A complex process

Valuation is a multi-disciplinary subject involving finance, legal and technical knowledge says, real estate valuer Hemal Ganatra,
The Valuation profession in India needs to undergo a sea change. With the increasing dependence of finance and real estate transactions in the ever growing real estate sector, the Valuation profession needs to be regulated. Unfortunately, India happens to be one of the few countries wherein we do not have any Valuation Board or licensing authority which is responsible for setting the entry parameters for the Valuation profession. Currently, Banks and financial institutions are empanelling Valuers based on the registration with the Central Board of Direct Taxes (CBDT). Banks are being perplexed with the issue of not realising the value (as estimated by the Valuer) when it is put for sale. There is a common misconception that the value of a property is a simple multiple of the market rate (which can be obtained by simply calling a real estate broker) and the area of the property. Valuation is actually a multi disciplinary subject involving finance, legal and technical knowledge. Every property is unique in nature and its value changes with the purpose and time. It depends on various factors such as physical characteristics, legal factors and socio economic factors among others. Valuation of properties can be carried out by various methods such as the Sales comparison method, the income capitalisation method and the cost method. The appropriate method to arrive at the estimated Value depends on the type of property, its use and other factors. A single property can have two values on the same date if the purpose of the valuation is different. Similarly, the value of two adjacent properties can vary by as much as 100 % with the same purpose. Valuation is carried for purposes as varied as buying and selling, tax, financial reporting, legal settlement or for obtaining a loan. The valuation process is further complicated when properties like Hotels, IT parks, SEZs, Retails Malls and similar income generating properties are valued. Such properties are best valued using the Income approach. The expert Valuer in the process of Valuation checks and verifies the various documents required for developing a particular property. He verifies documents such as Title deeds. Development plan remarks, commencement certificates, approved plans, conformity of the actual construction with the approved plans etc. The Valuer also provides advice on the demand and supply occupation, tenancy position, adverse rights on the property among others. The increased competition between private and public sector banks alike to finance real estate projects has also increased the dependence on the Expert Valuer to provide sound advice to financial decisions. Everything sounds gung ho in the current Real estate boom, but the realisation will come when the markets will not be so good. Speculation has been rife about the inevitable correction in the real estate market. With the rising interest costs, the ever rising demand and the even shorter supply, valuations by an expert with the requisite education and experience is the call of the day. There is an urgent need to introduce more professional courses in Valuation of properties. The Centre for Valuation studies, Research and Training is one such body which has taken the initiative to bring professionalism in the field of Valuation by introducing valuation courses in Universities and aims to pursue the respective authorities in establishing the Central Valuation Board. The objective has been partly achieved as the Centre has been successful in getting introduced Full Time Post Graduate Degree Course in Valuation of Real Estate & Valuation of Plant and Machinery in Sardar Patel University at Vallabh VidyaNagar, Gujarat. The Centre has also introduced the same Masters Degree by way of Distance learning/ correspondence programme in Dr. Babasaheb Open University, Ahmedabad. Gone are the days when bankers only referred to the last page mentioning the value in a valuation report. Bankers now need to understand the valuation concepts themselves to guide them in their financial decisions. TNN , 10 Mar 07