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Baltic States: The Challenge Of Appraising Property In Transition Economies

By Rasa Drazdauskiene

Vilnius, 3 March 1997 (RFE/RL) -- As the privatization process advances in transition economies, one of the difficult problems has been how to correctly value the vast amount of state property reaching the market.

Houses, apartments, factories, office blocks, farmland, building land -- all will have their varying values in a national context. Realistic and consistent valuation of all this property is a challenging task with an important impact on the economy.

Market mechanisms ultimately set the value of these objects. But where the market is still weak or confused, individuals and corporations may have wildly fluctuating ideas of how much their assets are worth, and this complicates the development of rational economic life.

Even in long-established market economies, the task of accurately estimating the value of real estate has grown to be a profession, that of property valuer or appraiser.

Professionalism is a very sensitive topic in the new market economies. Lots of professions -- from private shop owners to brokers and commercial bankers to property valuers -- came to the Eastern Europe scene just four or five years ago. There was -- and still is -- a great need of education and professional training.

In Lithuania, like in other post-communist countries, there have been moves to cope with the problem. Three years ago, a Lithuanian Association of Property Valuers, the LAPV, was formed. It celebrates its third anniversary this month with a seminar entitled "Professionalism in property valuation".

The organization's president is Kestutis Kristinaitis. He told an RFE/RL correspondent last week that "You cannot evaluate something that belongs to everyone and no one.".

"Property valuers can only work in a country, where there is market with its laws and standards".

Kristinaitis says one of the big problems in Lithiania so far is that official evaluation of real property has been made by the state-owned inventory bureaus.

"Their evaluation is often based on their own interests and has nothing to do with real market values," says Kristinaitis. This ambiguous situation makes it impossible to define the amount of taxation liable on a property, or the real prices of property for the purposes of buying and leasing.

He says the LAPV has proposed to the government a common set of valuation standards for all kinds of property. He says his organization is hoping for progress under Lithuania's new government, a right coalition led by Prime Minister Gediminas Vagnorius.

The crucial importance of skilful valuation of assets to the overall economy is illustrated by remarks from the director of the property valuation research centre at Vilnius University of Technology, Gintautas Satkauskas.

Satkauskas recalls for instance that the devastating bank crashes in 1995 was influenced in part by unprofessional evaluation for loan securities made by the banks.

On that subject, LAPV president Kristinaitis says that most of the bankrupt banks employed unqualified or suspect valuers, or often did the valuation themselves without necessary background information and expertise.

"The big, serious banks that employed and still employ professional valuers did not have so many problems," he says.

Our correspondent reports that of the Baltic states, Lithuania provides the biggest and liveliest market for property valuers, because of the number of enterprises it has. An important factor is also that country's rapid privatization, which means the opportunity is created for sold-off state property to acquire a concrete market value.

In comparison with other Baltic countries, Lithuania also has the best professional-training network and best ties with international organizations, also the biggest number of members -- 212 at present.

The Estonian market is similar, though smaller. In Latvia, much of the property is still state-owned. The Latvian Association of Appraisers is one year younger (established in January 1995) than its Lithuanian counterpart and has 36 members. The Estonian Association of Appraisers (established in May 1995) has 45 members.

Our correspondent reports that the problems of property valuers in all Baltic countries are similar: namely an urgent need for further professional training, the necessity of having a market which is developing well, and also the necessity to establish good working contacts with legislative bodies.

But there are also differences. For example, Estonia managed to avoid the Lithuanian problem of varying standards in property valuation by introducing a general market-oriented property valuation system.

Lithuania was the first Baltic country to start organizing training courses for the members of the LAPV. The members profited by the assistance of British and Canadian experts and members of International Valuation Standard Committee, especially in close collaboration with the organisation known as TEGOVOFA -- the European Group of Valuers of Fixed Assets.