KUWAIT, Feb 1 (KUNA) -- Real Estate and economy experts have called for developing real standards based on scientific and realistic ground for real estate assessment in Kuwait , so as not to manipulate the prices for purposes relating to activities of private companies whose budgets are facing "technical problems." These demands came in a report conducted by Kuwait News Agency (KUNA) with experts about the impact of mortgage in the companies' budget, which are now preparing to submit their financial results for 2009 in light of the current global financial crisis that affected the activities of these companies.
Chairman of the Board of Directors of the Securities Group Company Ali al-Mousa said there is a difference in the impact in the application of criteria for evaluating the assets in the budgets of the listed companies.
Al-Mousa added that investment firms and banks are subject to control of the Central Bank of Kuwait (CBK), therefore, they are required, more than others, to commit to the international accounting standards and other criteria that are more specific in order to reach a value that is closer to reality reflecting the value of real estate owned by the company within its budget.
He pointed out that the purpose of owning real estate asset has a direct impact in the evaluation process, as there are standards to calculate the value of the asset owned for investment that differ from the standards originally owned for trading or for direct use by the company.
He cited an example of companies that wished to re-evaluate their assets recorded at purchase price within the budget 20 years ago but were hit by the "wall of standards" that required re-evaluation of all the company's assets for the same period (20 years), describing it as something difficult and costly.
He extolled the role of the tax department in the Ministry of Finance, and through its emphasis on collecting as much as possible of the national labor support tax, it is keen to ensure non fabrication of non-realistic values of assets so as not to allow the company to reduce the value of their revenues and thus reduce the amount of tax imposed as a percentage of profit.
For his part, President of the Real Estate Union and Chairman of Commercial Markets Complex Co. Tawfeeq Al-Jarrah told KUNA that the assessment of real estate in Kuwait does not rely on scientific basis but is based on the latest sale taking place in the region, saying this is unacceptable because the last sale could have special circumstances and therefore it could not be reliable measure.
Al-Jarrah asserted the importance of adopting a style of fair valuation which takes into account a combination of factors the most important of which cash flow, location and the future of the region and other factors that could affect the value of the property.
And on the assessment of the property and its entry into the budget, Al-Jarrah said it depends on the accounting policy of the company and the value, according to which the real estate is assessed, as well as the company's policy, whether it is the cost policy or the policy of annual evaluation.
He said a real estate valuation is usually done to prepare a budget or access to credit facilities from a bank or in the case of liquidation of the company among heirs or partners with each other or knowing the value of real estate in the case of exchange or evaluation of corporate assets for merger between two real estate companies in order to sell a real estate property in the auction.
For his part, Director of Al Enma'a Real Estate Company Walid Al-Jeri said the real estate appraisal in Kuwait is sometimes used to improve budgets on the basis that it is easy to assess the property of the highest value due to the absence of criteria for this evaluation, stressing that this assessment remains based on the market and not to a clear scientific criteria.
He added that there is no fixed, clear or fair value to determine the value of real estate and it therefore, the matter remains subject to the market.
Thunayyan Al-Ghanim, a banking expert, has called for a formula for calculating the average value of the property in Kuwait through the regulatory authorities responsibile for companies and banks because the local market is different from the rest of the region where the proportion of private property is less than four percent of the total area of the country, while some Gulf States have expanded in the property and they have even built within the Arabian Gulf waters. - Kuna