OVERVIEW
Basic theories
Pursuant to the Article 181 of the Civil Code of the Socialist Republic of
Vietnam in 2005, real estate is an unmovable asset, including: lands, houses, construction associated with lands, and other assets prescribed by the law
- Immobility: Real estate is one of special goods: apart from being sold, used, or transfered, they remains unchanged geographically
- Heterogeneity: relying on different time and position does the price of real estate change In addition, there is also adjustment of customer taste, following the trend of the market
As Vietnam's population surges, the demand for land use is escalating, creating a significant challenge due to the limited availability of land The General Statistics Office reports that Vietnam spans a total land area of 329,414.5 km², with a population density of 252 individuals per km², highlighting the pressing issue of land scarcity amidst rapid population growth.
Real estate offers stability due to its intrinsic connection to land and properties that contribute to societal development Despite being subject to various uses, these assets consistently provide benefits to their owners Additionally, property owners enjoy comprehensive rights over their land and its advantages, with the potential for indefinite use, further emphasizing the stability of real estate investments.
In accordance with the Article 4, Clause 15 of the Law on Price number
11/2012/QH13, valuation is the responsibility of a company or organization which have the ability to value the properties in cash unit pursuant to the regulations of Civil
Code, and it must be suitable with the market price at specific position, specific time, serving a specific purpose based on the valuation standards
1.1.2.2 Principles a) Principle of highest and best use
In real estate, properties may appear physically similar, yet their usage can differ significantly The optimal utilization of an asset is crucial in establishing its market value.
When evaluating real estate, valuation specialists must assess both the highest and best uses of the vacant land as well as the optimal uses of the existing structures on that land.
The distinctive features of land determine its optimal use, influencing its market value based on the concept of "highest and best use." This valuation reflects the land's utility and sustainability within the market Additionally, the presence of structures on the land distinguishes the value of vacant land from the total market value of improved land, highlighting the impact of development on land worth.
According to this principle, buyers typically refrain from paying more than the cost of acquiring a comparable piece of real estate and building a similar structure, unless influenced by time constraints, challenges, or risks.
The value of real estate is affected by changes of economic, land cycle, or the government’s management policies on real estate and its market in the future
Therefore, real estate valuation requires the forecast of fluctuations of these factors to appraise the value precisely d) Supply – Demand principle
The value of the real estate market is influenced by the dynamics of supply and demand at the time of valuation Analyzing these factors is crucial for understanding purchasing power, real estate investments, and the overall business climate Additionally, government guidelines and policies play a significant role in shaping the real estate market Understanding the expected benefits principle is also essential for effective valuation.
Real estate value is primarily determined by its income-generating potential and the anticipated benefits, particularly for investment properties Therefore, accurately forecasting the profitability of real estate is essential.
The value of each part will contribute to the total value of the property
Therefore, appraisers should apply this principle when making adjustments to the value of comparable properties to estimate the value of the appraised property g) Suitability principle
To maximize returns and utility, real estate must harmonize with its environment and surrounding properties A thorough analysis of the property’s compatibility with its location, neighboring developments, and land use is essential in identifying its most effective and efficient use This principle emphasizes the importance of balance in land utilization and development.
The sale price of a property does not automatically reflect the value of nearby land Appraisers must evaluate the relationship between land use and development by taking into account planning policies and effective land use principles.
Pursuant to the Circular number 28/2015/TT-BTC of the Ministry of Finance about promulgating the valuation standards No.5, the process of general valuation is prescribed as below:
Step 1: Indentifying the overall of the collateral, and the market value and non- market value to have the base of valuation a) Determinng the basic legal, economic - technical characteristics of the appraisal property which affects the value at the time of valuation If there are limitations in determining these characteristics, it should be clearly stated in the valuation report and appraisal certificate b) Determining the users of the valuation results: The users of the valuation results are customers and the third party using the valuation results (if any) according to the signed appraisal contract c) Determining the purposes and the time of valuation
The appraisal's purpose and timing are established through a written request from a competent state agency, a customer's request, or an appraisal contract It is essential that the appraisal contract, valuation results report, and appraisal certificate explicitly outline the purpose and timing of the appraisal.
Specialists must engage in detailed discussions with clients to identify the specific objectives and timing for the valuation, aligning these with the intended purpose of the valuation certificate Additionally, establishing the appropriate basis for appraisal valuation is crucial for accurate assessments.
Specialists assess the value of an appraised asset by considering its valuation purpose, legal attributes, economic and technical characteristics, and market conditions, ultimately determining whether the appraisal will reflect market value or non-market value.
