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The State of valuation in Thailand
The Appraisal Journal, Volume LXX Number 3, July 2002
David Layne
Layne Consulting Services, Inc.
who was invited to teach valuation in Thailand
in March 2002, a program sponsored by
USAID and Agency for Real Estate Affairs

Economic Background
        In the mid-1980s, Thailand's economy began to grow rapidly and the country experienced a real gross domestic product growth of more than 8% annually. As a result of this growth, Thailand began to liberalize its financial system and, in 1990 removed many of its capital controls to allow money to flow better both inside and outside the country. In 1993, with the creation of the Bangkok International Banking Facilities, commercial banks were permitted to receive deposits and borrow money in foreign currencies and to lend funds both nationally and internationally. As a result of these actions, massive amounts of currency flowed into Thailand. Much of this new foreign investment capital was channeled into the increasingly speculative and overvalued real estate market.
        In 1995, the Thai baht, which was linked primarily to the U.S. dollar, started to appreciate strongly against the dollar. However, in 1996, there were indications of a weakening Thai economy. Thailand was importing much more than it was exporting, and the overvalued baht and increasing labor costs resulted in Thailand losing its competitive advantage in the world market. Although it tried, the Bank of Thailand was unsuccessful in defending the baht.
        By the summer of 1997, the financial sector situation had become critical, and dozens of finance institutions closed. By this time, Thailand was in serious danger of running out of reserves, and it was clear that the currency support and other economic measures had failed. On July 2, 1997, in response to internal and external pressures, the Bank of Thailand decided to float the baht's exchange rate. As a result, the baht steadily lost value. The loss in the baht's value, coupled with Thailand's weakly regulated corporate and banking/finance sectors and the country's extremely large foreign debt, caused growing concern about the banking system's stability.
        As the baht continued to lose value against the U.S. dollar, Thailand's capital and foreign-exchange markets eventually collapsed, and more than half of the country's financial institutions became insolvent. The effect that this had on the business sector was devastating, and many businesses also became insolvent and defaulted on their debts. Consumers were confronted with rapidly increasing interest rates. Thailand continued its downward economic spiral. As a result, by late 1997 and into 1998, the real estate boom had ended with a plunge in real estate prices and values.
        The reasons for the collapse were many and varied: weak public institutions, inadequately monitored financial and corporate sectors, capital borrowing in foreign currencies while revenues were generated in the baht, capital borrowing on a short-term basis to finance long-term projects, linking the baht's value (B25 to US$1) with debt repayment in U.S. dollars, and a poorly developed and inadequately implemented baht-devaluation plan. Because the economic crisis related specifically to the real estate market, financial institutions had entered into far too many loan arrangements with both undercollateralized loans and undercapitalized projects.

The Current State of Thailand's Valuation Profession
        At the time of the savings and loan crisis, valuers in Thailand, similar to in Thailand, similar to in the United States during the 1980s, were starting to face greater public scrutiny. While the valuers could hardly be blamed for the economic collapse, questions were being asked about their profession-including question about public confidence in both the product and in the valuers' ethics, the valuers' education levels, the availability and reliability of data, and finally, valuation standards.

Public Confidence
        While there is truth in statement that there is a lack of public confidence in the product and, in some cases, even in the valuers' ethics, both the Valuers Association of Thailand (hereafter "Valuers Association") and the similarly named Thai Valuation Association (hereafter "Thai Valuation") have codes or statements of ethical conduct.1 Valuers Association adopted in 1997-and currently enforces-a Code of Professional Ethics that is observed by its certified valuers. This code includes the requirements of "confidentiality, integrity, neutrality and contribution to the development of the profession."2 Valuers Association established a "Sub-committee on Valuation Standards and Ethics to strictly enforce this [policy]."3 Sanctions for the violation of the code could include a warning or temporary, or even permanent, loss of Valuers Association membership.4
        Thai Valuation maintains both a Professional Standard and Ethics Sub-committee and a Standard and Ethics Offence Appeal Sub-committee, to develop, interpret, and enforce a system of professional ethics.

Valuers' Education Levels
        In the aggregate, Thai valuers are both knowledgeable and well trained. In addition to formal training in Thailand, many valuers have received training in ternationally.5 Valuers and appraisers from other countries have been invited to present programs for and discuss theory and applications with their Thai counterparts. In addition, Thai valuers play a very important role through their activity in the Asia/Australian valuation community, as well as thorough participation in international conferences.
        Continued professional education is also in evidence. In 2001, Valuers Association introduced a continuing professional development (CPD) program. Since 1999, Valuers Association requires, through the CPD program, that its members attend a minimum of 18 hours annually to maintain their professional standing. Thai Valuation's organizational objectives include the development, to the international level, of the Thailand's property-valuation profession and the provision of continued professional training.

Data Availability and Reliability
        While some valuers hold a contrary view,6 most valuers believe that both the availability and the reliability of data are inadequate. For the obtainment of reliable data, it is more common in Thailand than in the United States to ascertain it from sources out side government agencies-for example, through private research, field investigations, and interviews with participants and others who may be knowledgeable about transactions and transaction prices. Central data sources, like those available in the United States, simply do not exist in Thailand. In addition, it is a widely held belief that, in order to avoid taxes, reported sale prices are below the actual transaction prices.

