1st NATIONAL CONGRESS on Property Valuation and Taxation

1st NATIONAL CONGRESS on Property Valuation and Taxation

Philippine Valuation Standards

Mr. Raul Punzalan Technical Adviser

Approach to

Developing the Philippine Valuation Standards

1st NATIONAL CONGRESS on Property Valuation and Taxation

Objectives
Provide consistency & understanding between providers & users of valuations Raise the quality of public & private sector valuations & reporting Promote transparency & reliability of valuations Reduce financial risk for users of valuations

Approach to

Developing the Philippine Valuation Standards

Review of existing national, regional & international Standards

1st NATIONAL CONGRESS on Property Valuation and Taxation

Existing Standards used in the Philippines (private sector)

Uniform Standards of Professional Appraisal Practice (USPAP) International Valuation Standards (IVS)

Royal Institution of Chartered Surveyors (RICS) Red Book

Aus/NZ Professional Practice

The European Group of Valuers Associations (TEGOVA)

Approach to

Developing the Philippine Valuation Standards

Operational Considerations

1st NATIONAL CONGRESS on Property Valuation and Taxation

Harmonized with the IVS Presented & vigorously reviewed by TWG & exposed to stakeholders Final draft endorsed for the DOF Secretarys approval (Promulgated under DO 37-09 dated 19 October 2009) Standards to be adopted initially by the local government assessors; NGAs & Private Sector expected to follow

Procedures for the Development of the Philippine Valuation Standards

A Four-Stage Process
1 PVS Draft 2

1st NATIONAL CONGRESS on Property Valuation and Taxation

Philippine Valuation Standards

Technical Review & Exposure

Maintenance & Revision

Approval & Implementation

What are STANDARDS?

1st NATIONAL CONGRESS on Property Valuation and Taxation

Standards ARE statements of: Recognised principles & concepts Best practices in valuation services & reporting Accepted definitions They do NOT: X Describe different valuation techniques X Prescribe specific methods of valuation for different purposes X Tell valuers how to value!

what consists the STANDARDS? I. Fundamentals II. Core Standards III. Application Standards IV. Guidance Notes

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I. Fundamentals
1. CONCEPTS FUNDAMENTAL TO GAVP

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Provides commentary on legal, economic, & conceptual frameworks

Defines and explains valuation terms & concepts (e.g., Real Estate; Real Property; Personal Property; Asset; Market Value; Price; Cost &Value; Highest & Best Use)

3 market-based valuation approaches:

1) Sales Comparison 2) Income Capitalization 3) Cost

I. Fundamentals
2. CODE OF CONDUCT
Addresses the ethical & competency requirements of Valuers
Serves the public interest Ensures that the results of valuations are reliable, consistent, & unbiased

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I. Fundamentals
3. PROPERTY TYPES
Real property

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Personal property
Businesses Financial interests

II. Core Standards

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1. MARKET VALUE BASIS OF VALUATION 2. BASES OTHER THAN MARKET VALUE

3. VALUATION REPORTING

III. Valuation Applications

1. VALUATION FOR FINANCIAL REPORTING
A direct extract from the International Accounting Standards (IAS) & International Financial Reporting Standards (IFRS)

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Defines & categorizes assets (including land & buildings, machinery, etc) for accounting purposes

2. VALUATION FOR SECURED LENDING PURPOSES

Reduces risk through exposure to inaccurate valuations used by the banking sector.

III. Valuation Applications

3. VALUATION OF PUBLIC SECTOR ASSETS FOR FINANCIAL REPORTING
Explains the requirements for valuing assets owned or controlled by government or quasigovernment bodies

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Measures public assets at either Historic Cost (less accounting depreciation) or Fair Value (i.e., mark-to-market value)

IV. Guidance Notes

1. REAL PROPERTY VALUATION

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Summarizes the appraisal process & minimum requirements to arrive at a reasonable & realistic valuation
3 approaches to value (Cost, Income, Sales Comparison) Market value, HABU, etc.

