Guidelines for banks, HFIs on property valuation in a month

Real estate valuation guidelines, which would serve as a benchmark for banks and housing finance institutions (HFIs) to determine the property loan amount, are likely to be in place by the end of this month.

With an aim to streamline the business of property valuation, the National Housing Bank (NHB) and Indian Banks’ Association (IBA) are jointly preparing the norms, standards and procedures for real estate valuation. The new norms would be implemented later this year.

Although the valuation handbook was originally being targeted for last April, the consultation process with the industry got prolonged over some tricky issues. The proposed guidelines will be in the form of recommendation, but banks and HFIs are expected to follow them since the valuation handbook is an IBA initiative.
 

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# Real estate valuation will be done either by civil engineers, architects or town planners. Professionals such as members of the Royal Institute of Chartered Surveyors could be empanelled as valuers by banks and HFIs

# Valuers will be categorised in 3 sections depending on the value of the property and their level of experience

# Aim is to ascertain the value of the property for appropriate loan amount 

# Property under mortgage will also be assessed periodically

# A dispute resolution process is also being formulated

Once the guidelines are made public, real estate valuation will be done either by civil engineers, architects or town planners. Also, qualified professionals including members of the Royal Institute of Chartered Surveyors could be empanelled as valuers by banks and HFIs.

So far, there are no stringent norms on qualification or experience of the valuers. Also, there are no standards or procedures to be used as benchmark for valuation. The disorganised nature of real estate valuation has often resulted in litigations, an industry expert said.

According to the proposed guidelines, there will be three categories of valuers depending on the value of the property and their level of experience. For instance, category A valuer will be able to value property of any amount, but category B valuer can go for up to Rs 25 crore worth of property, and so on. The professional fees of the valuer will also vary accordingly.

Even as the guidelines talk about ways to avoid litigation through engaging multiple valuers for high-value transactions, a dispute resolution process is also being formulated, an industry insider indicated. An expert committee, with members from the banking community, are likely to be involved in the dispute resolution process vis-à-vis valuation of property.

The empanelment of the valuers with the banks or HFIs will be for a fixed period, perhaps three to five years. However, an annual performance review of the valuers is likely.

The purpose of the new policy on valuation is to ascertain the value of the property so that an appropriate loan amount could be decided. “The purpose is also to periodically ascertain the value of the property that has been mortgaged, whether it is increasing or decreasing over the mortgage period,” the draft guidelines says.

As for the valuation standard, the objective is to provide a common definition of market value. The guideline handbook would stress that the valuation standard will be applicable for estimation of value of real estate — for sale in open market and not for estimation as an ongoing concern.

The rulebook will describe terms such as market value, fair value, willing seller, arms length transaction, and periods of rapid change in market condition. Also, it would have different norms for investment properties, owner occupied properties and trade-related properties like hotels and cinemas.