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News & opinion

16 DEC 2018

Making Middle East the hub of global investment

As one of the most crucial asset classes, accounting for a substantial portion of personal wealth in developed economies, real estate has the power to have a significant impact on national and international economies.

With $228 trillion tied up in global real estate, as per Savills latest ‘World Research Report’, failure to understand the value of assets can have severe global consequences for investors, shareholders and the public.

Transparency and standardisation in real estate

As a melting pot of multiple nationalities, the market professionals come from every corner of the world and in the absence of clear local standards, each uses their ‘preferred’ standards which in turn has led to inconsistency and lack of market transparency, resulting in the absence of assurance in the market.

With the industry evolving at a fast pace, establishing transparency of data and encouraging more accurate financial reporting is vital in supporting businesses and de-risking financial markets for the public good. A consistent standard, method and approach are essential to ensure accurate property valuations.

Following the Financial Crisis in 2008, the International Valuation Standards Coalition (IVSC), a not-for-profit organisation, was established by sponsors including, the World Bank, United Nations, major international accounting firms, and professional valuation organisations worldwide, to create a globally agreed, high-level standards which underpin valuation for all asset types. The International Valuation Standards (IVS) was then launched by the Coalition to set a consistent and transparent framework for valuation practice globally.

This year, IVSC held its annual gathering meeting (AGM) in Dubai, making it the first IVSC AGM in the region, with Dubai Land Department sponsoring the event. At the event, representatives from Bahrain, Saudi Arabia, Dubai, Abu Dhabi and Ajman governments took part in a panel session to highlight the investment potential of the Middle East and the importance of global standards that safeguard markets.

In the session, transparency was underlined as a crucial tool to encourage investment and to develop the real estate market further. It was highlighted that for investors and end-users to understand risks that result in greater uncertainty and slower decision-making process, transparency is crucial. Lack of it can not only lead to a negative impact on the market, and its appeal to investors, but it also fuels the number of disputes that can arise between parties.

Khaled al Ansari - Deputy CEO Real Estate Regulatory Authority of Bahrain stated that if you want to be connected with other countries, you need to have unified international standards, and as the market matures, valuation standards need to be taken into account.

There is a high demand by clients for professionals who possess the technical expertise, practical ability, experience and the necessary insight to interpret and review market dynamics and trends, concerning real estate assets. For professionals to be able to provide the best services, adoption of standards such as IVS is fundamental.

Ensuring future best practice

Regulation of the real estate market is vital for the future growth of the sector, laws and standards that regulate the industry can encourage further foreign investment. It is also considered to be the vehicle for bringing more investment into the region. It was pointed out in the session, that the first thing investors check are the protections surrounding their investments, and international standards such as IVS provide that confidence.

More regulation will increase growth, but it has to be people friendly. International standards will allow REITs, along with others, to compare and have comparability that gives you clarity.

Mohamad Khodr Al Dah
Senior Director, Dubai Land Department

Governments in the region are now taking a real interest in developing a useful regulatory model that supports the valuation profession. During the AGM, the Abu Dhabi Government officially launched their new valuation standards as well. The Abu Dhabi Valuation Standards now incorporate IVS and RICS Red Book, an implementation framework for the practical application of valuations standards globally. The introduction of these standards will improve market transparency, facilitate growth, investor confidence and drive investment in the real estate sector across the capital.

By reducing the risk of fraud, contributing to greater transparency of data, creating stronger investor confidence and more accurate financial reporting, standardisation can create a more robust, consistent and stable real estate market in the Middle East.