Industry sheds its old values

The professionals who put a price on property assets are busier these days as investors, trying to come to grips with the current state of their holdings.

The rising property market proved immensely profitable for Oman Insurance, the largest insurance provider in the UAE, right up until the first three months of last year.
The value of its long-held investment assets and new properties it bought in the rising market climbed to Dh752.5 million (US$204.8m) from Dh493.9m at the end of 2007, financial statements show. In the same period, it began picking up off-plan property and listed Dh172.3m of advance payments as of late last year. T
he company changed its accounting policy in early 2008 to be able to take advantage of the increasing value of its property, allowing it to account for large quarterly profits for its shareholders, even if the money was never collected.
Now, more than 18 months later, the value of the company's investment properties has dropped to Dh230.6m. It no longer reappraises the value every quarter and has shifted nearly half of its land holdings into another category on its books by announcing it plans to develop its own project.
The move allows it to not revalue the property to the current market levels, instead counting it at cost of acquisition. Oman Insurance declined to comment.
But the accounting history of Oman Insurance is a testament to the reality companies across the Gulf are facing.
The property downturn is no longer considered a temporary hiccup and property owners are coming to terms with the fact that the boom days are over, land valuers say. The business of property has shifted from the development of off-plan projects to the more down-to-earth activities such as valuations.
"I would say in the last six months, we have seen a 30 per cent rise in valuations," says Saeed Hashmi, the head of valuations at Landmark Properties. "It's mostly come from companies who want to know what their portfolio is worth.
"Many waited for more than a year but now they are getting serious about revaluations."
These new valuations could mean sharp losses this year, as property investors including insurance companies, banks, investment companies and developers take a full accounting of the drop of more than 50 per cent in property values across the UAE since their peak in late 2008.
Banks also require valuations before issuing mortgages and with the lending market starting to open up slightly, there has been an increase in these as well, Mr Hashmi says. At the same time, the Dubai Real Estate Regulatory Agency (RERA) is becoming serious about enforcing a standard of services for land valuers. RERA is planning to fully regulate the industry over the next year to two years.
Although several valuers would not comment publicly about the impetus for these reforms, they acknowledge privately that during the double-digit growth days of 2007 and 2008 some unscrupulous valuers appeared to purposely inflate the valuations for their clients. Michael Atwell, the regional head of the property consultancy Cushman and Wakefield, says that by the standards of valuers certified by the Royal Institution of Chartered Surveyors no client can influence the outcome of a valuation.
"That is a core belief of valuation," Mr Atwell says. "That it is independent and fair."
Sometimes clients do not like the valuation that a company provides, arguing that it is too low in the current market, but that comes with being fair, he says.
The largest challenge in the current sluggish market is finding enough transactions on which to base a valuation. Valuers use a range of information in their work: from sales data in the area to scoping out the property, and examining any defects such as a lack of parking or proximity to a waste-disposal area.
Some companies have even argued they cannot yet revalue their properties because the market is so slow. Ernst & Young, the auditing firm, said in an introductory letter to Amlak Finance 2009 annual financial statements that it was waiting to adjust the value of the company's huge property investments.
Amlak listed Dh3 billion of investment properties and Dh781.4m of advances on investment properties.
"Management believe that property prices have generally declined since these assets were acquired but are unable to quantify the amount of the decline in view of the limited number of transactions currently taking place in the market," Ernst & Young wrote.
"Accordingly, the group has continued to carry such assets as of December 31 2009 at their cost."
That the company has not revalued could mean major write-downs are on the horizon for Amlak. The rash of valuations could help to jump-start sales in some areas, analysts say. While land values have dropped below costs in many areas, sellers may begin to become more willing to part with their holdings at discounts. The likely buyers?
"I believe that family offices and wealthy individuals will buy up land to bank it for the next generation," Mr Hashmi says. "There could be a major shift in ownership because of this downturn."
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