In the report on valuation results, the valuation specialists must analyze the information and data associated with the above-mentioned bases, and base on the
Vietnam Valuation Standard No 02 emphasizes the importance of market value as the foundation for property appraisal, while Vietnam Valuation Standard No 03 focuses on non-market value for appraisal purposes These standards provide a clear distinction between market and non-market valuation bases for appraised properties Additionally, they outline the necessity of determining assumptions and special assumptions in the valuation process.
Factors affecting the quality of valuation
The human factor is crucial in the valuation process, as it is predominantly conducted by individuals The expertise, qualifications, professional ethics, and experience of specialists significantly influence the selection of valuation methods, the quality of property information, and the assessment and comparison of values.
Valuation fundamentally involves gathering data about assets and their relevant information to evaluate their worth Consequently, the sources of this information play a crucial role in the valuation process, including the data stored in banks, the methods of information storage, and the database systems utilized for future reference.
Methods used for valuation in bank
Appraising assets can be approached through various methods, each with its own advantages and disadvantages tailored to specific asset types The choice of appraisal method significantly influences the accuracy of the final valuation, as different techniques yield varying results.
Each bank has a different process to value assets The application of the valuation process by the appraiser has an impact on the main results and calculations of the activity
This is the most affected factor due to the regulations or requirements in each bank For instance, asset depreciation ration, policy of receiving secured assets,… b) Objective factors
Real estate location is a crucial factor that significantly influences asset value, as properties cannot be relocated Key aspects include proximity to the city center, the surrounding environment, and whether the area is designated for residential or commercial use.
The current economic state of our country is unstable The fluctuations may adjust remarkably to the real estate value, which causes difficulty for valuation process
Government-issued documents, along with those from the State Bank and other relevant agencies, significantly influence appraisal efficiency A synchronized and realistic documentation system enhances the valuation process, leading to more effective outcomes.
Customers play a crucial role in property valuation as they provide essential data regarding ownership status—whether permanent, for rent, or other arrangements Accurate information from customers is vital for making informed valuation decisions Additionally, it's important to recognize that some customers may have fraudulent intentions, posing potential risks to banks.
INTRODUCTION OF SHB AND VALUATION ACTIVITY
Overview of SHB
Saigon – Hanoi Commercial Joint Stock Bank (SHB)
Headquaters: 77 Tran Hung Dao Street, Hoan Kiem District, Ha Noi Capital
Collateral Valuation Department: SHB Hang Trong Branch
Address: 71 Hang Trong Street, Hoan Kiem District, Ha Noi Capital
The Saigon – Hanoi Joint Stock Commercial Bank (SHB) was established on November 13, 1993, in Can Tho city, originally named Nong Thon Nhon Ai Bank In 2006, the bank underwent a rebranding and adopted its current name.
Until 30 th June, 2021, SHB has reached the total value of more than 458.000 billion VND, and authorized capital is 19.260 billion VND SHB has developed strongly with nearly 8.500 employees working in 537 branches inside and outside of Vietnam, serving over 5 million individual and corporate custormers, connecting 400 corresponding banks worldwide
SHB specializes in mobilizing deposits and facilitating transactions for both organizations and individuals across short, medium, and long-term durations The bank offers a range of loan services, including short-term, medium-term, and long-term loans Additionally, SHB engages in foreign currency transactions, provides international trade finance services, and discounts commercial papers, bonds, and other valuable securities The bank also conducts gold trading in compliance with legal regulations, offers factoring and asset preservation services, and rents out lockers and safes Furthermore, SHB acts as an insurance agent and provides loan entrustment services, along with granting credit through the discounting of various valuable and negotiable instruments.
SHB operates four wholly-owned subsidiaries: SHB Debt Management and Asset Development (SHB AMC), SHB Finance Company Limited (SHB FC), SHB Lao Limited (SHB Laos), and SHB Cambodia Limited (SHB Cambodia).
