The aftermath of the last global recession and property market collapse in many jurisdictions has seen a huge increase in the number of claims brought by lenders against valuers and surveyors. Many insurers who provided cover for valuers and other professional advisors were hit particularly hard, as claimant lenders carefully scrutinised their portfolios to recover losses from allegedly negligent valuations carried out at the height of the property market.
Real estate valuation – Dubai context
Speculative, and often frankly unrealistic, property valuations played a decisive role in the development of the Dubai property bubble in the years to 2009. Together with excess liquidity and the poor regulation and monitoring of mortgages, questionable property valuations were the third factor which provided the banking industry with the comfort it needed to carry on lending money. The risk of non-regulated and under-qualified valuers practising in the UAE market was identified as a major industry concern.
As was widely reported at the time, the Dubai property bubble burst in late 2009 after Dubai World, a government owned conglomerate behind the emirate’s massive property expansion, asked creditors for a six-month ‘payment holiday’ on its debt obligations. Property prices subsequently fell by approximately 50% in the year to September 2009, with Dubai becoming the world’s poorest performing real estate market.
Despite this crash, Dubai and the UAE did not see a large number of claims brought against valuers, when compared with other regions. This is largely down to major differences in the UAE legal structure which make pursuing such claims less attractive, together with a less litigious culture generally.
Steps towards regulation
Following the global financial crisis, the Dubai government undertook a review of how property valuations were conducted and regulated. Some of the key developments arising out of that review are outlined below:
- In 2009, TAQYEEM (the Dubai Real Estate Appraisal Centre) was set up jointly between the Dubai Land Department (DLD) and the Real Estate Regulatory Agency (RERA) to regulate the valuation profession in Dubai. TAQYEEM licences both valuation companies with RERA and DLD, and individual valuers.
- Requirements for valuer registration include (amongst others):
- Valuers who are UAE nationals should have no less than two years’ valuation experience. For non-UAE nationals the minimum requirement is five years’ experience
- Valuation experience should be documented with three sample valuation reports per year
- Valuation experience can be in any country in the world. However, UAE experience is preferred and recommended (for a minimum of six months). Valuers having less than six months’ UAE experience are liable for further checks
- Valuers should attend and pass the Valuer Orientation Course held by Dubai Real Estate Institute
- The Emirates Book Valuation Standards (EBVS), issued by TAQYEEM, provides a framework for valuation standards and methodology in Dubai and follows the standards of a number of national and international organisations, such as:
- International Valuation Standards published by the International Valuation Standards Council
- The Royal Institute of Chartered Surveyors’ Valuation Standards (commonly known as the “Red Book”)
- European Valuation Standards (or “Blue Book”), published by the European Group of Valuers’ Association
- TAQYEEM has also developed a Code of Ethics for valuers practicing in the Emirate of Dubai
- Another important initiative for valuation professionals is the proposed adoption of the International Property Measurement Standards (IPMS) by the Dubai government, which aims to unify the way property space is measured internationally by reference to a set of consistent metric property measurement standards. The IPMS has been under consideration by the Dubai government since June 2014, and is expected to be implemented during 2015
It is clear that valuation firms play a pivotal economic role in Dubai, in the sense that reliable valuations are essential to the process of lending money. It should be the valuers’ obligation to accurately evaluate the market and to raise the alarm when things are overheating.
Since the last financial crisis, TAQYEEM and the DLD have taken significant strides forward in creating regulations in the region which are consistent with international standards, with the aim of achieving sustainable growth and a stable market for investors.
Dubai must continue to enforce preventative measures and regulations now that the real estate market is picking up speed. Another bubble could shake the foundations. The real estate sector, as one the largest contributors to the economy, should also be one of the most regulated if it is to promote confidence in valuation professionals practicing in Dubai and to align Dubai with international real estate markets.
Should Dubai see another property crash on anything like the scale seen in 2009, it is likely that the new regulatory framework and an increasingly litigious culture will give rise to many more claims against valuers by lenders and other parties who rely on their expertise.