International Valuation Conference Yangon, Myanmar Role and - PowerPoint PPT Presentation

International Valuation Conference – Yangon, Myanmar “Role and Importance of Valuation in Myanmar - Today, Tomorrow & the Future” the Case of Cambodia By Sim Hoy Chhoung (Mr. Sim) Certified Valuer (Cambodia) Certified Public Accountant Managing Director, Japan Valuers (Cambodia) Co., Ltd June 18 th , 2019 Rose Garden Hotel, Yangon, Myanmar The views and opinions expressed in this article are those of the author and do not necessarily reflect the official position of Japan Valuers (Cambodia) Co., Ltd.

Table of Topics I. Introduction – Cambodia II. Valuation in Practices III. Importance of Professional Valuation IV. Challenges V. Conclusion Japan Valuers (Cambodia) Co., Ltd 2

I. Introduction - Cambodia  Population  Membership of ASEAN Japan Valuers (Cambodia) Co., Ltd 3

I. Introduction - Cambodia  Location: Southeast Asia  Membership of ASEAN in 1999  Area: 181,035 sq.m  Population (2018 est.): 16.5 mln  Age Structure (2018 est.): ‒ 0-14 years: 30.76% ‒ 15-24 years: 17.84% ‒ 25-54 years: 41.09% ‒ 55-64 years: 5.94% ‒ 65 years and over: 4.37%  GDP Composition (2017 est.): ‒ Agriculture: 25.3% ‒ Industry: 32.8% ‒ Services: 41.9%  GDP per Capital (PPP): US$4,000 – 2017 est.  Japan Valuers (Cambodia) Co., Ltd 4

I. Introduction - Cambodia Economic Indicators 2012 2013 2014 2015 2016 2017 2018E 2019F GDP (Bn USD) 14.1 15.3 16.7 18.2 20.2 22.06 23.68 25.88 GDP Growth (%) 7.3 7.4 7.1 7.0 6.9 7.0 7.1 6.8 GDP Per Capita (USD) 973 1,042 1,135 1,171 1,265 1,372 1,451 1,563 Inflation (%) 2.9 2.9 3.9 1.7 3.5 3.1 3.2 3.3 No. of Foreign Tourist Arrivals 4.5 4.8 5.0 5.6 6.2 3.6 4.2 N/A (Million) Compiled by JVCambodia, Source: National Bank of Cambodia, Ministry of Economy and Finance, Asian Development Bank, World Bank & IMF Banking and Financial Sector 2016 2017 2018 Commercial Banks 37 39 43 Specialized Banks 15 15 14 Microfinance Deposit Taking 7 7 7 MFIs 64 69 74 Rep Office - Foreign banks 7 7 5 Financial Leasing Companies 12 13 15 Payment Service Providers 8 10 16 Complied by JVCambodia, Source: National Bank of Cambodia Japan Valuers (Cambodia) Co., Ltd 5

II. Valuation in Practices Cambodia Valuers and Estate Agents Association - CVEA  Non-profit organization  Founded and registered as Association in 2008  Formerly named “National Valuers Association of Cambodia (NVAC)”, changed to CVEA in April 2011  Become the 8 th full member of ASEAN Valuers Association (AVA) in April 2009  Type of membership – Corporate, associate , no individual member Number of Licensed Real Estate Company  No. Services Number End of 2016, total 139, 87 are 1 Brokerage & Valuation 58 members of CVEA  2 Only Valuation 3 There are about 260 valuers 3 Only Brokerage 78 certified by the MoEF, end of 2018 Total 139 Japan Valuers (Cambodia) Co., Ltd 6

II. Valuation in Practices CVEA Partners Japan Valuers (Cambodia) Co., Ltd 7

II. Valuation in Practices Regulator – Ministry of Economy and Finance (MoEF)  License issuing & Certify valuers  Propose related laws, circulars or directives regarding fee scales, ..  Licensing Requirements for a company to legally operate: ‒ One valuation license holder – University degree – related field ‒ Two certified valuers o become certified – need at least 6 months experience in valuation and university degree ‒ Professional Indemnity insurance – minimum loss coverage of US$200,000 ‒ Currently, there is no minimum CPD training requirements for valuers ‒ Starting mid-2018, all real estate agents and valuers need to complete relevant training courses at the University of Economics and Finance ( an affiliate to MoEF) before getting certified. ‒ Monthly reporting to the MoEF department in charge Japan Valuers (Cambodia) Co., Ltd 8

