International Articles: The Development of REIT Markets and Real Estate Appraisal in Taiwan

Article excerpt

Abstract

This study introduces the development of real estate appraisal and investment securitization in Taiwan, and then explores the appropriate appraisal approaches and relative significant characteristics during the process of real estate securitization. Questionnaires were distributed to real estate appraisal experts, including certified appraisers and researchers in Taiwan. Results show that the income approach is the first priority for appraisal during the process of real estate securitization, followed by the sales comparison approach and then the cost approach. As for impact factors, location, tenants, growth prospects, and property markets are the four main criteria influencing capitalization rates on which most appraisal professionals will focus in Australia, U.S., Canada, U.K., and Taiwan. The findings may enable practitioners and researchers in the international appraisal field to establish uniform valuation standards, especially for real estate securitization.

In Taiwan, the Real Estate Securitization Statute was promulgated in 2003. With the introduction of this new mechanism, real estate can be transacted in the form of securities, which in turn can increase its liquidity. With the passage of the Ordinance of Real Estate Appraisal Techniques in 2001 and the Financial Asset Securitization Statute in 2002, real estate- and mortgage-related industries in Taiwan grew eager to apply the securitization mechanism for raising funds to liquidate real estate investments. Therefore, the appraised value and the technique employed in the process of securitization for initial public offering (IPO) have become the focus of government, appraisers, CPAs, lawyers, and investors.

The value of real estate can be assessed through several approaches according to its function or uses. Different approaches often generate different results, among which the income capitalization approach especially requires profound expertise in both the finance and real estate fields. Securitization per se is a process of accounting calculation, financial projection, and fund raising. The combination of real estate appraisal and securitization has thus become a fairly complicated task, with the further issue of agency problem to public investors. In this process, information disclosure is critical to the results of valuation. On the one hand, the vacancy rate, rental income, transaction price, and related regulation require appraisers in the local area to finalize the assessed value. On the other hand, financial structure, investment decision, corporate governance, dividend policy, risk valuation, and market forecast require an expertise in financial and capital markets (Corgel, McIntosh, and Ott, 1995). Therefore, to become eligible to appraise income-producing property, especially for real estate securitization, appraisers should be equipped with expertise in both financial markets and the domain of real estate. In other words, real estate appraisers should eventually turn into real estate financial analysts in undertaking real estate securitization.

Real estate is essentially a very ''local'' product that requires domestic appraisal professionals to determine the accurate assessed value. Besides the aforementioned issues regarding the transformation from physical assets to financial instruments in real estate securitization, international real estate appraisal has also become another complicated subject due to information disclosure and transparency, consumers' habits, local investors' interests, taxation, and other legal issues. Parker (1996) thus attempted to identify the main valuation methods adopted internationally, and the relative importance affecting the capitalization rate. Dorchester and Vella (2000) also addressed the demands arising from the globalization of real estate activities and the importance of the development of the international valuation standards. It is obvious that real estate appraisal has turned into an international financial analysis from the traditional comparison of local physical assets, especially following securitization. …