The following article appeared in the April addition of South African Property Review magazine
Respected entrepreneur and CEO of the Valuator Group Gavin Commins speaks to South African Property Review Editor Mark Pettipher about the multifaceted rold of a successful professional valuer in today’s property climate
By Mark Pettipher and Marguerite Lithgow
Defining his profession, Gavin Commins say, “For an open market valuation you need a willing seller and a willing buyer. The valuer’s role in the commercial property transaction cycle is to determine value by providing an independent, arm’s-length valuation. Importantly, when the valuation is put on the table, it needs to be defendable. A valuation is always going to be subjective in essence, so it is imperative it’s motivated by research, combined with economics, logic, and experience attached to methodology.”
The Valuator Group is a multifaceted valuation company covering most specialised assets for both market and insurance purposes. “Anyone looking for an independent valuation can approach us – we work for a diverse range of clients,” says Commins. One usually deals with someone in senior management, such as the financial director. Credibility and discretion are of the utmost importance. A valuation for market value, replacement value and municipal valuations for rates and taxes, all need professional input. From a banker’s perspective, mortgages and loans require a valuation to be done by a valuer, and an attorney dealing with trusts and deceased estates requires an independent valuation to be given, right down to SARS level.
“A property listed fund in the related industry of compliance and regulations has an obligatory annual report to submit to shareholders. To be correctly compliant, it isn’t appropriate to value one’s own portfolio. Nowadays, all property businesses tend to employ a professional valuer for an assessment, presenting it to shareholders as an independent professional evaluation. The procedure might not be regulated but, through the corporate governance process, one must have a valuation done. As with an ISO, a professional procedure is followed. In the body corporate market, trustees are now held personally liable for any consequences of non-compliance. If a building burns down and the trustees haven’t followed the required procedure to have the property correctly valued, their insurance company will question the evaluation and apply the average clause, with huge financial consequences. Regulations are happening now in this sector, and new legislation is on it’s way.
“Most prefer to be forward-thinking and cover for eventual disaster. Certain funds must be kept in place. Regulations are currently being written and passed into legislation. Since 2008, we’ve all been subject to huge corporate governance innovation, which is a positive thing, with the National Association of Managing Agents of South Africa (NAMASA) being the organisation looking after the governance of bodies corporate. All property, moveable and fixed, has value. In the commercial, retail, industrial and high-end residential space, we look at whether it’s an income earning asset, and also whether it’s a lifestyle asset, which is not a commercial characteristic. Commercial properties are generally valued on an income stream discount cash flow basis. The most magnificent building you’ve ever seen might be A-grade office space but if the cash flow is not there, it has no value to an investor. It’s straightforward: the valuer looks at the yield, the capital rate, does the evaluation and comes up with a value.
“In a slightly different scenario, a wine farm, for example, might be an income-earning operation but, from the owner’s perspective, it has a degree of lifestyle to it because if has an enjoyment factor. The property itself might be a historical site, it might have room for expansion, or it might be unique – perhaps with a unique view, for instance. In such circumstances, we do both types of valuation – an income-generated valuation as well as a property valuation. We simply take the value of the building and improvements, apply a depreciation rate to what we believe is fair value for the building and improvements, then add back the land at market value. Governed in South Africa by the South African Council for the Property Valuers Profession (SACPVP), the individual is the member, not the company. There is thus joint shouldering of responsibility between the valuers and the company. You must have a qualified valuer of the South African Institute of Valuers (SAIV) and the Professional Council for an insurance valuation for a broker to an insurer.
“Our valuers are part of a professional institution, accepted in the industry; and our valuations, including for insurance purposes, must be defendable in a court of law. An evaluation is a form of insurance in which an asset can be attached to a portfolio. For the individual member, there are other career options, such as the Royal Institution of Chartered Surveyors (RICS). RICS offers a range of career options. I am a qualified RICS business valuer, and the methodology principles are exactly the same as for property. Another great value RICS brings to the table is that the valuation company now has rules and regulations too – because you do need both. The Valuator Group is regulated by RICS, and a company must be compliant to become a RICS member. It’s audited annually by RICS Europe, which looks after Africa. The Code of Conduct (the Red Book) is a huge part of the RICS organisation which, from a company perspective, strengthens the professionalism of the whole industry.
“All African countries now demand the RICS qualification as the only recognised currency for valuations. We are seeing enormous changes here within a very short time thanks to our RICS member TC Chetty’s industry. He works with all local councils and bodies to get everyone RICS-compliant. We’d like to see a compulsory property inspection report instituted for raising finance in the property market, as in Dubai and the United Kingdom. It protects a naive buyer from being conned by latent defects, replacing the “voetstoots” arrangement. An assessment for rating property maintenance is also needed.For South Africa to be truly First World destination attractive to foreign investment, standards must be upped – and controls to protect the buyer are the only professional option. South Africa was recently reported as the cheapest place in the world to retire. Retirees from Germany, Switzerland and elsewhere will want that kind of protection before purchasing, and will demand the same professional standards they get in Europe. They’ll want the I’s dotted and the T’s crossed in every aspect of a property transaction. It’s a great thing for property in South Africa to have emerging bodies such as RICS, SAPOA and SAIV, each with different roles, sharing a common ethic of collaboration to bring in international standards.”
Discussing valuations for foreign clients and currency exchange fluctuations, Commins says, “We have several international clients. A house
property in Hermanus replicated identically in Dubai will have a different value because it has different circumstances attached, so the valuation company must understand market trends. We look at comparable sales in the market and there has to be an internationally used currency denominator depending on the client’s base. In property, RICS covers three sectors – quantity surveying, land surveying and valuation. In South Africa, one needs to be a member of the SACPVP and SAIV. Being well entrenched, it can be studied at a technikon or university, with an honours year specialising in valuations. After two years as a candidate valuer, you’re qualified. Through RICS, you need an undergraduate qualification as a rider to select your chosen path. A vital starting point for an up-and-coming valuer to remember, at all times, is that it’s all about credibility. The RICS membership shows very clearly that the Code of Conduct plays a huge part, irrespective of qualifications.
“Secondly, I recommend that a young, newly qualified valuer gains varied experience first by working for a big organisation such as Broll Property Group. There he or she will get the right kind of exposure by learning what they have to offer. It’s important to gain experience in more than just valuations. There is more than one aspect to the determinable value you put on the table, and you need insight into a broader sphere than pure valuations. With all the exposure nowadays to technology and accessed information, we have to be innovative and put something extra on the table. We continually look for added-value services for clients, to complement valuation and make us unique in terms of services we offer. It’s regarded as an old man’s industry, and it’s not going to make you a multimillionaire – but if you are entrepreneurial, your exposure to the valuations side will create many opportunities, as it has done for me. A valuer needs to be alert to business opportunities for their loyal clients.
“I think it’s a fantastic career for an individual. It covers a whole spectrum of different avenues to follow. Property valuation is about economics, and you need creativity when using your economic competence in a subjective environment.”