Figure 1: The structure of the branch
Valuation activity of SHB
Pursuant to the Charter of Saigon - Hanoi Commercial Joint Stock Bank which has been confirmed for registration in Document No 8662/NHNN-TTGSNH dated 11/11/2016 of the State Bank of Vietnam
Pursuant to Decision No 721/2018/QD-TGG on Decision V/v promulgating a set of procedures for asset valuation at Saigon - Hanoi Commercial Joint Stock Bank
Pursuant to Decision No 720/2018/QD-TGG on Decision V/v promulgating a set of methods of collateral valuation at Saigon - Hanoi Commercial Joint Stock Bank
Collateral valuation department Vice director
Pursuant to Official Letter No 123 CV/2018/SHB dated January 12, 2018 on guiding the process of coordinating real estate price consulting between SHB and SHAMC
Pursuant to Decision No 01/2018/QD-CT on Promulgating the Fee Schedule for Real Estate Consulting Services Prices
Pursuant to Official Letter No 49 CV/2018/SHB dated January 5, 2018 on the process of consulting the price of real estate at SHB Debt Management and Asset Development
Pursuant to Decision No 2258/2021/QD-BDH-CSTD on Issuing Decision on the scope of asset valuation at Saigon - Hanoi Commercial Joint Stock Bank
2.2.2 Process of valution in SHB
Step 1: Receiving the document and determining the situation
Business division/Customer sends valuation request document to receiving department, document included:
- Property appraisal request form: fully signed, stamped from the head of the business division
- List of property and related legal documents
- Property legal documents in accordance with the form of SHB
Database management department receives the document and carry on:
- Filling in apprasal tracking notebook and numbering the document
- Checking the catalogue of received document
Afterwards, database management department sends the document to the director department of valuation to get approved or supplemented or refused
Valuation department after receiving the approved document will carry on determining the property, purpose, time,…
Step 2: Planning to appraise the property
Valuation department performs the following tasks:
- Agreeing with the credit specialist about the time, position and the instructor Database management department’s duties:
- Updating the appraisal tracking notebook about the schedule appraising and the specialists
- Requesting the instructor to be the property owner or an adult with civil act capacity appointed by the property owner
- If the appraised property is in suburbs, or in other provinces or cities, valuation specialist informs to the head of department to run up to vehicle and accommodation
Step 3: Gathering data and analysing
A business valuation specialist, in collaboration with a credit expert, conducts a property survey under the guidance of the owner and client This real estate assessment adheres to the regulations set forth by SHB.
A business valuation specialist analyzes data from property surveys and associated documents, requesting relevant parties to provide additional information to ensure alignment between legal documents and the property's current condition They compile a report detailing the property's status, which is then reviewed and signed by both the credit specialist and the property owner for confirmation.
If the business division or the customer requests vertification relating to appraisal (if any), then make a vertification propose
The business valuation specialist consults with the director of the collateral valuation department regarding whether to proceed with or terminate the property appraisal when legal documents are found to be inaccurate or misrepresent the property's actual condition.
Step 4: Adjusting and applying property valuation methods
Based on the characteristics, type of property to be appraised and reliable information can be collected to choose an appropriate valuation method
The property acquisition specialist and the head of the property acquisition operation department control, approve, and agree on the appraisal method
A business valuation specialist analyzes and synthesizes information to determine the value of a property, ultimately unifying the results to reach a final appraisal The real estate agent or property acquisition department then communicates the indicated price and submits it for approval.
The valuation specialist analyzes the collected documents and pricing of the appraised asset to generate an appraisal report After quality checks are completed, the report is signed for control and forwarded to the Approval Level.
The database management department processes the signed document, records the issue number in the appraisal result report, and then distributes it to the customer, business division, or other relevant parties associated with SHB.
The business division receives the appraisal result report
Step 7: Finish the property appraisal process and keep the records
The business valuation specialist transfers property apprasal document to the department which receives requests for collalteral appraisal to be stored
2.2.3 Methods applied at SHB a) Comparison method
Step 1: Research on valuation document
- Legality of assets and technical information shown on legal documents
- Taking note about document to reflex, compare, interview while doing survey on the asset
- List the missing records for additional request
Step 2: Find market information related to appraised property
- Data sources: internal data, Internet, organizations such as trading floors, real estate brokers, notary offices, agencies and departments, ot other personal relationships
- Type of data: transaction price, listed price, traded price on the market, regional infrastructure, environment
Step 3: Survey the current condition of the property
- Carry out the survey of the appraised asset according to the Form of property valuation process (issued by SHB)
- Take photo of current status of appraised asset
- Carry out the survey of compared assets according to the Form of property valuation process (issued by SHB)
- Request additional information (if needed)
Step 4: Analyze and determine the value of appraised asset based on Adjustment set of indicators
- Make a comparison table between appraised asset and compared assets
Number Comparison Unit Appraised Compared Compared Compared
23 factor asset asset 1 asset 2 asset 3
Table 1: Comparison between appraised asset and compared asset
- Use the Adjustment set of indicators to determine indicative price
+ Make an adjustment table for the absolute amount
Number Comparison factor Unit Compared asset 1
- Adjustment ratio about information reliability
(garden, swimming pool, garage, etc)
6.2 Real estate price before adjustment of comparison factors
Table 2: Adjustment for the absolute amount
+ Make an adjustment table by percentage rate
A Real estate price before adjustment of comparison factors
B Adjustment for different comparison factors
Average value of indicative price
Deviation from the average of the indicative prices
Table 3: Adjustment by percentage rate
Step 5: Assess market price downtrend and liquidity time (only applicable when the market is trending down)
Forecast value of real estate
Table 4: Assess market price downtrend and liquidity time b) Cost method
Step 1: Studying economic and technical records of construction
- Estimation drawing and final settlement of construction
- Construction permit, certificate of construction ownership
Step 2: Survey the construction current status
Survey the status of appraised asset by using the Form of valuation process (issued by SHB) to determine criteria:
- Year completed and put into use
- Evaluate construction in terms of structure, design, materials put into use, etc
- Assess briefly about construction quality
Step 3: Calculate value of asset
= Construction price (1) x Construction acreage (2) x Remained quality ratio (3)
(1): Construction price is calculated based on below principles
Number Type of construction Construction price
1 Individual houses, villas, apartments, hotels, motels, shopping malls, markets
The compensation price set by the provinces and cities in each period, or the actual construction price If lower, then choose it
2 Factories and warehouses The investment capital presribed by the
Ministry of Construction in each period, or the actual construction price If lower, then choose it
3 Unfinished construction left for a long time
Equal to 50% according to the principles of items 1 and 2
4 Construction works belonging to the planning and liberating boundaries
The compensation price set by the provinces and cities
Table 5: Regulations of construction price
Construction acreage is calculated by multiplying the construction area by the total number of floors, including additional features such as balconies, loggias, and corridors, or as specified in the license issued by the relevant authority.
