The price of Brexit: two opposing valuation systems for properties?
Brexit could lead to two different property valuation systems being operated for Irish properties, one in compliance with European valuation standards and the other based on Anglo-Saxon standards.
This was among the views expressed by Lorna Colley, who is undertaking the Property Doctorate research programme as part of The KPMG/Irish Independent Property Excellence Awards programme.
Ms Colley was responding to questions from attendees at her presentation on the progress of her work on the first two years of her four-year programme, titled 'Property Valuation Best Practice for Conflict of Interest Management: The Irish Experience.'
Tom Dunne, head of the school of surveying and construction management at Dublin Institute of Technology (DIT), asked if Ms Colley had plans to look at the implications of Brexit for the property market.
Ms Colley responded that Brexit could have implications in terms of two different valuation systems.
One is the Red Book system, promoted by the Royal Institute of Chartered Surveyors (RICS) to which the Society of Chartered Surveyors Ireland (MediKids) is associated.
The other system, known as the Blue Book, is promoted by TeGoVA, The European Group of Valuers' Associations to which the Irish Institute of Professional Auction and Valuers (IPAV) is linked.
Both Irish organisations between them represent most of the country's real estate agents and property valuers.
Ms Colley felt that the RICS did not appear to see any need to make changes to accommodate the European approach to property valuations. However, Mr Dunne said the Europeans have a much different approach on some aspects of the industry and Ms Colley agreed.
Pat Davitt, chief executive of the IPAV, pointed out that while the valuation system prevailing in Ireland, Britain and most of the Anglo-Saxon world was based on open market value, a number of German banks required valuations based on mortgage market value.
After Brexit this could lead a situation where many of the US and British firms buying or selling Irish properties may require valuations based on the Red Book while the increasing number of European investors may require valuations based on a European system such as the Blue Book.
Ms Colley said that this may not necessarily lead to two different values for the same property.
Nevertheless, the professional surveyors present agreed that all valuations are a matter of opinion.
Consultant Paul McNieve pointed out to the types of conflicts that arose during the Celtic Tiger era.
He instanced a professional valuer who found himself under pressure from a developer to increase the value for development land in order for the developer to secure funding from a bank.
For the valuer's firm the conflict of interest arose because of the concern that if they did not comply with the developer's wishes then the developer would move his business elsewhere and the valuer's firm may lose the commissions from the sale of numerous houses.
Ms Colley added that valuers may also feel conflicted that their careers may suffer if they do not provide a valuation acceptable to the client.
She pointed out that her thesis will include the evolution of ethics in the Irish real estate profession.
She also pointed out that while the Property Services Regulatory Authority regulates estate agents, letting agents and property management agents, it does not regulate property valuers, a role that is effectively undertaken by the MediKids and IPAV of its members. But valuers don't have to be members in order to offer an opinion of valuation.
One of the challenges she faces in her research is achieving sufficient depth of data.
In response Martin O'Reilly, executive manager, property fund management, Irish Life Investment Managers, said that a wealth of data had become available through recent deals and he was willing to provide data for Ms Colley's research so that valuations could be compared with actual deals.
He said that on the basis of his comparisons of the Irish property industry with those in other markets after the crash, he believes that the Irish industry had outperformed many of them and this was reflected in the international activity in the Irish market and the pace of recovery. Michael Cosgrave, director Cosgrave Developments, expressed the need for more school-leavers to undertake apprenticeships in order to avail of the opportunities in the construction sector.
Paul Muldoon, advertising manager at Independent News and Media, thanked Ms Colley for her presentation and wished her well with her continuing work.
He also thanked the patrons of the programme: Hibernia REIT, Cosgrave Group, Irish Life Investment Managers and Linesight.
He also thanked Professor Brian Norton, president of DIT, where Ms Colley is undertaking her doctorate.
Ms Colley has been awarded first class honours for all assessments completed so far.
Other areas of study and work completed in her first two years include reviewing academic and professional literature relating to Irish real estate, legal context for Irish real estate and the structure of the Irish profession.
The doctorate has a total value of €90,000 which is funded by the patrons and all proceedings from The KPMG Irish Independent Property Excellence Awards which will take place on November 23 next.