The practice of real estate valuation in Portugal
| DOI | https://doi.org/10.1108/14635780210425796 |
| Published date | 01 April 2002 |
| Date | 01 April 2002 |
| Pages | 181-203 |
| Author | Vítor M. dos Santos Reis,Mary Lou Downie,Peter Fisher,António Fernandes |
| Subject Matter | Property management & built environment |
Practicebriefing:
Realestate
valuation
181
JournalofPropertyInvestment&
Finance,Vol.20No.2,2002,
pp.181-203.#MCBUPLimited,
1463-578X
DOI10.1108/14635780210425796
PRACTICEBRIEFING
Thepracticeofrealestate
valuationinPortugal
VõÂtorM.dosSantosReis,MaryLouDownie,PeterFisher
NorthumbriaUniversity,NewcastleuponTyne,UK,and
AntoÂnioFernandes
UniversidadedeAveiro,Portugal
KeywordsPortugal,Realestate,EuropeanUnion,Valuations,Standards,Assetsvaluation
AbstractTheglobalizationoftradeandmarketsrequiresinternationalstandardsgoverning
accountingandassociatedactivitiesincludingvaluation.TheEUFinancialServicesActionPlan
andtherevisedbankingsupervisionrulesbothspotlighttheneedforconsistentstandards.
Valuationstandardsexistattheinternational(IVSC),European(TEGoVA)andprofessional
(RICS)levels.Differencesoftraditionandapproachneverthelessstillexistcoveringfundamental
issuessuchasbasesofvalue.TraditionalvaluationpracticeinmanyEUstatesthereforefacesa
processofswiftharmonization.Thispaperexamines,foroneEUcountry,thedegreeofvariation
betweenvaluationstandardsandcurrentpractice.Resultsarepresentedofthefirsteversurvey
oftheprofessionalpracticeofPortuguesevaluers.Surveyresultsrevealalargelypart-time
profession,whichappearstobepoorlyequippedtomeetthechallengeoutlinedabove.
Introduction
Thestandardisationofvaluationpracticehasmovedforwardssporadically
overtheyears,mainlyinresponsetoindividualeventssuchaspropertymarket
recessions.Theissueisagainattractingattention,especiallywithinthe
EuropeanUnion(EU),drivenpredominantlybyfinancialmarketglobalisation
andthereforeparticularlyinrelationtoassetvaluation.Edge(2000)attributes
theneedforstandardisationtothedevelopmentofinternationalaccounting
standardsusingafairvalueaccountingmodel,andtheneedforproperty,
portfolioandmanagementperformancemeasurement,forbothinvestmentand
occupationalproperty.Otherdriversincludegovernments'requirementsfor
valuationofpubliclyownedassets,especiallyinthecontextofprivatisation,
andtheneedsofemergingeconomieswherevaluationpracticeisnotyet
well-developed.RecentprovisionoffundingfortheInternationalValuation
StandardsCommittee(IVSC)byinternationalrealestateconsultanciesshows
theirdesiretodevelopstandards,whichcanbeappliedtovaluationservices
worldwide,forthebenefitoftheirclientsandbusinesses.
WhentheEUCouncilmetinLisboninMarch2000itsetadeadlineof2005
forimplementationoftheCommission'sFinancialServicesActionPlan,aimed
atcompletingtheinternalmarketforfinancialservices.Followingthisdecision
toacceleratetheprocess,theCommissionproposedinJune2000thatallEU
companieswhosesecuritiesarepubliclytradedonaregulatedmarketshould
berequiredtopreparetheirconsolidatedaccountsinaccordancewiththe
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International Accounting Standards (IASs) from 2005 at the latest (EU
Commission, 2000). International standards for company accounting cannot
provide full transparency and consistency unless there are accompanying
standards for property valuation. Valuation practice and its current degree of
standardisation varies considerably from one EU member country to another
(Downie, 1995; McParland, 2001). As a result the speed and effectiveness with
which new or changing valuation standards are applied will almost certainly
vary from one country to another, affecting the realisation of an integrated
financial services market.
Whereas the coherence and development of the UK valuation profession has
been relatively fully researched, that in other countries has not. This paper
presents the results of a survey carried out in October 2000, involving 300
valuation practitioners in Portugal, a country which has one of the less well
researched and probably less developed valuation professions in the EU
(Ramos, 1996). Its purpose is to investigate the professional background of
Portuguese valuers, the valuation methods and concepts of value they use for
asset valuation, their knowledge of international standards and their relations
with valuation users.
Accounting and valuation standards
Valuation standards are available at three levels: international, regional and for
individual countries. At the international level standards are produced by the
International Valuation Standards Committee (IVSC) (IVSC, 2000). The IVSC
has more than 50 member organisations world-wide and aims, in the public
interest, to formulate standards and procedural guidance for asset valuations
for use in financial statements, and to promote their world-wide acceptance. It
is linked to the International Accounting Standards Board (IASB). IAS 40,
Investment Property, refers to the International Valuation Standards (IVSs).
Cairns (2000) examined the policies and practice of 165, mainly European,
companies which refer in their 1999 accounts to the use of IASs. He found very
uneven implementation of IASs and of IVSs, showing that when companies
purport to be using the IASs, their statements should not be taken at face value
and could in some instances mislead account users. Cairns (2001) recommends
that the IASB should ``consider formal recognition of IVSs in IASs. It should
also ensure that IAS textbooks ... refer to the use of IVSs for property
valuation''. He also identified the problem of conflicts between national
valuation standards and IVSs. For instance the Portuguese company CIMPOR,
despite referring to IAS 25 in its accounts of 31 December, 1999, revalued
investment properties using price indices, based on legislation. This is an
accepted method of revaluation within Portugal, but the indices are based on
the consumer price index and therefore fail to comply with IVSs and, as Cairns
(2001) points out, do not accord with IAS 25 or 40.
At the European level, The European Group of Valuers Associations
(TEGoVA) aims to write and promote valuation standards for application
across Europe. Its latest standards were published in 2000 (TEGoVA, 2000).
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