(3) The remained quality ratio is calculated as below:
The remained quality ratio = (1 – Actual time used of asset / Time used specified in Appendix) x 100% c) Income method
Step 1: Studying economic and technical records of construction
- Land allocation decision of the competent authority ( People’s committee of provinces and cities
- Plan drawing (scale 1/500), map of current state of the project site
Step 2: Survey the construction current status
Carry out similarly as in Comparison method
Define the total invesstment of the project, including below work items:
1 Cost of building construction Before tax
4 Cost of compensation for site clearance, land used fee
8 Cost of interest during construction period
Table 6: Total invesment of the project
Step 4: Determine the value of land use rights
1 Net operating revenue Year 1 Year 2 Year 3 …
6 Value of land usage rights
Table 7: Value determination of land use rights d) Residual method
Step 1: Studying economic and technical records of construction
- Land allocation decision of the competent authority ( People’s committee of provinces and cities
- Plan drawing (scale 1/500), map of current state of the project site
- Planning agreement drawing of the Department of Planning and Architecture and the design appraisal document of the competent authority
Step 2: Survey the construction current status
Carry out similarly as in Comparison method
Determine the total construction investment
I Cost of building technical infrastructure
II Cost of exterior construction
III Cost of construction investment
- Cost of inspection, quality conformity certification, settlement monitoring
- Contingency due to incurred factor
- Contingency due to slippage factor
Total amount of construction investment
Determine the land ownership value
I Total amount of growth revenue
II Total amount of growth cost
1 Total amount of construction investment
2 Cost of marketing and sales
Table 10: Land ownership value determination
Practical example
- Customer: Vũ Thị Ngọc Bích
- Address: 48 Hang Bai Street, Hoan Kiem District, Ha Noi Capital
The collateral consists of one real estate property, which includes a certificate of land ownership and assets attached to the house, identified by ownership number CQ 268726 This certificate was issued by the Hanoi Department of Natural Resources and Environment on January 18, 2019, and the property is located at 07 Cao.
Ba Quat Street, Dien Bien Ward, Ba Dinh District, Ha Noi Capital)
- Purpose of valuation: Credit renewal a) Legality of the collateral
Collateral legality document - Certificate of land ownership, house and land- attached assets ownership number CQ 268726
- Issued by: Hanoi Department of Natural Resources and Environment
- Note: The certification is renewed from the certification of land ownership, house and land- attached assets ownership number CK 273268 issued by Hanoi Department of Natural
Resources and Environment on July 14 th , 2017; due to be transferred under the Contract for the transfer of land ownership and land-attached assets, notarized number 25.2019 on January 3 rd ,
2019 made at Hai Ba Trung Notary Office, Hanoi
Collateral owner information - Miss: Pham Thi Kim Dzung
- Permanent address: 48 Hang Bai Street, Hoan Kiem District, Ha Noi Capital
Real property - Address: 07 Cao Ba Quat Street, Dien Bien
Ward, Ba Dinh District, Ha Noi Capital
- Purpose in use: Land in urban area
The property is strategically located adjacent to Cao Ba Quat Street, with house number 9 to its left and house number 5 to its right Additionally, it is bordered by adjoining real estate at the rear, enhancing its connectivity and accessibility.
