SEC tightens rules on property valuations

MANILA, Philippines - Property valuators would be subject to more stringent application and operational requirements starting September this year.

In a memorandum, the Securities and Exchange Commission (SEC) issued the revised guidelines on property valuations “to enhance reliability and quality of reports on valuation of properties.”

The new rules, which take effect on Sept. 1, would replace the previous guidelines that started in 2010.

The service of appraisal firms are essential in the transfer of property, be it tangible or intangible, between companies.

In the appraisal reports, accredited appraisal companies and their valuers must include “the purpose of the appraisal, the description and location of the properties, whether tangible or intangible, and the type of business of the client company.”

The appraisal firms’ complete name and address, including its SEC accreditation number and validity period, must also be included in the report.

The property appraisers are also required to indicate whether or not the valuer applied the International Valuation Standards (IVS), including the year and edition of the IVS.

To determine compliance, SEC said it may require an accredited appraisal company to submit a copy of any of its appraisal reports and supporting documents.

“For this purpose, the appraisal company shall indicate in its engagement contracts that it is obligated to provide to the Commission said documents upon its order,” it added.

To remain as an accredited appraisal firm, SEC said the companies should have all the requisite business permits and license to operate, and at least two licensed valuers and adequate number of technical and administrative personnel for the conduct of valuation.

The businesses should also be financially viable to sustain operations, reflected through positive financial ratios like solvency, liquidity and debt-to-equity ratios.

Property valuation firms must also have “effective internal controls and checks and balances to ensure the quality and integrity of valuation reports,” the SEC said.

Aside from this, appraisers are required to secure at least P500,000 worth of professional liability insurance for errors and omissions.

Under existing rules, public companies and secondary licensees that are planning to receive or transfer property in exchange for shares of stock are required to hire property valuators.

Listed companies and secondary licensees that have adopted the fair value model in measuring their properties pursuant to the Philippine Financial Reporting Standards are also required to tap property appraisal firms.

The new rule comes at the heels of the consolidation of the SM Group’s leisure estate, residential and mall development firms under SM Prime Holdings Inc.

The P279-billion transaction allowed SM to create the largest property firm in the Philippines with a market capitalization of $14 billion.