July 5, 2008

One transparent valuation for property market price, please

MS JANET Han, Secretariat, Singapore Institute of Surveyors & Valuers, defined very clearly what constitutes a property's fair market value. Can Ms Han please explain why, when bankers in Singapore quote an independent valuation (based on a professional independent valuer's opinion, presumably a member of the SISV) for a resale property for mortgage or re-mortgage purposes, the valuation is always at least 25 per cent lower (in some cases, 40 per cent) than recent actual sale value, yet the same bankers are always willing to accept a new (primary but pre-TOP) sale price as fair market valuation.

Contrary to Ms Han's assurance that market price is set by the market, in the case of 'banker's' valuation, the practice of always giving conservative valuation for mortgage purposes is allowing valuers to effectively set market prices with some unexpected consequences:

>>Loan ratio offered by banks is not the 80 per cent of market price but effectively 80 per cent of 75 per cent or 60 per cent of market price.

>>a property's collateral value is artificially diminished.

I suggest that independent valuers should only have one transparent valuation for market price (value based on their professional expertise), and let the bank decide how much risk and buffer they need to set the loan ratio accordingly.

In the UK, Australia, NZ, etc, it is common practice for the buyer to pay for specific valuation by independent valuers (acceptable to the bank), and it is up to the bank to set loan per cent ratio accordingly based on the bank's perception of risk, taking into account the buyer's financial position, the bank's loan quota, etc.

I believe that one market valuation will open up new opportunities for members of SISV and, more importantly, make the valuation more reliable.

James Lee