Purpose Urban residential area Expiry date: Long term
Land-attached asset Constructions on land includes:
- 3 compartments of level 4 adjacent to Cao Ba Quat Street
- A yellow 3-storey compartment with the acreage of 83 m2
- A white 4-storey compartment currently for rent with the acreage of 140 m2
- An old 3-storey compartment which is abandoned, dilapidated and degraded, the value is insignificant
- Current status of use: for rent and for living
- Electricity supply: According to electricity consumption of Dien Bien Ward, Ba Dinh District, Hanoi
- Water supply: According to the water supply and drainage system of Dien Bien Ward, Ba Dinh District, Hanoi
- Traffic: the collateral is adjacent to Cao Ba Quat Street, two-way traffic by cars, relatively convenient traffic
- Environment, landscape: good ventilation and good for business
- External situation: The asset is an old villa on Cao Ba Quat Street, Ha Noi
- Real uses: Currently for rent and for business
+ Located in the center area, wide frontage, advantageous business
+ Convenient living environment, good access to health care and education
+ The construction is built on old land b) Methods applied
Based on purpose, characteristics of the collateral, market and market information, the valuation specialist chose the market value basis to perform the valuation
The principles used in the appraisal report inlude: principle of highest and best use, principle of substitution, principle of supply and demand
This article compares three properties located on Cao Ba Quat Street in Dien Bien Ward, Ba Dinh District, Ha Noi: a newly built 5-floor villa, an older 3-floor villa, and another house.
From the comparison between appraised asset and compared assets, the valuation specialist made a table to adjust the above criteria as below:
Compared asset 1 Compared asset 2 Compared asset 3
The price of land used
1 Legality Certificat e of land use rights
Certificate of land use rights
Certificate of land use rights
Certificate of land use rights
3 Shapes Not squared, expandin g at the end
Street surface Street surface Street surface
Cao Ba Quat Street frontage, advantag eous business
Cao Ba Quat Street frontage, advantageous business
Cao Ba Quat Street frontage, advantageous business
Tran Phu Street frontage, more advantageous business than appraisal asset
100m from Le Duan Street and 5-way intersection
7 Main direction Northeast Southwest Northeast North
8 Frontage adjacent to the road (m)
1 Average value of indicated prices
2 The difference from the average of the indicated prices
C Summary of adjusted data in section B
According to Decision No 1326/BXD-QLN issued by the Ministry of Construction on August 8, 2011, guidelines for inventorying and re-evaluating housing and construction assets have been established Utilizing empirical statistical methods and economic-technical analysis, specialists have determined that the completion rate of the ongoing construction projects on the land is approximately 60%.
According to Decision No 18/2019/QD-UBND issued by the People's Committee of Hanoi City on October 14, 2019, a construction price has been established for houses and structures to serve as a basis for determining compensation values during land recovery by the State The specialist has assessed the construction cost on land at the time of appraisal to be approximately 5,500,000 VND per square meter, taking into account the regional market price.
No Items Area in use
1 Value of land- use right
2 Value of on- land asset
Research methods
This research used both qualitative and quantitative methods
In this qualitative study, a questionnaire was utilized to survey employees from various business divisions, the collateral valuation department, and both individual and corporate customers The survey successfully gathered responses from 100 participants, with the questionnaire details provided in the appendix.
For the quantitative method, I had the allowance from Mr Thanh – the
The Collateral Valuation Department manager will analyze data from 2019 to 2021, focusing on the number of appraised real estate documents and the percentage of re-appraised asset documents This three-year review aims to enhance the department's valuation processes and ensure accurate asset assessments.
After distributing the questionnaire, I gathered 100 responses from participants, which included individual customers, corporate clients, and employees from various business divisions of SHB who have utilized or are currently using SHB's valuation services.
Figure 2: The proportion of survey respondents
The result from the individual customers:
1 Valuation specialists are professional and have a good
2 Working attitudes of specialists are enthusiastic and professional
3 Time to complete the appraisal process is short
4 Procedure of valuation is convienient
5 The content of the Valuation
Report is easy to understand, completed, and less misleading
6 Results are clear and transparent 0% 0% 15,4% 69,2% 15,4%
Table 11: Individual customer’s evaluation of real estate appraisal service of Saigon –
Hanoi Commercial Joint Stock Bank on a scale of 1 to 5
The result from the corporate customers:
1 Valuation specialists are professional and have a good qualification
2 Working attitudes of specialists are enthusiastic and professional
3 Time to complete the appraisal process is short
4 Procedure of valuation is convienient 0% 0% 0% 50% 50%
5 The content of the Valuation Report is easy to understand, completed, and less misleading
6 Results are clear and transparent 0% 0% 0% 25% 75%
Table 12: Corporate customer’s evaluation of real estate appraisal service of Saigon – Hanoi Commercial Joint Stock Bank on a scale of 1 to 5
The result from the employees of business divisions:
1 Valuation specialists are professional and have a good qualification
2 Working attitudes of specialists are enthusiastic and professional
3 Time to complete the appraisal process is short
4 Procedure of valuation is convienient
5 The content of the Valuation Report is easy to understand, completed, and less misleading
6 Results are clear and transparent 0% 0% 22,2% 44,5% 33,3%
Table 13: Corporate customer’s evaluation of real estate appraisal service of Saigon – Hanoi Commercial Joint Stock Bank on a scale of 1 to 5
The data presented indicates that the majority of customers are satisfied with the quality of the appraisal service provided by SHB's Collateral Valuation Department.
