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Outlook 2019: Real Estate Valuation Industry at a Crossroad

05/12/2018

Proptech is a key driving force shaping the future of real estate valuation. The sector started on its digitisation journey over a decade ago and the pace is only set to intensify.

Technology in the valuations space has historically been focused on efficiencies and ways in which to streamline the appraisal process. Today with the development of artificial intelligence (AI) and data aggregation, this progression has moved into direct competition with the traditional valuation space via automated valuation models and tech enabled valuations. This is bringing the industry itself to a key pivot point in how to evolve as a service and as an industry.

Advisors, not just valuers

From a banking perspective the digitisation of the valuation process can yield tremendous benefits. Aside from streamlining the process, it allows banks to reduce their risk from human error and to focus instead on the high level insights generated by data aggregation and tech enabled appraisals. This can include greater insight into the market from multiple angles; understanding how a property is functioning, the physical inspection of the asset, deep insights into trends, and assessment of risks in the market. Overall, this gives lenders greater visibility of the valuation market and the conditions in which they operate.

As a result, the role of the valuation professional is now shifting towards functioning as advisory partners to clients, and away from the traditional business of being a report driven service. While valuation reports are still an entrenched requirement, the value add to the client is not what it once was. Many of the contents within a valuation report are now obsolete given so much of this information is publicly available in real time. The true modern value add service of the appraiser is therefore the insights, and the market intelligence, not the report itself.

The upshot for the industry is that it is easier now to distinguish day from night, between the varying shades of service quality amongst appraisal firms. Until now, in many instances service providers competed on price alone in a race to the bottom for fees. As a result valuation and advisory services will become increasingly diverse. Agility is the key in coming up with solutions to respond to clients’ specific needs as the market evolves. Industry bodies like the Royal institute of Chartered Surveyors and the Singapore Institute of Surveyors and Valuers (SISV) will increasingly play a critical role in improving the level of professionalism through a rigorous process of upskilling and retooling of professionals.

Regulatory climate to tighten

 In June this year, the SISV published a practice guideline of valuation reporting for REITs, listed companies and IPOs. These enhanced requirements are a positive step, particularly because they protect investors’ interest in REITs and IPO investments. This is critical as Singapore evolves as a global REIT destination. It is important that the valuation industry as a whole is taking a leading position in the region as more Singapore domiciled REITs own global assets. The general progression of the regulations and standards are only going to become stricter. A tighter regulatory climate will invariably put pressure on the industry to adapt to the new standards, increasing the cost of business.

In tandem with tighter regulations, it is logical to assume that the procurement process of valuation services will come under further scrutiny to maintain transparency and mitigate any risks of conflict of interest between valuers and the clients they represent.

More collaboration between IT and real estate valuation providers

As technology improves efficiencies and customers benefit from the boost in productivity, real estate firms will be hard pressed to intensify the level of collaboration with IT players, either through acquiring IT and start-up firms or to partner IT firms to build out technology platforms.

Blockchain is one such technology. Blockchain, which is also known as distributed ledgers, provides a level of transparency that many real estate processes lack or do not have access to. At its core, the value of blockchain lies in transparency and efficiency and has the potential to be applied to a variety of real estate applications including global property searches. Increasing transparency and access speeds up the process of matching buyers to sellers in a borderless system. There is also some potential to apply them to title and land registries. Blockchain can record, track, transfer, and store registries and provide instant verifications. This eliminates the need for third parties to be involved in title search and authentication. This of course would again have implications for the valuation industry and need to adapt to this new transaction process.

Businesses have the opportunity to re-tool existing innovations in the market place to improve current work flow inefficiencies. Sometimes this means looking beyond innovations in real estate. In the next wave of technology roll-outs, the real estate appraisal business will be on the hunt for tools that can improve the power of analytics and the ability to churn the data and intelligence built from the ground up into meaningful insights to help customers make informed decisions.

How the technology evolves remains to be seen. What is critical is that valuers stay focussed on the client’s needs. The industry of the future is here, and we must adapt with it.

This article first appeared in The Business Times on December 4, 2018, under the headline “Real estate valuation industry at a crossroads“.

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