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Clearing the Myth from the Valuation Profession in Thailand

VAT News Vol.4/2000
 

Sopon Pornchokchai
Managing Director
Agency for Real Estate Affairs

During the late 1980's to early 1990's, when real estate markets in Europe, America and Australia were in a deep bust period, a big question was raised over the professional reliability of valuers for over-valuing properties. Hence, several corrective measures were introduced such as professional indemnity insurance, closer controls by national professional valuation bodies (which are mostly self-regulatory organizations) and the like. In the late 1990's, Thailand experienced the latest bust and Thai valuers were similary under question. Some of the doubts included 1) No public confidence in service standards or the ethics of valuers, 2) Lack of valuation education, 3) Insufficient information for proper valuation and 4) Lack of common rules to govern valuers.

No public confidence in service standards or the ethics of valuers?
        The above phrase implies that the valuation profession in Thailand is very inferior, which is untrue. In fact, there are quite a number of knowledgeable, internationally-trained and widely-accepted Thai valuers. In international valuation-related firms operating in Thailand, valuation tasks are conducted by Thai valuers. The vast majority of Thai valuers have never been involved in malpractice.
        In western countries, independent professional valuers were blamed becauase they failed to foresee the coming bust and they valued most of the properties for transactions. In Thailand, bad debts in financial institutions were due to the fact that most borrowers did not have enough, or even no collateral at all. The management at financial institutions issued the loans according to their own policies. In many critical cases, they did not use (the opinion of) independent valuers.
        In 1998, a Thai valuer was arrested on a charge of over-valuing property in the Bangkok Bank of Commerce (BBC) scandal. The situation of the valuation profession in Thailand would have been worse if that arrested valuer was from a local Thai valuation firm instead of a very large international property consultant firm. At present, professional liability insurance has been introduced in Thailand. This will help prevent any unnecessary scandal.

Lack of valuation education?
        Property valuation has an interdisci-plinary approach. Thailand has excellent engineers, economists, accountants, statisticians and the like to form a team to value properties. The body of valuation knowledge is not as sophisticated or hi-tech as that of building satellites or inventing drugs for AIDS. In turn, new techniques on Geographical Information System (GIS) for Valuation, Computer-assisted Mass Appraisal (CAMA), Discounted Cashflow (DCF) and Artificial Intelligence (AI) by neural networking in valuation have only been developed within the last few decades. Thai valuers are also using these new techniques.
        In terms of producing new valuers, since 1986, around 1,000 valuers were created by different institutions sponsored by international institutions from the USA, Europe and Australia. It is expected that during the next 5 years, over 1,000 valuers will graduate with a valuation (under)graduate degree to serve the needs of the market.
        In terms of the continuing professional development (CPD) program, the Valuers Association of Thailand (VAT) initiated the CPD Program last year. It is stipulated that professional valuers must attend at least 16 hours of the CPD program each year to be eligible for the extension of their professional practices. Every month, the VAT organizes the CPD program. Occasional special training for valuers is also held.

Insufficient information for proper valuation?
        It is a conventional belief that most of the transaction prices reported at the offices of the Departments of Lands are below the real prices in order to reduce payable tax. In fact, there was a recent study conducted by an Australian consultant to the Central Valuation Authority finding that the majority of reported prices were the actual transaction prices.
        A conventional proposal is to disclose property transaction data in order to create transparency in a public database for valuation. This implies that the ideal valuation would be based on a mechanical approach of having plentiful official data. In fact, in developed countries such as Australia where transacted prices are considered public information, actual transactions of large commercial properties hardly ever happen. Investors are not willing to disclose their transacted prices due to competitiveness reasons; therefore, they buy or sell shares of the entities that own the properties instead. In this case, they have no need to report their transacted prices.
        Rich valuation practices must regard the art of researching and the essence of data diagnosis and analysis. To obtain reliable information for valuation outside of official sources, requires the art of field survey, professional interview and in-depth research as well. Data are crucial for decision-making but the art of diagnosis and analysis is more essential. In the USA, a public economic indicator on housing starts was available long before the 1991 property market crisis. In the very small nation state of Singapore where the government controls the supplies of land and housing, oversupplies are still inevitable. Due to speculative forces, any warning system might not work well.

Lack of rules to govern valuers?
        Actually, Thailand has the VAT as the self-regulatory organization. 50 out of 55 valuation firms are under the VAT. It has over 2,000 members and represents fee valuers, government assessors, valuation educators and appraisers in financial institutions nationwide. Nowadays, positive development initiatives by the VAT include the enforcement of valuation standard practices in 1993, the approval of valuation firms for valuation for public purposes since 1995, the announcement of valuation ethics in 1997, the monthly CPD program since 1999 and the annual standard construction cost estimate beginning this year. In the future, the VAT is planning to conduct a thorough professional examination and ranking of valuers in accordance with their professional expertise and experience.
        There is also an attempt to regulate valuers in Thailand. However, in any profession, self-regulation is more acceptable. It should be mentioned that in the United Kingdom, there is no law regulating valuation practices. RICS, as the self-regulatory organization, governs valuers. So does the VAT in Thailand. Panacea programs of regulating valuers by an outside (semi-)government body can hardly help solve the problem. It must be recognized that development must begin from within. Long-term sustainable development of the valuation profession in Thailand must come from self-regulatory practices.

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