At SHB Hang Trong branch, the valuation department comprises 21 employees, of which only 7 hold appraisal cards Notably, 90% of these specialists possess over 5 years of experience prior to their current roles, indicating that the team still lacks significant expertise in the field.
The level 2 and 3 assessments primarily reflect the ratings of business divisions, often due to incomplete applications or documentation issues, as well as problems related to borrower or owner assets Consequently, the valuation department frequently needs to return or deny appraisal requests.
Similarly, the time of valuation is affected by the above reason Sometimes, the SHB receives feedback from customers about the delays The reason is that the
Valuation Department currently lacks human resources in the provinces, so the time spent on travelling is the main cause of the delays in the appraisal plans and report writings
Due to the pandemic, SHB temporarily suspended the collection of fees for real estate and collateral price consulting services in 2021 Prior to this, SHB adhered to its established fee structure as outlined by SHB AMC – SHB Debt Management and Asset Development For detailed information on the fees, please refer to the appendix.
From 2019 to 2021, the real estate market experienced significant fluctuations due to the pandemic, leading to the emergence of various projects and planning initiatives This period saw notable changes in supply and demand, as well as transaction volumes.
Firgue 3: The amount of supply and transaction volume throughout 4-year period
Experts indicate that while the Covid-19 pandemic has influenced the real estate sector, demand remains high even as transaction numbers decline This shift is primarily driven by investment needs and market speculation Overall, real estate prices continue to rise across all segments, with certain areas experiencing significant increases.
Short-term speculation in real estate, driven by expectations of price increases, complicates accurate property valuation and leads to discrepancies between market prices and actual property values.
Total amount of real estate collateral
Table 14: The amount of real estate collateral and its value at SHB in the period of
The trend in real estate collateral has shown significant growth over the years, with nearly 19,000 documents recorded in SHB in 2019 This number surged by over 8,000 documents in 2020, reaching more than 27,000, and continued to rise in 2021, approaching 40,000 documents—an increase of over 13,000 from the previous year Consequently, the total valuation of real estate collateral experienced a remarkable rise, escalating from 138,000 billion dong to 181,069 billion dong.
According to Decision number 2258/2021/QD-BDH-CSTD, Saigon – Hanoi Commercial Joint Stock Bank has established regulations for asset valuation Each property type will be assigned to the appropriate appraisal department based on its value, which may include the collateral valuation department or the valuation department of business divisions.
Total amount of real estate appraised by the collateral valuation department
Table 15: The proportion of actual real estate applications received at the collateral valuation department in the 3-year period
To ensure accurate valuation of business divisions, the collateral valuation department will re-evaluate assets initially appraised by these divisions, specifically those valued over 5 billion dong Discrepancies in valuation results will lead to sanctions imposed on the respective departments.
Formula for calculating difference in asset value:
Asset value difference ratio = [(Value determined by business division – Value determined by collateral valuation department) / Value determined by collateral valuation department] x 100%
Total number of real estate collateral
The number of real estate having difference in value after revaluation
Table 16: Deviation rate after real estate revaluation
RESEARCH RESULT
Legally, comparing to the appraisal process prescribed by the Ministry of
Finance, SHB has well implemented the regulations set out by the Ministry Similarly, appraisal methods are also specified clearly, in detail, and are flexible in practical application
A recent survey revealed that internal coordination issues exist between bank departments, despite positive customer feedback Business divisions often face challenges with appraisal applications being denied due to insufficient documentation or unclear information, leading to dissatisfaction among involved parties The appraisal process is perceived as slow, exacerbated by a significant shortage of valuation specialists in central and southern provinces, while the demand for asset appraisals continues to rise Consequently, the time taken to complete appraisals is extended, impacting key performance indicators (KPIs) Additionally, the lack of specific regulations regarding maximum appraisal turnaround times results in subjective assessments However, other factors in the appraisal process received ratings ranging from satisfied to very satisfied.
The real estate appraisal process at the collateral valuation department is highly regarded for its professionalism and adherence to established procedures, effectively minimizing risks This performance consistently earns recognition from the Board of Directors during annual bank meetings While some data indicates minor deviations that require adjustment, the overall adjustment percentage remains low, with no significant violations impacting the bank's operations.
