A new regulation regarding real estate valuation will come into force on 1 June. The decree on Real Estate Valuation Instructions for Commercial Banks was approved by the President of the National Bank of Georgia on 14 May. The project, which was initiated in January 2017, involved commercial banks, representatives from international valuation companies, as well as an independent expert.
“The new regulation will form a prerequisite for enhancing valuation standards.The National Bank is providing commercial banks with an instruction for conducting valuation, which, on the one hand, sets a code of conduct and ethical standards for the appraisers, and on the other hand, it directly concerns the methodology of valuation,” the head of the Valuation Department at Colliers International Georgia, Nika Kevkhishvili, told Lika Kardava’s real estate programme Business Morning. According to him, the new regulation hands direct responsibility for the full valuation process over to the commercial banks. “We are talking here about both the internal and the external appraisers,” states Mr. Kevkhishvili, adding that the need for introducing the regulation arose due to the negative effects of unqualified valuation, which became apparent during the past several years: “This was causing damage both to the borrowers and the banks. Unqualified valuation led to inaccuracies in determining the true market value of real estate. Undervaluation would cause the customer’s dissatisfaction, while in a case of overvaluation, a repossessed property would not cover the amount loaned by the bank. The valuation process depended on individual appraisers and individual banks.”
With regards to the readiness of the sector, Mr. Kevkhishvili explains that the majority of the western banks have outsourced the valuation service: “This practice has also been adopted by Georgian banks, and it is the correct approach – an appraiser ought to be impartial. The new regulation will create a need for additional resources and increased demand for qualified personnel on the market.”
According to the NBG, the decree on Real Estate Valuation Instructions for Commercial Banks aims to raise awareness about the real estate valuation process, improve the quality of real estate valuation in the banking sector; increase transparency in the valuation process and principles; define and develop ethical standards for the appraisers; determine the criteria for the appraiser’s qualifications; as well as implement the International Valuation Standards and act within their framework.