January , 2018
India’s Valuation Quality
14:05 pm

Kishore Kumar Biswas

Kirit Budhbhatti

Principal, Government registered valuers and Member of Arca Laudis International Network of Valuers

Q. How do you explain India̕ s valuation quality compared to developed countries of the world?

A. In developed countries valuers are trained in valuation before granting Licence for practice. As per qualifications and examinations passed, different grades of licences are granted to the valuers in the US.

In our country there is no Act to regulate the valuation profession whereas in countries like Gambia, Ghana, Nigeria, Kenya, Zimbabwe. Zambia, Sri Lanka, Singapore, Malaysia, Australia, New Zealand, etc. the profession is regulated by an Act which requires that in order to  practise valuation in those countries one must possess an academic degree and experience in  valuation. Moreover, officers in valuation departments of these countries like Chief Valuer and Valuers working under him are academically qualified and experienced in valuation.

As there is no Act to regulate the valuation profession in our country-the registration granted u/s 34AB of Wealth Tax Act, 1957 (WTA) is practically valid for all purposes till today. Hundreds of government engineers took up valuation as a timepass profession after retirement because 10 years’ experience in civil engineering is sufficient for them to get registration under the W.T.Act. Persons having no academic qualifications as well as experience in valuation are entitled to get such registration. This is because the civil engineers, architects and quantity surveyors with degrees and experience in these fields are entitled to get the registration and more than 95% of valuers registered  under WTA fall under these categories.

Under the instructions from RBI, Indian Banks’ Association (IBA) appointed a working group for framing the criteria for empanelment of valuers. IBA which circulated the draft to the working group by an email on September 15, 2015 has done an extensive exercise and it gives an idea about the current situation of the profession and in a nutshell their findings are given below:

The practitioners in the field of valuation with more than 20 years’ experience are not aware of basic valuation maxims and hence, do not use them while preparing the valuation report.

The judgment of the Gujarat High Court in the case of Special Civil Application No.9762/2001 between Institution of Valuers and others and Union of India and others decided on April 27, 2012 clearly establishes so far as issue of valuation is concerned that professions of valuation of real estate, valuation of plant and machinery, civil, mechanical, electrical engineering and architecture are independent disciplines and in order to practise any one of  these professions a degree in the respective discipline is essential.

The Ministry of Corporate Affairs has recently finalised the rules for registration as valuers for various categories of assets including immovable property and plant and machinery to be adopted by Insolvency and Bankruptcy Board of India (IBBI). The IBBI is going to conduct the examinations in valuation.

There are six properties located. The size, shape and area of land of all the properties is the same. All the buildings constructed are identical having the same structural stability, size, planning/layout, age, maintenance, workmanship etc. but Value varies from 22 lakhs to 132 lakhs! Because the first property is owner occupied, the second one is occupied by the tenant protected under the rent control act, the third is occupied by tenant not protected under the rent control act, the fourth one is constructed on leasehold land where in the event of sale or transfer 50% unearned increase is payable to the owner in the event of sale or transfer, the fifth one is also lease holdland but the expired period of lease is 10 years and there is no renewal clause and there is a covenant to surrender the property free of cost after the expiry of the lease period to lessor, the six the one is in the residential zone as per the development plan in force but it is earmarked as commercial property in the draft development plan which will come into force after one year and the commercial zone is lucrative. This clearly indicates though the buildings are identical from the civil engineering point of view due to rules of of economics, the rent control act, transfer of property and town planning value is quite different. I also mentioned that you will be surprised to know that in Delhi a valuer will have to ask the landlord’s age when he is valuing rented property because tenants of the landlord having an age of more than 65 years are not protected under the Act.

IBBI is going to take the examination of all the practising valuers having degrees in engineering and architecture. How can this type of system maintain the standard where prospective students know in advance the questions they are likely to get in examinations with answers?

Q. What are the challenges for valuation process in the coming days?

A. In India due to negligence of the Central Government and all State Governments for the last 60 years no educational system is developed in the field of valuation. They dragged valuation works with the  help of engineers even though they were not qualified in valuation. Government even did not bother to train these engineers in valuation. Till 1994 there was not a single university offering a course in valuation Sardar Patel University in Gujarat was the first to start in 1994, full-fledged 2 years M.Val. Post-graduate courses in Valuation of Real Estate as well as Valuation of Plant and Machinery. Shivaji University in Maharashtra then started a similar course but in the Distant Learning Mode. Annamalai University has recently started M.Sc. (RE) and (PM) course in valuation under distance learning. In such a large country like India where at least 100,000 academically qualified valuers are required, we have today hardly 40,000 untrained practising valuers and less than 3000 trained academically qualified valuers.

The first challenge is to educate 40,000 untrained valuers in Valuation profession by offering 6 months Training Course/programme in valuation as stipulated by IBA. It is obvious that there is a dearth of academically qualified personnel to teach in universities in both the  disciplines – real estate as well as plant & machinery.

There are some world class teachers available in the field of valuation and some of them have written excellent books on Valuation of Real Estate as well as Valuation of Plant and Machinery. However, these few cannot reach all centres in India.

Therefore, it is essential to develop training of trainers (ToT). Various Valuation Institutes can offer such TOT programmes who in turn will take up the responsibility of training members of the Institutes in different centres in various cities.

The second and more important challenge is for Central Government (Universities Grant Commission) Universities. These bodies should start full-fledged Courses in Valuation in at least 100 universities (At present only 3) so that
within a few years India will have 100,000 trained and competent Valuers.

Multibillion worth valuation business is waiting to be tapped in India in the years to come. If we do not rise today to upgrade ourselves a time will come when the whole profession will be swept up by multinational companies.

-As told to BE's Kishore Kumar Biswas

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