SOLUTIONS AND RECOMMENDATIONS
Oriented development
a) General oriented development of SHB
SHB aims to become the leading modern retail bank in Vietnam by embracing digital technology transformation and enhancing its customer ecosystem and value chain With a strong focus on customer-centric development, SHB prioritizes the integration of human expertise and technology as key drivers of growth The bank's commitment to risk management, product management, and superior sales and services forms the foundation of its development strategy In addition to its ambition in the banking sector, SHB is dedicated to environmental protection and actively supports social security and educational initiatives within the community.
- Top 5 largest Commercial Joint Stock Bank in Vietnam
+ Affirming the customer – centric business principle, devising modern products and services, which are suitable for each targeted customer segment
+ Achieving good quality growth in loan and deposit portfolios
+ Ensuring resources are provided to support growth and risk management
- Becoming a digital bank, digitize most of operations, complete technology tools to effectively serve business activities
+ Deploying a comprehensive banking mordenization campaign, digitizing to help improve labor efficiency and business efficiency as well as improve service quality of SHB
+ Restructuring governance and executive management, improving capacity and productivity
- Top 3 largest Commercial Joint Stock Bank in Vietnam
+ Positioning key customer segments and developing specific product policies
+ Different and diversified products based on technology platform
+ Building a short-term and long-term business model is a customer-centric business model
+ Building an ecosystem on the existing SHB platform
+ Building the possibility of income from fee as an alternative to core business income in a sustainable way
- Becoming the leading digital bank among private commercial banks
+ Unifying the interface of distribution channel
+ Building and deploying digital transaction branches / transaction offices b Development orientation of real estate valuation at SHB
Continuing to complete legal documents on valuation
Developing a team of appraisers: reduce requirements to add more human resources, but still ensure the quality of training Encourage the specilists to obtain an appraisal card
Building a digitized system on the procedure for approving application documents for appraisal.
Solutions to improve the appraisal activity in SHB
Completing regulations on legal documents of borrowers or property owners
The collateral valuation department must thoroughly review documents from the business division to ensure compliance before proceeding with appraisals Common issues leading to document returns include insufficient paperwork, missing signatures, lack of instructor arrangements for valuation specialists, and difficulties in contacting property owners To mitigate these challenges, it is essential for the bank to establish clear requirements for legal documents in collaboration with both the business divisions and the collateral valuation department, enabling the completion of necessary documentation by customers and asset owners prior to submission.
Completing regulations on legal documents and acceptance conditions of real estate
The process of applying the law on real estate as collateral has notable shortcomings, highlighting the need for banks to establish clear and detailed regulations regarding the legal documentation for each real estate type The liquidity of real estate is significantly influenced by its legal, economic, and technical characteristics, as well as by fluctuations in supply and demand within the market Therefore, it is essential to create comprehensive guidelines on the types of assets that are accepted as collateral, which are encouraged, and which should be excluded.
Advancing the quality of human resources
In any industry, a profound understanding of expertise is essential to minimize risks and facilitate a smooth appraisal process, ultimately delivering accurate results that benefit both SHB and its customers It is crucial for valuation specialists and employees from various business divisions to receive professional training, ensuring effective coordination throughout the professional performance process.
SHB is seeking to recruit appraisers with a minimum of five years of banking experience and proper training Additionally, ongoing specialized training sessions and competency assessments for existing staff are essential to enhance professional skills Regulations should be established to address any unsatisfactory performance among appraisers and business division staff.
Advancing the quality of information
The quality of information sources significantly impacts valuation results, as unreliable information can erode customer confidence, damage the bank's reputation, and disrupt price appraisal and credit decision processes.
To effectively utilize information data sources, it is essential to establish a systematic approach that includes creating a specialized system for data collection, processing, and management Regularly updating documentation on these information sources and leveraging both domestic and international resources is crucial Additionally, seeking external consulting support from leading experts, auditing firms, and competent authorities can enhance the effectiveness of data utilization.
Flexibility in applying appraisal methods
Collateral valuation methods are inherently imperfect and come with limitations Selecting the appropriate appraisal method requires consideration of the unique characteristics of each real estate type A comprehensive approach that combines various methods and compares their valuation outcomes is essential for accurate conclusions This selection process should be adaptable and flexible, steering clear of rigid or stereotypical practices.
Increasing the re-appraisal of real estate
The real estate market is constantly evolving, making re-appraisal crucial to maintain accurate asset valuation Regular assessments help ensure that property values reflect current market conditions, protecting investments and facilitating informed decision-making.
52 change, to be eligible to continue as collateral, and to help the bank promptly adjust to changes and minimize risks
Banks must routinely schedule re-appraisal periods and conduct unexpected re-appraisals when asset values experience significant fluctuations Additionally, it is crucial to actively monitor other objective factors, such as interest rates and inflation, to ensure timely forecasts that support effective re-appraisal processes.
