Talk on Recent trends & Challenges in the Field of Valuation By Murad M. Lakhani Jigesh J. Mehta Organized by

1. Talk on Recent trends & Challenges in the Field of Valuation By Murad M. Lakhani Jigesh J. Mehta Organized by INSTITUTE OF SCIENCE & TECHNOLOGY FOR ADVANCED STUDY & RESEARCH (ISTAR) At VallabhVidhyanagar On 14thDec. 2013 REAL VALUE CONSULTING SERVICES

2. Legal Study – I (Auction Sale) Recent trends & Challenges in the Field of Valuation Overview of presentation: • Purpose for which major valuation assignments are done in retail profession. • Difference in practices followed by Private banks & Nationalized banks. • Difference in approach of a Valuer for different banks & Financial Institutions. • Perception of a Valuer for difference in approach. • Recent trends followed by private banks & nationalized banks. • Challenges faced by a Valuer due to the difference in trends. • Conclusion. REAL VALUE CONSULTING SERVICES

3. Legal Study – I (Auction Sale) • Purpose for which major valuation assignments are done in retail profession. • Mortgage purpose • Fiscal purpose • Capital gains tax • Wealth tax • Stamp duty purpose • Visa purpose REAL VALUE CONSULTING SERVICES

4. Legal Study – I (Auction Sale) Difference in practices followed by Private banks & Nationalized banks. • The major assignments done by a retail Valuer is for mortgage purpose. The services of a Valuer are taken by Nationalized banks, private banks and Non banking Financial Institution (NBFC). • The basic issue arises for a Valuer due to the difference in approach and policy of the financial institution. The Nationalized banks have a panel of valuers and the client / consultant approaches the valuer and the assignment is done after negotiaition in fees and value required. Higher the market value report and lower the fees charged by a valuer gets the assignment. This practice creates a scenario of bargaining between the Valuer and the client / consultant. On the other side the private banks and NBFC have a different set up. The sales team always expects a higher market value while the credit team verifies the report with their sources. The fees payable is through the bank and is always fixed regardless the value of the property. REAL VALUE CONSULTING SERVICES

5. Legal Study – I (Auction Sale) Difference in practices followed by Private banks & Nationalized banks. • In nationalized banks there are almost no referral checks done while the report is submitted but the liability arises when the party defaults and the bank cannot reimburse the amount financed against the property mortgaged. • In private banks, mostly two opinions from valuers are seeked and if the difference is more than 20% than, the credit department or the Risk Credit department comes in picture. All this exercize is done before the approval of loan. • The private banks have a policy of doing volume based business for products such as housing loans / mortgage loans while the nationalized banks have a huge nos. of products. Therefore the fees paid by private banks is mere as compared to nationalized banks. Moreover many nationalized banks have recently initiated retail loan centres where housing loan / mortgage loans are offered and they have similar fees structure as compared to private banks. This format also creates issues for the valuer. The fees paid to the valuer for same property when valued for the purpose of housing loan is different from that paid for valuation for other purpose (mortgage / cash credit / overdraft) REAL VALUE CONSULTING SERVICES

6. Legal Study – I (Auction Sale) Difference in approach of a Valuer for different banks & Financial Institutions. • Majority of the valuers have a tendency to keep a conservative approach while providing their opinion on market value for nationalized banks while the same valuer has to adhere to the market trend while working for a private bank / financial institution. This situation sometimes create issues to the valuers. The assignment done for same property for two different institution may have a difference in opinion which may create issues for justification to the owner / bankers. REAL VALUE CONSULTING SERVICES

7. Legal Study – I (Auction Sale) • Perception of a Valuer for difference in approach. • It is a common tendency that the inputs and outputs to any assignment are directly related to the amount of fees paid by the client. The fees paid by private banks / NBFC’s is very less as compared to fees paid by nationalized banks. Therefore the valuer has a tendency of sending their representative for inspection of property and the opinion is usually based on the observations and working done by the representative rather than the principal valuer whose opinion is expected by the institution. REAL VALUE CONSULTING SERVICES

8. Legal Study – I (Auction Sale) • Recent trends followed by private banks & nationalized banks. • As far as private banks are concerned, they have recently adopted an approach of hiring a full fledge technical team to take care of the technical side of the property including valuation. The technical manager / credit manager if required, avails the services of the external valuer. This has reduced the outsourcing of work to the private valuers while has created an opportunity for young and qualified persons to have an exposure in the valuation field working with financial institution and also with qualified and experienced valuers in the field. • Major nationalized banks have set up either in house division or subsidiary companies for volume based business like housing loans / mortgage loans. The technical services are availed by a different panel of valuers. The reports are checked and verified by non technical persons but in some institution experienced officers are recommended for such work. REAL VALUE CONSULTING SERVICES

9. Legal Study – I (Auction Sale) Challenges faced by a Valuer due to the difference in trends. • In Indian market scenario where there is huge unaccounted money involved in real estate investment, it is seen that the registered amount for transaction is much lower as compared to the real transaction price. In case of housing loan, the banks finance is restricted to the accounted portion and the valuer is expected to confirm the that the market value is more than the documented amount. The valuation report prepared for housing loan in such case is merely a technical verification of asset in case of nationalized bank. On the other hand the same opinion for private banks / financial institution has to be purely market value. The private banks has a policy to finance against the security considering the market value and not the documented value. REAL VALUE CONSULTING SERVICES

10. Legal Study – I (Auction Sale) • It is always observed that the empanelled valuers and advocates are at loggerheads. In certain cases where there are legal issues observed by a valuer and the report of a valuer is based on assumptions which are to be clarified by the advocate, there are always issue arising out of this. We will see certain cases about this presented by my collegue Mr. Jigesh Mehta. Moreover there are many legal aspects and technical aspects which are of prime importance for a valuer which needs to be discussed on this platform. So I would like my dear friend Jigesh to continue this discussion on challenges faced by a Valuer through some real examples. REAL VALUE CONSULTING SERVICES

11. Legal Study – I (Auction Sale) THANK YOU REAL VALUE CONSULTING SERVICES