The B2B team talks to established property valuers to find out more about the way appraisals are conducted in the Kingdom.
Property appraisals are typically conducted using any of the following three traditional methods, or a combination thereof:
* The comparative sales approach, which compares a piece of property to other properties of similar characteristics that have been sold recently.
* The income approach, which estimates the value of the property based on the income it produces.
* The cost approach, which uses the principle that the value of the property should not exceed the cost of building an equivalent property.
Reputable real estate agencies operating in the Kingdom produce valuation reports that adhere to the Red Book of the Royal Institution of Chartered Surveyors (RICS), a document that contains mandatory rules, best practice guidance and related commentary for all practitioners. A valuation undertaken in accordance to the Red Book also complies with the International Valuation Standards set by the International Valuation Standards Council.
Through Amaury Payen, the valuation manager at Knight Frank Cambodia, we gain insight into how industry-leading agencies are conducting appraisals. He tells us that once instruction from the client is confirmed, they undertake a site inspection of the property as a first step. Then, the actual valuation work begins by gathering comparable evidence, carrying out market research and estimating the market value of the asset, generally, through one of the methods listed above, or a combination of them. Which methodology is chosen depends on the type of property, its development potential and other such factors. “We use a minimum of two methods to cross-check the values,” says Payen.
Local and expat valuers
Only a few valuers in Cambodia, both within the local and the expat community, hold internationally recognised qualifications, such as those issued by the RICS. However, to be legally able to issue a valuation report in the Kingdom, valuers need a certification/ valuation licence from the Ministry of Economy and Finance.
To improve practice standards among registered valuers, the Cambodian Valuers and Estate Agents Association is engaged in activities that aim at promoting professional training. The Ministry is aware that more regulation is needed, and is widely expected by industry insiders to pursue a more proactive role in the near future.
Ensuring accurate valuations
“The key to accurate valuations is a combination of having quality information and an experienced team,” says Grant Fitzgerald, country manager for IPS Cambodia. This includes having a detailed database of properties sold in Phnom Penh and around Cambodia, as well as proper processes and guidelines in place for the valuation team to follow.
Since industry and market information can be hard to obtain through official channels, such as ministries or public agencies, any reputable real estate agency needs to rely on strong in-house information to produce accurate appraisals. “Most valuers rely on the quality of internal information and the experience of their valuation team,” says Fitzgerald.
In-house information is most reliable when real estate agencies have specialised valuation teams, he says. IPS Cambodia, for example, has its own valuation department and will expand it in April with three new hires.
Knight Frank, likewise has a valuation department, which is autonomous from the other service lines. Transactional evidence is the backbone of an accurate appraisal. “In order to provide the most accurate and objective data to our clients, we work hard to keep track of transactional evidence. We further analyse the transactions, making sure we have all components of the deal,” adds Payen.
Keeping abreast of the latest developments in terms of industry regulations is also paramount. “It is important to liaise with the relevant ministerial departments to keep up to date with the latest changes in government policies that have an impact on real estate,” Payen says.
Impediments to proper valuations
While information is key to an accurate valuation, acquiring it from external sourced in Cambodia can be challenge, according to IPS’s Fitzgerald. There is almost no public information available that pertains to sales records, he says, and “on top of this, buyers and sellers are mostly either not forthcoming or untruthful when asked about buying/selling prices”.
Payen believes this issue could be resolved by creating an electronic database in charge of recording transactions and land titles. “This would allow transparency and would help prevent unlawful disposal of property,” he says.