Some recommendations about the real estate appraisal in SHB
To enhance price appraisal practices, it is essential to develop mechanisms and policies that include amending and supplementing the existing Decree on the implementation of specific articles of the Law on Price This involves establishing clear regulations for sanctioning violations related to price appraisal in valuation processes.
To enhance the efficiency of land and house ownership certificate issuance, it is crucial to expedite the granting process This acceleration will not only strengthen the legal framework surrounding the commercial banking system but also provide banks with greater opportunities to expand their credit offerings Currently, a significant portion of land lacks ownership certificates, resulting in semi-legal transactions within the real estate market Additionally, the inconsistency and incompleteness of real estate documentation create numerous loopholes that need to be addressed Therefore, it is essential for the State Bank to implement recommendations that streamline these processes and ensure better regulatory compliance.
Establishing a comprehensive legal framework for the appraisal of various types of real estate is essential due to the unique characteristics of each property Since a one-size-fits-all approach is inadequate for valuation, it is crucial to develop specific legal documents that outline tailored methods for accurate real estate assessment.
The State bank needs to develop more independent appraisal organizations to check appraisal results; and organize for companies to independently appraise and cross-
53 check assets to ensure transparency and objectivity of assets, and improve the efficiency of management and operation of the real estate market c) Recommendations for the Ministry of Finance
Amending and supplementing regulations of specialized laws related to appraisal price, specifically regulations on land valuation
Increasing international integration in valuation
Improving the inspection and supervision of the observance of the provisions of the law on appraisal
To enhance efficiency in valuation activities, it is crucial to strengthen the Vietnam Valuation Association's role, promote administrative reform, and integrate information technology for infrastructure data development Additionally, strategic recommendations for SHB should focus on these key solutions to optimize performance and streamline processes.
Real estate valuation plays a crucial role for banks, as real estate serves as the primary form of collateral Despite its significance, the real estate appraisal industry in Vietnam remains relatively inexperienced Consequently, it is essential to focus on enhancing expertise in this area.
SHB needs more research and improvement in the process of real estate appraisal to optimize efficiency, as well as complete the management apparatus
Human resources require greater attention and ongoing enhancement of quality through increased access to knowledge and participation in advanced classes Additionally, it is essential to organize public and transparent entrance contests that emphasize the importance of professional knowledge in valuation and a comprehensive understanding of the real estate market.
National Assembly of Vietnam (2012), Law on prices No 11/2012/QH13
National Assembly of Vietnam (2015), Civil code No 91/2015/QH13
The Ministry of Construction (2020), Announcement No 93/TC-BXD
The Ministry of Finance (2015), Circular of Vietnam’s valuation standard No 08, 09 and 10 No 126/2015/TT-BTC
The Ministry of Finance (2016), Circular of Vietnam’s valuation standard No 11 No 145/2016/TT-BTC
Saigon – Hanoi Commercial Joint Stock Bank (2019, 2020, 2021), Annual report
Time frame of using assets (Houses, structures)
List of fixed asset Minimum depreciation (years)
Mid-shift area, cafeteria, toilet, fitting rooms, garages, etc
Warehouses, storage tanks, bridges, roads, airport runways, parking lots, drying yards, etc
Embankments, dams, culverts, canals, ditches
Wharfs, mounds of slopes, etc 10 40
Questionaire
Survey on appraisal quality of SHB
How do you rate the curent real estate appraisal at Saigon – Hanoi Commercial Joint Stock Bank on a scale from 1 to 5?
1 2 3 4 5 Valuation specialists are professional and have a good qualification
Working attitudes of specialists are enthusiastic and professional
Time to complete the appraisal process is short
Procedure of valuation is convienient
The content of the Valuation Report is easy to understand, completed, and less misleading
Results are clear and transparent
Table of consulting services fees on real estate, collaterals
(Issued together with Decision No 01/QD-CT dated 26/01/2018 of the Chairman of SHB Debt Management and Asset Development)
1 Table of initial consultation and credit renewal fees
No Asset valuation (million VND) Fee (VND)
12 Above 50 billion VND 3,000,000 +0,02% asset’s value
(Note: not included the VAT)
1 Travel - The distance from 30 km to under 100 km:
2 Overnight stay 500,000 VND/person/night
3 Out – of – office hours consultation
- On working days: 200,000 VND/real estate
- On Saturdays and Sundays: 500,000 VND/real estate/day
Sample of collateral valuation request form 59 Appendix 5: Sample of Plan and Survey of the current status of appraisal asset 61
Appendix 5: Sample of Plan and Survey of the current status of appraisal asset