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By Felician Komu, FTIVEA 1

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Presentation outline 1. What is the role of a profession? 2. Contextualization the Role of Valuation Profession 3. Challenges facing the Profession 4. Reflections on Growth of the Profession 5. Emerging roles 6. Conclusions 2

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What is the role of the profession As individuals Professing to serve with high level of skills, competence/experience and integrity (ethical conduct) As Professional Association/Society primarily educational and informational through publishing professional papers, journals, newsletter etc developing professional excellence- by defining and setting standards, promoting high standards of quality Assuring the public of quality standards through awards for their members. Recognition of its members by the public As Professional Regulators Professional societies for years regulated their members practice, protecting interests of the public Current trends, professionals regulated by government through Statutory Bodies. 3

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Contextualizing the Role of Valuation Profession? Asset Negotiation value Owner value Collateral value Synergy valueCommunication Emotional value Investment Value Market valueFair value 4

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Valuers assist investors towards the optimal business value Final Value Alternate opportunity Distress sale Control Premium Emerging markets Illiquidity Discount Strategic Positioning 5

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Competencies Requirements a) Basic Degree Qualification BSc LMV? BSc PFM, BSc REFI? OR ANY Degree? b) Post Graduate Qualification? Professional Training Apprenticeship Professional Examinations c) Professional Attitude Through specialist training? Self-acquired? Keeping abreast with and use of technology 6

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What is the Role of Registered Valuer in Tanzania? How does one get to know about who is a Valuer in Tanzania? Do we have Valuers outside the Lands Sector Which law regulates Valuers Are practicing Valuers conversant with incidences requiring their skills? Do practicing Valuers reach out to the society seeking recognition of their valuable and indispensable services to the society? Who promotes Valuation Profession in Tanzania? 7

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Challenges facing the Valuation profession Globally (as per Nick French,(2013)): a) Banking, real estate and other sectors experienced material losses in the financial economic crisis (FEC) of 2009 b) Valuation issues viewed as part of the financial crisis problem c) Accounting standards setters (FASB) and regulators (SEC) raised concerns regarding inconsistent application and review of valuations d) Inability of the valuation profession in addressing perceived shortcomings in its practice 8

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Challenges facing the valuation profession Its origin was tattered and continues to pose problems: in Tanzania difficult to convince that valuation is not necessarily land sector discipline! University education programs limited either to undergraduate (Commonwealth) or post graduate (elsewhere), but in UK, already split between these two! Increasing popularity of valuation related subjects- land administration, facilities management, marketing, property economics/studies etc Competition from other professional bodies esp civil engineering, accounting and financing Adoption of automated valuation practices e.g CAMA, desktop valuations 9

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Challenges facing the Valuation (cont) Nationally (Tanzania) a) Non-recognition of the Valuers roles mainly in the business/finance sector (limited role) b) Not-so-clear entry qualification to the profession: e.g ARU prepares students in SRES to graduate as Valuation specialists, Land administrators with expertise in legal issues and Real estates specialists (Kasseva, 2007) c) Accuracy of Valuation advices (increasing complaints from banks and general public on inconsistent and objective valuations d) Lack of professional fraternity internal squabbles and rivalries 10

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Reflections on the Pattern Growth of the Valuation Profession Fast growth BUT fast decline(Baxter, 2007) a) Too many changes as the professions desired for i. Integrating -cross border training and practice, ii. consolidation aligning to social-economic changes both in professional and academic training e.g RICS from as early as 1893 iii. Unification- through professional societies 11

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Valuation as a Profession b) Polarized perceptions of the profession: CASLE formed in 1969 and set up an accreditation program Land Economy Surveying Vs General Practice Surveying/Estate Management and Valuation CASLE Curriculum emphasis placed on management of natural resources (Ghana, Kenya and Tanzania) c) USA- grew from agency/marketing organized under the National Association of Realtors in 1908, later to Land Economics after Richard Ely, then Real Estate Appraisers after Merke in 1927 d) Prospered in the USA through Ellwoods, Richard Ratcliff and Graaskamp main architects for aligning it with financial sectors introducing concepts of Capital Pricing Models, the Ellwood Formula for Cap Rate Estimating, and improved on the HABU- from the highest price to most probable price in 1965 12

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Strategic Versus Operational Roles of the Profession As an industry-based profession, training of valuers tended to be through polytechnic and technical universities With growing recognition of the importance of strategic management in the business sector, expenditure on assets used in business has had to be reviewed Consequently, the need for Valuation Advice and Asset management has been broadened. 13

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Top Management Department Level Management Operational Level Management Portfolio Management Asset Management Property Management Facilities Management Property Management 14

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Strategic Level Roles (aka FM) Top Level Management Departmental Level Management Survival of the Organization Portfolio Selection and Sizing Resources Assessment and Requirements Maximize use of the available assets Optimal Utilization of allocated resources Measuring performance of asset classes Revaluation of Assets Best Practice Comparisons 15

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Operational Management Functions Operational Level/Valuation or Property Management Mundane functions Valuation for various purposes (in compliance with the best practice ever or standards) Rent advice Repairs Management of lettings etc Business related Functions Appraisals/Feasibility analysis of ways to improve respective asset/property Life cycle cost management (teretechnological approaches) Compliance requirements to various standards e.g International Property Maintenance Code 2012, IFRS, IVS etc 16

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New Agenda for Valuers 1. International harmonization of professional valuation standards To realize valuation is crucial in both finance and land sectors To protect consumers of valuation against negligent and fraudulent valuers To set common benchmarks to evaluate performance Opportunities are abound for high professional skills 17

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New Agenda for Valuers 2 Integrating finance models in valuation methods Recognize the vital sectors-Growth of capital markets and securitization has moved the historical remit of the profession in land sector to a business/finance sector Need to grapple with cash flow related techniques to respond to the market aspirations 18

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Conclusions TIVEA Members to averse themselves with the growing needs of the profession Think of arrangement to accommodate the growing business-related valuation requirements (the emerging mortgage market-housing finance, and asset valuation) Enhance grip on the land-sector valuation practice with a view of reducing complaints and blames against the valuer. Adopt a more pragmatic view of the growth of the profession, prepare itself towards the strategic needs of the profession 19

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Conclusinons TIVEA Members to appraise themselves on professional development in the industry such as IVSs - July 2013 The IVSs underwent a major rewrite and improvement process between 2009 and 2011. The standards include requirements for commissioning, undertaking and reporting valuations of all types of asset for a wide range of purposes. RICS Valuation Professional Standards (Red Book) The RICS has fully adopted the 2013 International Valuation Standards Council (IVSC) Valuation Standards As a result, the Red Book 2014 came into effect in Jan 2014. 20

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Valuation Approaches Since the publication of the IVSC Valuation Standards, there is now a hierarchy of valuation definitions: Valuation Approaches, Valuation Methods and, as a subset of the methods, techniques or models. The IVSC recognises three approaches (Income, Cost and Market) that are all based on the underlying economic principles of price formation. The appropriate basis will vary depending on the purpose and nature of the valuation. 21

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Asanteni 22