II. Valuation in Practices Valuation Standards and Professional Standards  Cambodian Valuation Standards – not fully developed and updated  Two legal frameworks by the MoEF regarding valuation practices: ‒ Laws on the management of valuation services and real estate agency (Draft) in preparation ‒ Circulars or Directives issued by MoEF such as fee scales and code of Professional Ethics, and so on.  Practically, valuers refer to different standards, directives ‒ RICS Standards, IVS ‒ ASEAN Valuation Standards – but rare Japan Valuers (Cambodia) Co., Ltd 9

II. Valuation in Practices Uses and Subject of Valuation Services Subjects of Valuation 2 Main Applications of Valuation Real property Valuation for Financial Reporting Personal property Business interest Valuation for Secured Lending Intangible assets Plant & equipment M&A, Buying, Selling, Renting, Tax assessment, Insurance Trade-related property etc. Japan Valuers (Cambodia) Co., Ltd 10

II. Valuation in Practices Uses of Valuation Services  Mostly used for secured lending – 80%  for financial reporting – 10%  Other uses – M&A, tax assessment, insurance – 10% Subject of Valuation  Real property – 80% (mostly residential)  Plant & Machinery – 10%  Others – 10% Most frequently used valuation Approaches / Methods  Mix of Comparison & Cost Approach  Income Approach – Very rare Japan Valuers (Cambodia) Co., Ltd 11

III. Importance of Valuation Global Importance - Call for Global Valuation Standards There are growing concerns of financial regulators and stakeholders for better identification and communication of uncertainty in valuations ‒ 2008: The financial Stability Forum (FSF) published an analysis of the causes and weaknesses that had produced the turmoil in financial markets asking for more transparency in valuations. ‒ 2009: the G20 Declaration on Strengthening the financial System called for improved standards for valuation uncertainty in the context of fair value accounting. ‒ 2009: The Basel Committee for banking supervision issued its paper Supervisory Guidance for Assessing Banks’ Financial Instrument Fair Value Practice ‒ 2010: the Financial Services Authority (UK) published recommendations for the specific assessment of valuation uncertainty. Japan Valuers (Cambodia) Co., Ltd 12

III. Importance of Valuation Global Importance - Call for Global Valuation Standards  The financial crisis 2007-2008 highlighted the interdependency of the global financial markets, and the increasingly prominent role that the valuation profession plays in these markets.  Having a substantive global valuation technical framework that is principles- based will improve the consistency, better comparability across the financial markets and increased confidence in the valuations performed.  The importance of fair value and similar measurements in financial reporting mandates corresponding high-quality valuations.  “ Accurate and professional valuations are vital to a healthy property market and a stable economy, forming the basis of performance analysis, financing decisions, transactional or development advice, dispute resolution and taxation, ” Royal Institute of Chartered Surveyors (RICS) Japan Valuers (Cambodia) Co., Ltd 13

III. Importance of Valuation Useful for different purposes and different stakeholders:  Lubricate real estate activities – lending, investment, brokerage etc.  Real estate agents – to see if they can go for listing of the subject  Government - taxes collections  Investors and developer – decision making & development  Lenders : Collateral risk management tool, Secured/mortgage Lending  Dispute resolution, Arbitration /litigation support  Pre-IPO  Financial Reporting – fair value accounting  Transaction support (M&A, Liquidation, ..)  Insurance  Foreclosure & bankruptcy support Japan Valuers (Cambodia) Co., Ltd 14

III. Importance of Valuation Contribution to the Growth of the Economy Real estate-related credit growth (%y-o-y) Real GDP Growth Contribution (%) Japan Valuers (Cambodia) Co., Ltd 15

IV. Challenges Valuation Practices in Cambodia still faces some challenges:  The lack of published information or difficulty in obtaining information regarding transactions as well as other data requisite for proper valuations – no national level central database  Outdated national valuation standards and no guidelines  Lack of adequately trained professional valuers and training centers or universities  High volatility of property market and a lot of speculations Japan Valuers (Cambodia) Co., Ltd 16