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The Commission of Inquiry into the undervaluing of property to avoid chargeable stamp duty has expressed concern about the absence of any comprehensive regulatory regime that governs appraisers in the Territory.
According to the Commission, some attempt should be made to standardize the contents of appraisals, as well as the definition of what will constitute the market value so that the appropriate test could be applied in respect of each transaction.
The report recommended that the Commissioner of the Inland Revenue Department (IRD) consider adopting the Chartered Surveyors Appraisal and Valuation Standards.
According the Commission's report, while implementing a regulatory regime, it might be "extremely unconscionable" at this stage to exclude persons who have traditionally operated within the system for some time and who might not be in possession of a professional qualification.
"Having regard to the rapid growth in the real estate market and the potential for rapid growth, it might be useful to consider some kind of legislative regime containing a 'grandfather clause' that will authorize persons already in the system to continue to practice as appraisers, but that might require certain qualifications for persons who might want to enter the profession in the future," the report recommended.
The report recommended that the Commissioner of IRD should convene a meeting of all stakeholders who are engaged in appraisal of real and personal property and agree to some kind of minimum information, analysis and other material that should be contained in an appraisal report.
The report also recommended registration of appraisers so as to ensure that persons whose appraisals are acceptable are identifiable by IRD.
Another issues raised by the Commission is the absence of an appraiser on a full time bases at the IRD.
"It is imperative that this post be created as early as possible, especially in the present environment where there might be a significant disparity between the consideration in the instrument and the market value set out in the appraisal. The Commission takes the view that any legislation should stipulate the role of the department's appraiser and that officer should be the first point of reference for determining disputes in respect to the value of property. Thereafter, any continuing dispute might be attended to by the Financial Secretary, but ultimately adjudicated in a court of law," the Commission recommended.
Appraisals By Banks
The Commission stated that any appraisal report prepared for stamp duty purposes should be independently undertaken.
According to the Commission, such a report should be distinct and separate from that required by financial institutions to consider the grant of credit facilities using the real property as security.
The Commissioner noted that the appraiser, having been retained by the financial institution, takes too conservative view of the market value since the object is to find the value on which a loan could be safely granted by a potential charge.
"The objective of an independent valuation for stamp duty purposes, is to find a market value so as to ensure that there is no collusion between the transferor and transferee relating to the value and in any event the Inland Revenue Department is able to apply the percentage of ad valorem
duty applicable to a market value best defined by the Royal Institute of Chartered Surveyors," the report pointed out.