1. 20th April, 2012, National Housing Bank, New Delhi
UNIFORM VALUATION STANDARDS –
WAY FORWARD
Handbook on
Policy, Standards and Procedures for
Real Estate Valuation by
Banks and HFIs
Prof.Dr.P.S.N.Rao, SPA, New Delhi

2. Part A Background
Part B Process
Part C Outcome : The Handbook
Part D Way Forward : Next Steps

3. Part A Background

4. Significance of Valuation Today
Evolving real estate markets
Sophistication of housing finance/ real property finance options / products
Foreign Direct Investment
REMFs / REITS
Bad loans recovery
Credibility and transparency in global markets

5. Issues Credibility Stability Bubble syndrome Accuracy Authenticity
Reliable Data based
Standardised
Global acceptability

6. Education in the subject of Valuation
There are no set standard educational syllabus/courses for valuation education in India
A few universities conduct 2 years Master’s degree courses on Valuation
In many engineering/architecture/town planning institutes, valuation is taught as a subject
The Institution of Surveyors conducts an AICTE approved course on Valuation
There is no standardised continuing education either

7. Practice of Valuation
Institution of Valuers offers membership to architects, civil engineers for becoming APPROVED VALUERS and practice valuation as a profession
Institution of Surveyors offers membership ( based on passing an examination ) for becoming VALUERS and practice valuation as a profession
Income Tax Department, GoI registers valuers who are called REGISTERED VALUERS.
Banks EMPANEL valuers based on their own criteria
Valuation is practised in various government departments viz. departments dealing with land acquisition, urban local bodies, etc.
In some states, town planning department also performs the function of valuation ( Maharashtra )
In some states, there are separate valuation directorates

8. Valuer Associations Institution of Valuers
Institution of Surveyors ( Valuation Br.)
Institution of Government Approved Valuers
Practicing Valuers Association of India
The Indian Institution of Valuers
Centre for Valuation Research, Studies and Training

9. Standards of Practice
Valuation reports in India come in all shapes and sizes – no standardisation
For wealth tax purposes, Form O-1 is used.
Standards are absent
The situation is almost a ‘lezeiz faire’

10. International Benchmarks
TIAVSC ( The International Assets Valuation Standards Committee ) was established in the year 1981
USPAP ( Uniform Standards of Professional Appraisal Practice ), USA
AVSB ( Australian Valuation Standards Board )

11. Indian Initiatives
The Ministry of Companies Affairs, Govt. of India has released a concept paper for Council of Valuation Professionals of India Bill

12. Part B Process

13. Meeting at NHB in Feb 2008 This was a brainstorming session
Key stakeholders were invited to raise issues
Based on this initial meeting, the way forward was developed

14. Formation of IBA Steering Group -
The IBA already has a Sub-Committee on Mortgage and Valuation of Property
The issues were discussed in this Sub-Committee and subsequently, a Steering Group on Developing Valuation Standards for Real Estate Financing in India was constituted.
The IBA Steering Group had 17 members who closely interacted to bring out the Handbook.

15. Survey of Banks and HFIs
It was agreed that the first step would be to conduct a Survey of Banks and HFIs
The objective of this Survey was to review the existing processes being followed by Banks and HFIs for empanelling and conducting valuation of properties
Detailed questionnaires were circulated to several Banks and HFIs and information was gathered.
Existing forms and sample valuation reports were also procured.

16. Survey of Valuer Associations
There are 5 valuer associations in India
Information from all the associations about various aspects of the profession were gathered in a structured manner.

17. Preparation of Draft Handbook
The IBA Steering Group met had several meetings to discuss various issues and the draft Handbook was developed.

18. Stakeholder discussions
The draft Handbook was discussed not only with Banks and HFIs but also the valuers from various Associations since they are the key stakeholders.
The points of view of the stakeholders were discussed.

19. Exposure on website
In order to have wider circulation and exposure to the Handbook, the same was put on the IBA website for about a month.
Subsequently, the date was extended for some more time so as to give adequate opportunity for all to access the draft Handbook.

20. Suggestions Around 40 suggestions were received as a result of this.
These suggestions were again discussed by the IBA Steering Group and the decisions were finalised.
The final Hanbook was prepared.

21. Permission from IVSC
Since one of the earlier Committees of the Government of India had recommended that the Valuation Standards for India need to be in tune with international standards, the standards in the Handbook were accordingly prepared.
The same were discussed with the International Valuation Standards Committee ( IVSC ) and due permission was obtained since international standards were being adapted to suit Indian conditions. Due acknowledgement has also been accorded to IVSC for the same.

