effort of
multidisciplinary specialist, right from
the services of Geologist, a seismic
specialist, an interior decorator, space utility and functional design specialist, the
Architecture the structural designer, an Electrical Mechanical Engineer who can
design and get executed for internal external electrifications Captive power, cold
and hot water supply, Lifts escalator, HVACR Fire detection and Protection
system, Audio, Video and computer networking, Security and surveillance
system, Sewage and Garbage disposal and so on like Lightening Protection in
the area prone to lightning. These services comprise 35 % to 45 % of the cost of
building and with the changing Technology more and more such like comforts are
being added, it is a multi disciplinary effort, the value of a High rise building will
depend upon its structural strength associated with the comforts and safety
available with the addition of services through the use of viable Technology, again
there is a requirement of Multi disciplinary skill to arrive at the reasonably
accurate value.. An Architecture, a Town Planner, Quantity surveyor can be a
better Building Manager but he is bound to avail the services of other discipline
skilled professional and so it shall be only a Corporate body/ Association of
persons having multi disciplinary pool of expert professional can accomplish
the task of valuation in the better way.
Criteria for Registration as Valuer Clause 1,2
Coming to the criteria for registration as Valuer it is appreciated that in the
Hand book it have been pressed upon that beside Technical qualification a Valuer
should have Membership of a professional Body and in this context institutions

of Indian origin (5 Nos) and of Foreign origin (3 Nos) have been mentioned, but
it is equally important that any Institution entrusted with the job of Membership
for Valuers must have long time, proven reputation of high Standard and should
have moral ethical values, maintained over a period of time, such Institution must
have in built capacity to deal with the issue relating to the Valuation profession,
well connected with the changing business and economy of the nation well in a
position to proliferate useful information and provide guidance to their members
on the subject, an institution that can create professional capability and ethical
values among the members and such an institution should be kept on the watch
list for some fixed duration of time only then its membership be given
recognition.
It is also observed from the Hand book that Diploma Holder are also to be
registered for Valuation work up to the asset value of Rs.50 Lakh, this provision
may not work well, in the present scene of job market in India, the country have
large availability of Technical Graduate and Post Graduates super specialist in
their subject, Institution of Valuers have on its membership role highly qualified
and experienced Technical professional who have held high position and
remained top most functionaries in the government and private sectors/PSUs so
equating them with the undergraduates will just create bridging a wide gap
without any useful purpose, moreover the Diploma holders are not eligible for the
membership of a well established and reputed Institution like Institution of
Valuers and at the same time Hand book have stressed upon the Valuers to
have membership of a Professional body. in the situation registration of Diploma
Holders as Valuer may not sound well.
.
.
Registration of Valuer with the Government 1(e)
So far registration of Valuer with the Government is open to the
Individual only, it is a welcome step that IBA have made representation to the
Min. of Finance that that Valuation by companies should be permitted, as in the
present age of globalization of business individuals capacity may fall short of the
volume and requirement of the valuation work, more over in the age of
globalization and with the enactment of W.T.O a valuer may have to take up
international role which may not be possible by an individual, India have a large
pool of Technical and Managerial professionals sincere and hard working it is
suggested that valuation work may be undertaken by an individual, an
Association of person, partnership firm, Private and Public Limited company or
any other business entity but their registration and categorization be done based
on their strength their ability to deliver quality valuation work, such business
entity must have pool of human resources should be equipped with responsible
and experienced multidisciplinary professionals so as they can handle the
complexity involved in valuation
Professional Fee (1.6)

The hand book provide that the valuers Fee be negotiable depending
upon the work involved and value of the asset. In this connection GOI Min of
Finance department of revenue, Central Board of Direct Tax have issued
Notification dated 30th January 2009 No 15/2009/F(149/144/2008-TPL) wherein
Scale of Fee to be charged by a Registered Valuer have been notified. The Fee
paid to valuer is not only for the quantum of work involved but a high degree of
responsibility associated with the work shouldered by a technically qualified
skilled and experienced professional, improper Fee will drastically restrict the
availability of qualified skilled and reputed professionals for the Bank/ FIs, which
shall not be desirable for them, defiantly they would like that only the competent
persons be on their roll, therefore it is suggested that Valuation Fee fixed by the
Banks should be at least commensurate with, what is prescribed by CBDT, this
would bring a good amount of talent available at the disposal of Bank and will
benefit Banks/FIs in the long run.
Continuing Education (1.10)
The Hand book have provided continuing education programme for the
valuers through training, seminars, conferencing workshops and other capacity
building measures and IBA should endeavour to facilitate the conduct of such
programmes, it is again a welcome step, in this concern Institution of Valuer
have already taken up this task since its inception, The Institution is already
educating their members through its monthly magazine Indian Valuer, through
various seminars, conferences meets and other interaction sessions, the
magazine is also an inter acting where members can get answers of their
questions and get their doubts clear, this way Institution have ready built
infrastructure for imparting education on the subject of Valuation and can help
IBA to fulfill their requirement of continuing education
Valuation Standards (Part B 2.1 -2.6)
Quite elaborated Standards have been provided in the Hand Book, these
Standards are very useful in the job of valuation and should be adopted by
valuers in letter and spirit, however in the age of Globalization, Standards
developed by the International Standards Organisation (ISO) which are relevant
to the valuation should also to be referred and there should be an arrangement of
continuous improvement in the valuation Standards.
. .
Procedure for conflict resolution (3.4)
It has been agreed that there are bound to be a variety of conflicts in the
process of valuation and Hand book have laid down that every Bank/HFI must
have Bank Valuation conflict Resolution Committee for addressing of all conflicts
and arriving at an amicable solution, this is a nice step as long as the dealing of
the valuer is limited up to a particular Bank only, however as the scope of
Valuation work have been enlarged and not remained limited to the Banks and
housing Finance Corporation, the Valuer should be made responsible to society
at large ie to all those persons/entities availing his services , it is suggested that
performance appraisal for the services of valuer
should be done by an

unbiased and an independent professional body having no interest with the

person/entity availing the service of valuation or with the service provider ie
Valuer an Institution well versed with the process of Valuation, capable to judge
and evaluate the work done by a valuer and if any deficiency infirmity are
malpractice is found it should penalize the professional valuer, in this context
Institution of Valuer or any other Institution of similar status is an appropriate
body. However since the Banks are availing the services of valuer in
consideration of money they are at liberty to choose any valuer professional
according to their conveyance and specific need without any interference from
such an independent body..
Hand book is the outcome of massive efforts made by the top most
functionaries of Banks and others, it is an original study and work of first time in
the area of Valution process and procedure, however there is always remain
scope for improvement and therefore discussion, debates suggestions are
needed before it is finalized and put in practice by those beneficiaries and have
stake in the valuation, In this context comments from business associations as
FICCI, ASSOCHEM can also be useful.