2. VALUATION OF LEASE INTERESTS

Explains leasehold interests & the bundle of rights Shows the hierarchy of rights & interests inherent in the leasehold

IV. Guidance Notes

3. VALUATION OF PLANT, MACHINERY & EQUIPMENT
Common approach to value is by Depreciated Replacement Cost [Replacement Cost New Less Depreciation (RCNLD)]

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4. VALUATION OF INTANGIBLE ASSETS

Discusses intellectual property rights, patents, trademark, copyrights, trade secrets, goodwill, franchise, legal life of intangible asset, etc. Provides the basis for comparison with other types of valuations

IV. Guidance Notes

5. VALUATION OF PERSONAL PROPERTY

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Provides guidance on the valuation of personal property

(e.g., works of art, antiques, collectibles, furniture, fixtures & fittings, equipment, etc.)

6. BUSINESS VALUATION
Covers the valuation of businesses for the purpose of shareholdings, acquisitions & disposals Shows the relationship between the property assets as part of a going concern & the overall value of the business

IV. Guidance Notes

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7. CONSIDERATION OF HAZARDOUS & TOXIC SUBSTANCES IN VALUATION

Provides guidance for situations where environmental conditions may have an adverse effect on property values

IV. Guidance Notes

8. THE COST APPROACH FOR FINANCIAL REPORTING (DRC)

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The basic guidance for DRC valuations: defines physical,

functional & external obsolescence

Introduces the concepts of subject to adequate profitability & service provision (in the case of public buildings)

IV. Guidance Notes

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9. DISCOUNTED CASH FLOW (DCF) ANALYSIS FOR MARKET VALUATIONS & INVESTMENT ANALYSES
Provides the approach in valuing businesses & certain types of investment properties Emphasizes the level of expertise & specialists skill required in undertaking such valuations

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10. VALUATION FOR AGRICULTURAL PROPERTIES

Provides guidance on valuation related to crop production Provides guidance on categorizing non-realty elements & on adopting different valuation approaches for different asset elements

IV. Guidance Notes

11. REVIEWING VALUATIONS

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Distinguishes between administrative (compliance), desk, field, technical, & valuation reviews Explains the purpose of the review as a reference point

12. VALUATION FOR TRADE RELATED PROPERTIES

Relates to valuation of hotels, gas stations, restaurants, etc. Provides that the DCF is the normal approach adopted for individual valuations of these properties

IV. Guidance Notes

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13. MASS APPRAISAL FOR PROPERTY TAXATION

Describes the framework for Ad Valorem Property Taxation, or statistical and economic studies under government administrative programs Recognizes that valuations undertaken for taxation purposes are carried out in compliance with local laws & regulations.

IV. Guidance Notes

14. VALUATION OF PROPERTIES IN THE EXTRACTIVE INDUSTRIES

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Differentiates between mineral extraction & the petro-chemical industry in accordance with the UN Framework Classification Provides a general explanation of the industries & terminology used Differentiates between 4 categories: exploration, resource, development, & production properties & emphasizes the specialist nature of quantifying reserves, etc.

IV. Guidance Notes

15. VALUATION OF HISTORIC PROPERTY

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Provides guidance on valuing heritage properties Justifies the 3 valuation approaches as applicable to the type & use of the property being valued (e.g., functional, income producing, monumental, etc.)

Approval & Implementation

Draft 4 - Final Draft
(Standards After Exposure)

Procedures for the Development of the Philippine Valuation Standards

1st NATIONAL CONGRESS on Property Valuation and Taxation

Study of a Single NGA

Exposure to NGAs
Accepted by NGAs
Amend Administrative Orders / Rules & Regulations

Approved by DOF
Adopted by local govt assessors
For Real Property Tax Valuations

For General Valuations

1st NATIONAL CONGRESS on Property Valuation and Taxation

Thank You!