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Methods of Valuation

Land and Building Method for Bungalows / Flats

Bungalows / Houses : In this case the cost of land and building are assessed separately and added to get the present value of the property

Valuation of Land to be considered

Guide lines from Registrar’s Department (Circle rates)
Price paid within a reasonable time, in bonafied transactions of purchase of lands acquired.
Demand, locality, characteristics like shape, size and location of Roads and Parks.
Demand, locality, characteristics like shape, size and location of Roads and Parks.

Valuation of building to be considered

Plinth area rates bases on CPWD or State PWD and adjusted by Index cost, present Value of Building

Flats : Land and building method cannot be applied on flats since Group Housing societies and DDA/ Authority Flats are affected by various factors like common passages, lifts, common places of assembly, parking. The rates are assessed by Per Square feet rate for the super area which includes Plinth area + common share of common areas such as Entrance, lifts, passages, stair hall and parking etc.

Area are Defined as

  • Floor Area
  • Plinth Area
  • Super Area

Marketable and Income Fetching Properties

Income generating / rent yielding properties

E.g office towers, retail malls, hotels, commercials shops, petrol pumps

Methods

Income Capitalization Method

Income Capitalization is a valuation method and real estate investors use to estimate the value of income producing real estate. It is based upon the premise of anticipation i.e., the expectation of future benefits. This method of valuation relates value to two things: [1] the "market rent" that a property can be expected to earn and, [2] the "reversion" (resale) when a property is sold. This is further divided into the following two methods:

Direct Capitalization Method

Direct capitalization is used when income is not expected to vary significantly over time. This method is used to value properties that produce a consistent annual operating income.

Discounted Cash Flows Method

This method is used when the income generated by the property is expected to vary over a period of time. The projected cash flows are discounted at an appropriate discount rate to arrive at the present value of the property.

Marketable and non income fetching properties

E.g Self occupied bungalows, houses, shops, offices etc

Methods

Sales Comparable Method

The sales comparison approach examines the price or price per unit area of similar properties being sold in the market. The sales of properties similar to the subject property are analysed and the sale prices adjusted to account for differences in the comparable to the subject to determine the value of the subject. This approach is generally considered the most reliable if adequate comparable sales exist.

Non Marketable and non income fetching

E.g Religious places, etc

Methods

Cost Approach

The Cost method is sometimes called the summation approach. The theory is that the value of a property can be estimated by summing the land value and the depreciated value of any improvements. It is the land value, plus the cost to reconstruct any improvements, less the Depreciated Replacement cost on those improvements.