Proper calculation of valuation of properties is very important for an economy. In India there is huge lack of transparency in calculating it. This is one of the sources of several corruptions. A well known example is the banking sector where valuation of property has an important role in its activities. The Indian government has recently taken several steps to make the valuation method transparent. But the question arises about whether such a hasty measure can be fruitful to make it successful.
The role of property valuers has been more and more important and complex nowadays. A valuer instructs his clients on valuations of properties like houses, factories and shops. Property valuers usually require a degree in a subject such as law or property management or a professional qualification. Valuation depends on factors that can affect property prices such as location, crime rates, economic climate, any relevant property laws in the area and the business potential of a specific locality. In many cases it is a multidisciplinary subject when the case is complex. Property valuers research the value of clients’ assets and produce detailed reports outlining their findings. Valuation of assets is important in the case of its buying or selling, using that as mortgage to banks while seeking bank loan, etc. In various needs valuation of property is essential.
Status quo of valuation process
At present, the valuation process is controlled by section 34 B of the Wealth Tax Act 1957. On that basis valuation of assets related to sectors like banks, financial services, courts of law was being made by the registered valuers. The procedure of punishment in the case of taking unlawful ways of valuation has also been mentioned in the section of the Act. But in 2013, came another Act. Until 2017, there was no fixed rule about who could be the registered valuers. In many cases charted accountants, merchant bankers etc. would do the job.
The new system of standardisation of valuation
In 2017, this profession has been brought under the Ministry of Corporate Affairs (MCA). The MCA has given the responsibility to Insolvency and Bankruptcy Board of India (IBBI) to regulate the valuation system. After March 31, 2018, the will be no unqualified valuers in India. A valuer must have to pass an examination and get a certificate of six months’ course on the subject from a University. Earlier engineers or architects could not assess the value of an asset. From now on they will be allowed to do that job.
Now there are two types of valuers. One is of tangible assets like land, buildings, plants, and machinery. The other is of non-tangible assets. It includes patents, copyrights, franchises, goodwill, trademarks, trade names, etc. Intangible assets
will be valued by specially trained CAs, ICWAs, MBA (finance) et. al.
How will all this change benefit the valuation system? Sandip Kumar Deb, Vice President, Institute of Valuers, said that the new system would pave the way for standardisation in valuation. This was because in that case every valuer had to follow International Valuation Standard. This would remain as the method of valuation until a new Indian valuation system is implemented. But will this minimise the corruption in valuation? “This will of course lower the corruption in valuation,” said Deb. He explained that we now had broadly three approaches in valuation of tangible assets. Those were cost, income and market approaches. The problem was in many times a valuer may follow one approach, instead of taking others to show the value of the property being higher or lower according to his client’s need. The valuer need not
clarify why a particular approach has been followed. He explained that for the valuation of a building, its construction could be cost, say, several crores of rupees. But if that building was captured by many tenants and the monthly rent earned from it, for example, could be `40,000 per month. Then a valuer may opt for calculating the cost approach of the property. This was because in income approach it was not at all a lucrative property. So Deb thinks that this sort
of manipulation in valuation of property will not be possible in the new regime.
Great demand-supply mismatch of valuers in the offing
The restriction on registering as valuers may create a big problem. India already has fewer valuers in per capita terms than many countries of the world. In this situation when there are only three universities running degree courses in valuation subject, there will be a huge mis-match in supply and demand of valuers. This is a major cause for concern in the country. Deb also said that that had not been a well thought-out process of the government. This was a hasty decision. The study curriculum was yet to be decided and there were not enough institutes to teach the curriculum. Therefore availability of valuers would sharply fall in the next FY. At least another year was needed to somehow manage the changing situation.