Can change in auction law address property devaluing?

There is a need for a thorough investigation into cases of property devaluation in auctioning, and arresting the ‘mafia ring’, instead of considering a swift change in law relating to auctioning, according to the Ministry of Justice. The reaction follows a recommendation by Transparency International Rwanda calling to change Article 3 of the 2021 law relating to civil, commercial, labour, and administrative procedures, which, the watchdog says, gives room for devaluing property during auctioning. ALSO READ: Top cases of injustice in property auctioning The suggestion comes after an analysis of 11 cases of auctioning which showed, for instance, that a property worth over Rwf250 million was auctioned at only Rwf134 million in 2023. This means that properties were devalued by 62 per cent since the owners received only 38 per cent of their actual value, the analysis shows. The Executive Director of Transparency International Rwanda (TI), Apollinaire Mupiganyi, said banks’ staff in charge of credit are conniving with buyers and brokers so that properties are devalued, and then get a commission fee for enabling the sale at the lowest price. ALSO READ: Inside the mafia ring that devalues property in auctions Due to injustice in property auctioning, the transparency watchdog noted that the people who lose properties in these auctioning cases are becoming destitute, while banks also count losses when the auctioned properties do not pay back the whole amount of the loan. ALSO READ: Govt scraps auctioning taxpayer’s property Currently, the highest bidder, as per the law, is declared the successful bidder if they offer a higher price, even if that price is lower than the property's actual value as determined by valuers. In this context, TI Rwanda suggests that Article 3 of the law be revised and recommends that an announcement about an auction should stipulate that “a bidder provide a price that is not lower than the actual value of the property as calculated by property valuers.” Reacting to the recommendation, Frank Damas Mutagoma, the advisor to the Minister of State at the Ministry of Justice, said: “If a bidder must provide a price that is not lower than the actual value of the property as mentioned by valuers, there could be endless auctioning leading to lack of bidders because of that limitation, yet banks need to recover their money. They might struggle with recovery.” In order to discourage the malpractice, he said, investigators should put in more effort to arrest the mafia ring. Mutagoma also urged property owners and banks to always strive for “ensuring their right to find themselves the buyers that can bid through the electronic procedure available” as the law allows. “This is one of the ways to cope with injustice in property auctioning,” he noted. Normally the law says that the bailiff publishes in an appropriate electronic system a reference price that is equivalent to the value indicated. The highest bidder who provides a higher price is declared the successful bidder. The owner of the property and the bank have also the right to decline the price offered at the first round and at the second round in case no price reaches 75 per cent of the reference value. In the third round, the property to be auctioned is given to the bidder who offers a price that is higher than other prices offered during all the rounds of the auction. What do property valuers say? John Mugisha, Chairperson of the Institute of Real Property Valuers in Rwanda, said properties’ value is undermined during auctioning and explained factors that trigger such injustice. “Many people have beliefs that they should get property being auctioned at lower prices. There are also brokers who help buyers get these properties at lower prices,” he said. He said if the law is changed, bidders should be ordered to provide a ‘price that is equivalent to the forced sale value of the property market value’. A forced sale value is the estimate of the amount that a business would receive if it sold off its assets under pressure during an unforeseen or uncontrollable event. Forced sale value, he explained, is calculated at 70 per cent of the market value. This means that if a market value is Rwf10 million, the forced sale value is Rwf7 million. On the other hand, the market value is considered when the owner takes enough time and puts the property on the market without pressure or being triggered by unforeseen events. Although Mugisha said the property’s actual value should be considered during auctioning, there is a need for mechanisms to help banks easily recover their money. “If there is such a limitation, and the property doesn’t get buyers, eventually, banks might stop providing mortgage loans,” he said. He also called for a probe into brokers and banks’ staff in charge of credit who pave the way for property devaluation during auctioning. “The culture should be punished. So far, we have not yet caught property valuers involved in this. The cases we punished in our institute are not related to malpractices in auctioning,” he added. Bailiff’s association reaction Théotime Tuyisenge, a lawyer and the Acting Executive Secretary of the Professional Bailiffs Association said the actual value of the properties should be maintained during auctioning. “The actual value of the property should be respected because we know properties that are even sold at a price that is higher than the value mentioned by experts in the valuation report,” he said. However, he said, other properties are sold at lower prices compared to the property’s value due to people’s attitudes and beliefs that a property in auction should be sold at a lower price. He said that bailiffs currently can’t be involved in fraud during auctioning following the established Integrated Electronic Case Management System (IECM). “The prices are kept secret in the system until the last day when the bailiff receives notification of the given prices. In this case, bailiffs do not know any bidders. Unless there is evidence that bailiffs, after getting notification, reject the bidder who provided a higher price and facilitate the one who provided the lowest price to get the property,” he said. Tuyisenge said any bailiff who is caught in malpractice will be pursued by a disciplinary committee and be punished or suspended.

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Can change in auction law address property devaluing?