While the valuation of real estate is becoming an urgent need to help improve market transparency, the use of this service has not been popular and voluntary.
Viet Nam News spoke to Nguyen Minh Ngoc, lecturer of real estate business at the National Economics University, and Phung Quang Hung, director of the Viet Nam Valuation and Financial Consultancy Co's appraisal and auction centre, on the issue.
What are the benefits of property valuation?
Nguyen Minh Ngoc: First, real estate valuation generates funding for business activities through mortgage loans from banks. Second, it helps the State and enterprises determine the actual value of properties to carry out business co-operation both domestically and abroad. It is the basis for acquisitions and investments, which are widespread and occur with great frequency. The appraisal has also substantially contributed to equitising enterprises in recent years. In addition, it assists the State in generating income from land and in managing the real estate market.
How about the inadequacies of property valuation and its lack of popularity?
Phung Quang Hung: There are currently two legal documents on real estate valuation – the Price Ordinance 2002 and the Law on Real Estate Business – which overlap in the training of appraisers.
In addition, banks make loans secured by 70 per cent of appraised value, while the evaluation results in only 70 per cent of real value. It causes detriments to mortgagers when risks occur in the handling of properties.
In addition, real estate valuation is not popular due to market habits. Vietnamese investors are usually small ones. They make investment decisions by sense and short-term trends rather than appraisers' advice. There will be more risks if investors evaluate by themselves.
Nguyen Minh Ngoc: Social awareness of this kind of service is not comprehensive, making its effects in equitisation, business cooperation or even the evaluation for the needs of housing faint. Meanwhile, regulations on real estate appraisal are missing and somewhat overlapping. The market is still waiting for a clear legal framework to develop. Another issue is that the training of property valuation is too weak. There are not many centres with sufficient capacity and credibility.
How would you assess the objectiveness of banks appointing appraisers?
Nguyen Minh Ngoc: One critical ethical standard of an appraiser is independence, which means he or she takes no financial pressure or power from anyone. If a bank sets up its own valuation department, the unit is still affected by the bank. Even some independent appraisal companies are controlled by the bad sides of the market such as harsh competition and the impacts from people hiring them. Accordingly, evaluation reports are no longer objective.
Viet Nam regulates that appraisal companies must buy professional liability insurance or reserve funds for operational risks. In many parts of the world, appraisers are also asked to purchase professional liability insurance. Only then can clients trust in their services.
What is the greatest difficulty for appraisers?
Phung Quang Hung: It is collecting information. The requirement of market evidence in written form is really tough. Many management agencies currently have no data on housing transactions, so appraisal companies have to compile statistics themselves. Appraisal quality, therefore, depends very much on the ability of appraisers.
In Viet Nam, there are five methods of evaluation, but there is in fact no specific method for a single case. Appraisers should select and combine appropriate methods for each object. — VNS