Valuable professionals

PUBLISHED : Saturday, 01 November, 2008, 12:00am
UPDATED : Saturday, 01 November, 2008, 12:00am

As the mainland economy expands, Hong Kong experts can expect increasing demand for independent services

Whether a business wants to prepare an investment analysis or calculate a mortgage, it turns to the services of a property valuation expert. Valuation is a business with a long history and is based on the need to independently determine the value of a property or asset.

As in other developed countries, the local valuation industry plays a vital role in estimating the asset value of a property, financing and loan valuation.

In Hong Kong, the Hong Kong Financial Reporting Standards are adopted for valuation practices. These follow the International Financial Reporting Standards recognised by the International Accounting Standards Board, but cater to local requirements.

'The independence of valuation services is widely trusted and cherished among Hong Kong's financial institutions,' said Chiu Kam-kuen, head of valuation for Asia-Pacific at DTZ, a global property consulting firm. This is because valuation helps prevent these institutions from taking a distorted value of a property or asset and thus lowers their risk when it comes to budgeting and lending, according to Mr Chiu.

Property valuation was just as important over the border, said Thomas Tang, director of valuation and advisory services at CB Richard Ellis, a commercial property specialist.

'Many foreign investors don't know about local market conditions,' Mr Tang said. 'Property valuers can give objective and detailed descriptions and provide information about the local market in many different cities.'

It is not unusual for Hong Kong valuers to be instructed to value a property in a secondary city on the mainland that has no previous history of transactions. Carrying out such valuations in a new market is the most challenging job facing the industry.

'We need to cross-refer from cities nearby or other more mature cities and make adjustments,' Mr Tang said. 'More importantly, we need to convince our client that this is the best we can achieve in view of all the circumstances.'

While development packages here are in line with international practice, over the border reports are fairly simple and do not explain how valuations are achieved or provide much information about the market background.

'On the mainland, valuation is not deemed a necessary process for property and asset deals,' Mr Chiu said. 'Most institutions adopt either in-house or independent valuers to provide the service.'

However, alongside the surge in demand for valuation in first- and second-tier cities, the professional standing of valuation on the mainland is likely to increase.

Thanks to the demand from many mainland companies to raise capital in Hong Kong, property valuers are also inundated with listing proposals and initial public offerings. This trend is likely to continue as long as the market is stable. Interest is also growing in establishing real estate investment trusts, both in Hong Kong and on the mainland.

'As long as properties in China are being acquired and managed by outsiders, more and more people will come to Hong Kong for capital-raising purposes,' Mr Tang said.

Valuation has long been a business that runs on a needs basis in Hong Kong, regardless of the market situation. Although it usually focuses on tangible assets such as properties, it is increasingly being applied to intangible assets that include financial instruments, such as convertible bonds or options, that could affect a company's net asset value.

'Valuers are also increasingly reliant on the determination of the brand value and good view of trademarks that is essential information for the brand's profit and loss statement,' Mr Chiu said.

Since competition is tight here and pressure is constantly being added to profit margins, the expansion of the scope of valuation services is a boon to the industry. Longer term, the local industry would continue to be linked to the mainland economy, Mr Tang said.

Despite a small slowdown in the local economy, the arrival of new companies from overseas and the large numbers of investors and international operators using Hong Kong as a springboard for the mainland bodes well for the industry.

'Hong Kong has all the services such as legal, accounting and valuation that you need to set up your business in China,' he said. 'So, as long as the Chinese economy continues to grow, the valuation business in Hong Kong will be good.' This sunny outlook is reflected in terms of local employment opportunities and industry players are benefiting from Hong Kong's deep pool of talent.

Most openings are geared towards fresh graduates with a surveying background. However, finding and keeping middle managers with five to 10 years' experience is not as easy.

While the local industry continually attracts newcomers, opportunities are likely to increase significantly on the mainland.

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Verbal valuation an express valuation by the valuer at the desk which does not require site inspection or detailed market analysis

Initial yield the ratio of a property's annual rental currently received to its capital value or transacted price

Valuation standards the rules a valuer should follow in undertaking a valuation exercise

Red book the valuation standards laid down by the Royal Institution of Chartered Surveyors, a British independent, professional body which regulates property professionals and surveyors

Accommodation value the land value for each square foot of developable gross floor area, which is calculated by dividing the land value with the total allowable gross floor area to be constructed