More professional property valuation standards are needed if confidence is to return to real estate markets in the Gulf region, it is claimed.
Establishing a more mature valuation system will also lead to improved activity levels and aid the recovery of the market, says a new report from international real estate consultants Jones Lang LaSalle.
With property prices falling by more than 50% from their 2008 peaks, the Dubai market alone has seen the value of its developed real estate assets fall by well over US$ 100 billion and in other markets across the MENA region values have fallen by between 20% and 50% emphasising the regional importance of establishing real values, says the report.
The introduction of more professional valuation standards is an essential precondition for rebuilding the trust and confidence required for the recovery of real estate markets and inject independence, integrity and objectivity, it states.
‘Accurate and regular valuations comprise an integral part of the sound investment and risk mitigation strategies that investors need to adopt as the real estate market faces continued uncertainties and only selected stability in 2010,’ it points out.
‘The absence of an agreed basis for measuring value and the lack of appreciation of the factors which drive value have contributed to significant boom and bust in property values experienced across parts of the MENA region over the past five years,’ it says.
While price volatility underscores the need for change, it also represents a key challenge in terms of establishing a benchmark. Another problem is that actual transaction levels have reduced significantly in 2009 and so far during 2010. This limits using the traditional comparison approach and it makes it more difficult for buyers and sellers to find and agree a prices, says JLL.
‘Unlike trading in equities and commodities where pricing information is public, property values are not independently recorded or available in most markets in MENA. Potential buyers and sellers therefore operate with imperfect acknowledge, relying on anecdotes, newspaper articles and sentiment rather than on reliable market information,’ the report adds.
‘There is also no requirements for owners to have real estate assets valued on a regular basis in most markets in the MENA region. This further compounds the lack of transactional evidence in depriving the valuer of accurate benchmarks against which to assess current market values.’
The report also says that governments have a key role in the development and adoption of international standard valuations and practices and the drafting of a regulatory framework and it says Dubai with the creation of its Real Estate Regulatory Authority is leading the way in the region.
‘One of the key characteristics of the current market downturn impacting real estate markets across the MENA region is the decline in transaction volumes, resulting from a lack of confidence and the subsequent uncertainty in respect of current and future pricing levels. While valuations in and of themselves, are not the sole answer to reversing this trend, they can provide a catalyst for the improvement in certainty and transparency required for the markets to recover,’ the report concludes.
