Property valuation has always been considered something of a mysterious process, with the assessor's calculations based on arcane formulae and, of course, how much a prospective buyer is prepared to pay.
But in a market that has suffered the effects of the biggest property bubble in a generation followed by a crash in values of equally historic proportions, the property assessor has become more important than ever. Now valuers have become the busiest property professionals in the country as developers, banks and private equity houses run the rule over their investments and reassess development land values.
The property consultancy CB Richard Ellis (CBRE) says land prices have declined by between 50 and 70 per cent in Dubai from the market peak in 2008, and by an average of 30 to 40 per cent in Abu Dhabi, where the market is still short of new homes. "Valuations is one of the very few sectors of the property industry now which is growing," says Noura Yassin, the head of valuation and consultancy at CBRE. The firm has recently hired more valuers, as have most consultancies. Landmark Properties opened a valuation division last month.
"There seems to be a shortage of valuators now in the market," says Craig Plumb, the head of research at the property firm Jones Lang LaSalle. Asteco, a property broker based in Dubai, has seen its valuation business double over the past two years. Investors are also demanding a more stringent appraisal of property assets before they commit their money following the rapid decline in prices over the last 18 months.
"Everyone now is looking very closely at valuations because one of the reasons we had this crash is that valuations were unregulated," says Mohammed al Dah, he head of valuation at the Dubai Land Department. "There were no laws to govern them. Before, it used to be more like a formality for everyone, even when you applied for a mortgage." Valuers are mostly well-known property consultancies that follow the regulations and guidelines of the Royal Institute of Chartered Surveyors (RICS), based in the UK.
Although other governmental entities exist in Europe, the US and Australia to value property, consultants and the Dubai Land Department define RICS's guidelines as the most widely respected. "But because there is currently no formal regulation of valuation practitioners, anyone can currently claim to be a property valuer," says Jonathan Brown, the chairman of the RICS UAE Property Committee who welcomes the upcoming regulation in Dubai.
Much of the development in the country is located in non-urban desert locations without any prior history of construction, so a key challenge is establishing a basis for their valuation. "First you need to look at the price at which a property is selling in the same area," says Saeed Hashmi, the head of valuations at Landmark Properties. "When you cannot establish a benchmark for sale, you look at the income, at the rental. You capitalise the income to get the value."
Valuers also look at the selling price of land in nearby locations. "For example, if you value land on Reem Island in Abu Dhabi, some part of the island is already developed and other parts are not. So you base your valuation on the area which is developed," says Sajeer Babu, an analyst at the National Bank of Abu Dhabi. "But today, because there is a liquidity problem, some areas are not going to be developed in the near future."
Still, key remains location. "Values depend hugely on where the land is," says Mr Hashmi. "Plots located on the outskirts where there is unrestricted supply and no infrastructure have been hit severely." CBRE says land prices in Abu Dhabi have declined most on Reem Island and Danat Abu Dhabi, but less so on Yas Island, mainly as a result of the completion of the Formula One Grand Prix circuit and related development.
In Dubai, prices have suffered most in areas such as Palm Jebel Ali and Waterfront, where they have fallen from between Dh400 (US$108) and Dh500 a square foot, to Dh90 a sq ft. email@example.com