Uniform Standards
        Thai valuers are dedicated to the development of valuation standards that are comparable to those in other countries and that meet the increasing internationalization of standards. Using organizations such as the appraisal Institute (AI) and the International Valuation Standards Committee (IVSC) as models, Thai valuers have developed definitions, processes, and procedures that are very similar to those of these and other organizations.7
        Both of Thailand's national valuers associations have, as their stated objective, the promulgation and implementation of property-valuation standards comparable to those of other nations. In 1997, in its Codes of Professional Ethics and Standards of Professional Appraisal Practice, Valuers Association established rules that mandated professional practices that follow internationally accepted standards.         One of the outstanding evidence to its effort is its notable annual manual. The manual lists out both the construction costs and depreciation estimates and is widely used by the property appraisers. This leads to the standardization in the calculation of cost approach method (one of the 3 mostly used valuation methods).
        In 2001, the Thai Appraisal Foundation was founded as a not-for-profit educational organization, dedicated to the advancement of professional valuation, that serves both the user of appraisal services and all appraisal disciplines. The Foundation supports this education effort through research and by providing current valuation information to the public. In August 2000, James R. Park, director of Research and Technical Issues of the U.S. Appraisal Foundation, met with Thai appraisal professionals and users of appraisal services to begin a dialogue as Thailand considers the better regulation of the appraisal profession. The Appraisal Foundation has indicated that it intends to continue to share knowledge, views, and opinions with Thai valuers.

Today's Economy
        Currently, Thailand continues to run a significant, and rising, fiscal deficit. Economic recovery is restrained because structural weaknesses remain. Bad loans continue to undermine banking profits and corporate growth. However, Thailand is experiencing economic growth. In 2002 growth is expected to be approximately 2.5%, and Thailand hopes to produce a balanced budget by 2008.
        Thailand has undertaken a wide range of measures to promote its attempts to restore national and international confidence, through improvements in governance and increased private sector economic competitiveness. The government, with the creation of the Thai Asset Management Corporation, will acquire a significant percentage of the banking system's bad loans. Although more needs to be done, the government is developing better public and private sector management polices and is increasing, somewhat, government openness. There has been growth in exportation, and there have been improvements in the manufacturing sector. In addition, the baht is stronger, and both the stock market and international credit ratings have increased.
        Recovery has been aided by loans from the International Monetary Fund, as well as from other sources. The Bank of Thailand is strengthening both its accountability and transparency. Progress has been made toward the restructuring of banks and corporations, the resolution of nonperforming loans, and the reformation of the bankruptcy and foreign-own-ership laws.
        Continued long-term growth will depend on the maintenance of the right macroeconomic framework, the continued development of financial supervision capacity, and progress in the areas of governance and competitiveness.

The Future State of Thailand's Valuation Profession and Recommendations
        As Thailand continues its economic recovery, it appears that valuation regulations will occur. Thai valuers are accustomed to using models that have already been proved to be successful elsewhere, and they should continue to do so in the development of any regulatory program. Of course, excellent models for any regulatory plan may be found in those of the Appraisal Foundation, with its Appraiser Qualification Board (knowledge, education, and examination) and its Appraisal Standards Boards (uniform and consistently enforced valuation standards). According to the Appraisal Foundation's James Park, the Appraisers Qualifications Board has "direct parallels with issues that Thailand must also confront."8
        There appears to be a need for a single overreaching control agency with the authority and strength to effectively monitor the profession. Such a group might be either a self-regulatory one that could be organized, implemented, and controlled by the professional organizations (namely Valuation Association and Thai Valuation) or, more probably, might be instituted by a government agency. The two most appropriate candidates for such a government agency are the Ministry of Finance, through the Security and Exchange Commission, or the Ministry of Interior's Department of Land, through its Central Valuation services.
        Finally, to increase the level of confidence in and validity of the valuation opinions, Thai valuers need far better access to accurate, reliable, and comprehensive transaction data. To start this long-range objective, the public and private sectors should both begin to pool their transaction data.

David Layne is the owner of Layne Consulting Services, Inc., in Utica New York. He is also vice president of Transportation Projects with R.K. Hi is & Co., Inc. He is principally involved in the acquisition of rights of way for local governments and in teaching. Mr. Layne recently returned from a one-month consulting assignment in Bangkok Thailand sponsored by the United States Agency for International Development, the Kenan Institute of Asia, and the Agency for Real Estate Affairs (one of the largest valuation firms in Thailand).


1.
There are two professional valuation groups in Thailand: the Valuation Association of Thailand and the Thai Valuation Association. Valuation Association was established in 1986 and has approximately 2,000 members from more than 50 valuation firms. Thai Valuation was established in 1996 and has representatives from approximately 20 firms.
2.
Thai Appraisal Foundation, "Standard Practices for Valuers in Thailand,"
3.
lbid
4.
lbid
5.
Lincoln Institute, Thammasat University Graduate Diploma Course (a joint venture with the University of South Australia).
6.
"[A] recent study conducted by an Australian consultant to the Central Valuation Authority determined that the majority of reported prices were the actual transaction prices." Reported in "Clearing the Myth from the Valuation Profession in Thailand," Sopon Pornchokchai, VAT News (Octoberl 2000).
7.
Thai valuers have created numerous linkages with other valuation organizations, including (but not limited to) the appraisal Foundation, the Appraisal Institute, ASEAN Valuers Association, China Appraisal Society, the European Real Estate Society, the Hong Kong Institution of Chartered Surveyors, the International Valuation Standards Committee, National Association of Realtors, Pacific Rim Real Estate Society, Valuers Association of Japan, and Royal Institute of Chartered Surveyors.
8.
James R. Park, "The Appraisal Foundation, Educational Considerations in Regulating the Valuation Profession," VAT News (October 2000)
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