Govt to Set up New norms for Realty Valuation

The urban development ministry, along with the Indian Bank Association (IBA), the National Housing Bank (NHB) and the corporate affairs ministry, has drafted a handbook on policy, standards and procedures for real estate valuation by banks and housing finance institutions. The exercise, the first ever, is to put some order in real estate valuation.

In parallel, the company affairs ministry has drafted a Valuation Professionals Bill. It seeks to create a Council of Valuation Professionals of India. It will have experts from professional institutions and regulate the business of valuation. The council will set standards for valuers, train them, set qualifying norms and monitor them.

The norms include educational qualifications, work experience, membership of professional bodies, registration with the government and references. An IBA official told Financial Chronicle that the draft bill was now in the consultation stage.

The Royal Institute of Chartered Surveyors (RICS) India managing director, Sachin Sandhir, who helped in drafting the bill, said, the valuation practice in this country was replete with instances of bad corporate governance, bad debts and fraud. “It is an accepted fact that property valuation methods in India are as varied as the property laws in different states. In the absence of any prescribed standards, guidelines or reporting formats, valuers could manipulate assumptions, calculations and approaches.

“In the past, the Securities & Exchange Board of India (Sebi) has said disclosures made by real estate developers prove there are no standards of valuation. In some cases, inflated valuations are based on assumptions about future property values. Internationally recognised and International Valuation Standards-compliant RICS standards could not have come at a better time,” he said. According to officials, the need for some regulation has arisen because of the fly-by-night operators in the real estate business who take customers as well as the tax authorities for a ride and whose valuation systems are, at best, opaque.

The new policy will also look at other features like term of the empanelment, compliance to standards and procedures, obligations and other aspects. Importantly, an annual performance review by senior officials of banks will be undertaken. According to the draft, if the performance of the valuer is unsatisfactory, he or she can be taken off the panel. Use of unfair practices, professional misconduct, violation of the code of ethics and professional practice, will also invite similar action.

A valuer will be expected to address all conflicts and help arrive at an amicable solution; supportive documents are to be provided before the valuation work begins. According to the draft, banks will raise objections, if any, within 15 days of the submission of rectification and resubmission. Two valuers will be appointed if the property value exceeds Rs 10 crore and the maximum acceptable difference between the two evaluations should not exceed 15 per cent.

RICS, headquartered in London, has also offered support to develop skills and capacity of valuers. Ashish Jindal, northern region director of Knight Frank, said property valuation in India was done by diverse groups of people with varying backgrounds and skills. “Property valuation is considered just a part of the disciplines of engineering and architecture, so a degree in these subjects is sufficient to become a property valuer. But valuation needs knowledge of other disciplines, such as law, economics, accountancy, town planning and environmental science. Moreover, a valuer must keep abreast of changing legislation, emerging economic trends and constantly shifting market forces. This breadth of knowledge and experience is extremely rare, given the lack of relevant educational courses available to meet these needs,’’ he said.