22. Release of Handbook
The Handbook has been printed and is ready for distribution.

23. Part C Outcome : The Handbook

24. Coverage
Policy
Standards
Procedures
Annexures

25. Policy Criteria for Empanelment of Valuers Duration of Empanelment
Removal
Re Empanelment
Professional Fees
Compliance to Standards and Procedures
Independence and Objectivity
Obligations of Banks and HFIs
Date of effect

26. Standards Standard 1 – Market Value Basis of Valuation
Standard 2 – Bases other than Market Value
Standard 3 – Valuation Reporting
Code of Conduct
Application of Standards to Secured Bank Lending

27. Procedures Procedure for Call for Applications for Empanelment
Procedure for Selection of Valuers
Procedure for Annual Performance Review
Procedure for Conflict Resolution
Procedure for Internal Work Allocation in Banks / HFIs
Procedure for Aloting work to Valuers

28. Annexures Format of Valuation Report ( more than Rs. 5 crores )
Format of Valuation Report ( upto Rs. 5 crores )
Format of Terms of Engagement for Empanelment of Valuers
Format of Undertaking to be submitted by the Valuer for Empanelment
Application for Empanelment of Valuer with Banks/HFIs

29. Part D Way Forward : Next Steps
Adoption of Handbook by the Boards of Banks and HFIs
Distribution of Handbook to all Valuer Associations
Placing of Handbook on IBA website
Placing of Handbook on websites of Banks and HFIs
Developing Internal Systems for Implementation of Handbook
Training of Key Banking / HFI Officials on new regime based on the Handbook
Training of Valuers in a) 6 months ‘prescribed valuation course’ and b) 2 weeks ‘prescribed valuation course’ so as to achieve the target by year 2015

30. Adoption of Handbook by the Boards of Banks and HFIs
All the banks and HFIs need to pass a resolution in their respective Boards and formally adopt the Handbook by passing a resolution to this effect.

31. Distribution of Handbook to all Valuer Associations
All persons incharge of valuation services in various branches of the banks/HFIs need to have a copy of the Handbook with them.
The Handbook needs to be distributed to all the branch offices internally in each of the banks / HFIs.
For this, if needed, more copies need to be printed as the numbers may be huge.

32. Placing of Handbook on IBA website
The Handbook needs to be placed in the website of all the banks and HFIs so that there is full transparency on the standards being used, the processes and procedures.
One should be able to download copies of the Handbook so that printing can be minimised.

33. Developing Internal Systems for Implementation of the Handbook
Within each bank/HFI, the internal systems for implementing the Handbook need to be worked out.
Forms, system of maintaining records, formats of valuation reports to be entertained, committees, etc. need to be put in place.
Levels of responsibility and accountability has also to be made clear.

34. Training of Key Banking / HFI Officials on new regime based on the Handbook
Key officials need capacity building in terms of awareness so that they are in a position to perform their tasks in the new regime.

35. Training of Valuers in a) 6 months ‘prescribed valuation course’ and b) 2 weeks ‘prescribed valuation course’ so as to achieve the target by year 2015
Mandatory certification as envisaged in the Handbook needs to be put in place.

36. Certificate in Valuation of Real Estate Suggested Education Programme
INTRODUCTION – Evolution of Valuation Practice, Purposes of Undertaking Valuation, Organisations Undertaking Valuation, Private practice of Valuation as a Profession
THEORY OF VALUATION – Theories of Valuation, Economic Principles, Factors Affecting Value, Concept of Depreciation, Types of Value.
LEGISLATION – Overview of various laws including Constitutional provisions on property and right to ownership of property, Transfer of Property Act, Land Acquisition Act, Rent Control Act, Apartment Act, Indian Registration Act, Stamp Duty Act, Municipal Acts, Town Planning Acts, Indian Easement Act, Laws of Succession and Wills, Indian Contract Act, Indian Arbitration Act, Valuers’ Bill. Important Court cases and Judgements on Valuation.
STANDARDS – Necessity for Standards, International Valuation Standards Committee, Valuation Standards in India, IBA Handbook
PROCESS OF VALUATION- Approaches and Methods of Valuation, Concept of Dilapidation, Valuation of Different Asset Classes of Properties, Case Studies of Valuation, Practical Exercises and Report Writing.
PROFESSIONAL PRACTICE- Role of Valuer , Code of Ethics and Practice, Responsibility to Clients and Society, Professional Associations in India and abroad, Global Practices, Governmental Interface in Regulating the Profession.

37. Issues Methodology of course delivary Funding
Preparation of course content
Nodal agency to coordinate all activities
Involving all Valuer associations
Online delivary of course material
Contact programmes
Testing and certification
Funding
Funding agencies
Course Fees
Other expenses

38. Thank you.
Prof.Dr.P.S.N.Rao