30th August, 2011, National Housing Bank, New Delhi

Handbook on
Policy, Standards and Procedures for
Real Estate Valuation by
Banks and HFIs

Prof.Dr.P.S.N.Rao, SPA, New Delhi

 Part A Background
 Part B Process
 Part C Outcome : The Handbook
 Part D Way Forward : Next Steps
Part A
Background
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
Issues
 Credibility
 Stability
 Bubble syndrome
 Accuracy
 Authenticity
 Reliable Data based
 Standardised
 Global acceptability
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
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
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
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’
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 )
Indian Initiatives
 TheMinistry of Companies Affairs,
Govt. of India has released a concept
paper for Council of Valuation
Professionals of India Bill
Part B
Process
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
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.
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.
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.
Preparation of
Draft Handbook
 The IBA Steering Group met had several
meetings to discuss various issues and
the draft Handbook was developed.
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.
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.
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.
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.
Release of Handbook
 The Handbook has been printed and is
ready for distribution.
Part C
Outcome : The Handbook
Coverage
 Policy
 Standards
 Procedures
 Annexures
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
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
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
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
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 6 months ‘prescribed valuation

course’ so as to achieve the target by year 2015
Certificate in Valuation of Real Estate
Suggested 6 months 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.
Issues
 Methodology of course delivary
 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
 Thank you.

 Prof.Dr.P.S.N.Rao
eMAIL : drpsnrao@hotmail.com