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Real estate appraisals offer effective role in maintaining the sector’s integrity

 

Efficiencyof real estate appraisal tools promote investment and raises value of finance

Real estate appraisals have long been one of the most important aspects for identifying the pulse of the region’s market, its long-term stability and for reducing the effect of real estate bubbles and sharp impacts on the sector. This is particularly relevant when assessing existing or in-progress projects.

As the sector continues to grow, the importance of developing the real estate appraisal profession is also increasing, owing to its direct association with the growth of the real estate finance sector. The more accurate and sophisticated the appraisal mechanisms and tools are, the more positively the real estate finance market develops.

It’s worth mentioning that the tendency towards developing real estate market control laws, as well as reducing fluctuations and imposing more related laws, without being accompanied by any developments in the appraisal sector, will bring only more risks, fluctuation and instability. Given that real estate prices resulting from supply and demand forces are a key factor for setting the level of price transparency and fairness, the region’s ability to stand firm amidst boom and recession conditions is resolute; thereby, protecting the interests of stakeholders such as developers, finance channels and the end purchaser.

Al Mazaya Holding’s Weekly Real Estate Report points out that there is currently an evolution going on in the real estate sector in relation to construction, building techniques and the optimal use of global practices. These are also being accompanied by the application of environmentally friendly building standards in the designs.

The current issue is that real estate appraisal standards and tools have not been developing at the same pace in many real estate markets. Further development of the tools used and references relied upon are still required, taking into consideration the complexities of real estate development, market fluctuations, as well as the cyclical economic pressures experienced by regional and global markets.

The availability of flexible and scalable tools for real estate appraisal purposes would mean the sector could take into account all major and minor indicators in the appraisal process. Al Mazaya’s report asserts that the continuous rise in real estate unit prices, without any real economic justification, is deemed one of the most influential factors on the appraisal process and real asset values. This makes it very difficult to find out the real value of real estate assets.

Relying on former prices to determine the sale value of future transactions is no longer applicable. This is because of continuous price increases being experienced in the short term. As such, real estate appraisal processes must be based on clearer and more specific assessments – made by specialists and professionals in this field.

Al Mazaya’s report also tackles the negative side caused by real estate owners exaggerating the value of their properties, particularly amidst high demand rates. That said, many markets are now witnessing the selling of real estate units through public auctions, with the aim of achieving transparency, clarity, and reasonable market-rate valuations.

Al Mazaya’s Weekly Report is keen to stress that appraisal tools alone will not achieve stability for the real estate market, neither will they be able to reflect supply and demand forces; however, they will contribute to the aborting of many sale transactions, due to an absence of any real reference for stated values or being based on the prevailing economic climate.

Al Mazaya’s report further asserts that leaving the appraisal of real estate values in the hands of property owners is considered to be a controversially random form of appraisal and is not commensuratewith the healthy evolution of the real estate sector as a whole. This could contribute to a sharp decline in real estate prices in markets that go through a state of slowing demand and purchasers’ reluctance and abstention from buying at exaggerated prices.

It is worth mentioning here that sales transactions must be made between a seller, purchaser and financer at most times, thus the process of achieving the highest price required by the seller, the lowest price sought by the purchaser or the fair price targeted by the financier will be among the many tasks of the real estate appraiser.

 

KSA

With regard to the current status of real estate appraisal in the Saudi Arabian real estate market, Al Mazaya’s report says that tendencies towards imposing taxes on undeveloped land, in addition to elements of the economic transformation plan – intended to encourage investment and reinvigorate the real estate market – require the availability of developed real estate sector tools that are capable of keeping up with the market’s developments.

Given the absence of efficient appraisal methods and tools, further challenges in attracting foreign investment remain. This is especially concerning when the availability of a well-developed real estate appraisal sector will be of high importance for the Saudi Arabian market, in order to keep pace with the development in real estate finance regulations.

The importance and role of real estate appraisers are increasing in KSA because of the development in real estate finance and mortgage laws. Real estate finance and housing depend mainly on proper appraisal of available units and, therefore, any manipulation in prices of sellable units would lead to a financial drawback – for all parties. Given the high scope of price fluctuation on land and real estate units in the market, a fair and balanced appraisal system is considered one of the most important factors facing Saudi’s real estate industry.

The positive impact of fair appraisals will reflect well on the pillars of the national economy, the construction and reconstruction movement being witnessed in the Kingdom, along with the associated job creation.

Qatar

Al Mazaya’s report touches upon the follow-up and attention being paid by official entities in Qatar to keep up with developments in the real estate market, while the laws and regulations related to the development of work tools for real estate appraisal are to be given special focus from government agencies and the private sector. This comes as part of the overall process of developing and modernising laws related to the real estate sector, in a manner that safeguards the rights of all stakeholders. The focus, in the Qatari market, tends towards applying the highest standards and global best practices in this field – alongside compliance, quality and sustainability standards.

It is noteworthy that Qatar’s Ministry of Justice is striving to develop real estate appraisal mechanisms and modernising the valuation and appraisal processes currently in use. Most regional markets have experts who are fully familiarised with real estate and its developments, but what the real estate market and the appraisal process are lacking is the scientific knowledge that would compel the market to take the right path away from personal judgments, which bring many risks for the future of real estate and the banking sector.

 

Conclusion

Al Mazaya’s report strongly emphasises the necessity of separating the real estate valuation or appraisal process from the duties of the real estate broker. The real estate appraiser is responsible for determining fair prices of real estate transactions of different types, by following state-of-the-art techniques and relying upon the bestscientific andpractical references. The real estate broker’s role is limited to providing the best conditions to bring together the buyer and seller, in order to close a deal for a pre-agreed commission.

Al Mazaya’s report reaffirms that effective real estate appraisals will provide independent opinion on the market value of real estate assets, depending on accumulated market experiences and reported changes in prices at various locations. It has, therefore, become necessary to adopt technical standards for such measurements. These relate to recognising the classifications of real estate and building laws that are applicable in a given market. Al Mazaya points out that real estate appraisal processes are the basis for determining the estimated value of property prices in cases of mortgage,expropriation or direct purchase deals.