1. WORKSHOP ON VALUATION REAL ESTATE AND PLANT & MACHINERY
ORGANISED BY
CENTRE FOR VALUATION STUDIES
ISTAR, VALLABH VIDYANAGAR
SATURDAY, 14th DECEMBER 2013

3. Fundamentals of ValuationBy
Rupesh T. Shah
B.E.(civil) M.V.(RE) LL.B.(Sp.)
F.I.V., M.I.E., M.I.S., CE(I)
Asst. Prof., ISTAR
Vallabh Vidyanagar

4. Valuation it is not as simple as we think
it is not simple multiplication of area and rate
it requires knowledge of:
basic principles of valuation
micro and macro economics
planning laws and development control regulations

5. land economics
construction technology and cost estimation
surveying and land measurement
various laws relating to immovable properties governing their - transfers, tenancies, acquisitions, taxations etc.
environmental laws and regulations
judgments of courts in some landmark cases

6. Valuation is a complex process of estimating monetary value of the property rights as on valuation date, for given purpose taking in to account cumulative effect of various factors affecting the value

7. Immovable property comprises of bundle of rights such as:
free hold exclusive ownership right
lease hold property - lessor’s and lessee’s interest
mortgaged property - mortgagor’s and mortgagee’s interest
easement rights
rented property – landlord’s and tenant’s interest

8. Fundamental 1 Valuation is of legal rights, interests and benefits and not merely of physical entities, and value is present worth of future benefits
checks in case of a freehold tenure
encumbrances like – tenant, easement right, charge etc.
checks in case of leasehold tenure
total and balance period of lease and lease covenants
checks in case of rented property
whether the tenant is protected under rent control Act or not

9. Fundamental 2 Value varies with purpose
Fiscal purposes
(mostly statutory valuation)
Wealth Tax
Income Tax
Capital Gain Tax
Stamp duty

10. Non-fiscal purposes Buying/selling market value Bank loan/security
market value, forced sale value
Land Acquisition
market value and other additions as per the Land Acquisition Act in force
Revaluation of assets/accounting purpose
fair value/market value as per the prevalent financial reporting standards

11. Insurance
replacement/reinstatement cost of the building
Town Planning Schemes
original plot value and final plot value – before and after method
Liquidation
open market value and forced sale value
Buying/selling of a running business
going concern value
Family partitions, visa and other miscellaneous purposes
Market value

12. Fundamental 3 Four Value ingredients
Utility
Scarcity
Demand
Transferability

13. Fundamental 4 Four factors affecting value
Economic factors
Macro economic
Micro economic
Govt. policies
Interest rates
Boom-recession cycle
Demand and supply
Income level in the locality
Prices of building materials

14. Legal factors
title and tenure of the property
land use zoning and other relevant development control regulations
encumbrances over the property if any - like seating tenant, liability/charge, easement right
pending litigation if any

15. Social factors
availability of civic facilities such as water supply, sewerage disposal, street lighting, solid waste disposal etc.
availability of infrastructure facilities such as road, power supply, communication etc.
availability of social infrastructure such as schools and colleges, play grounds and gardens, religious and recreation places
distance from market and shopping, bus and railway stations, local bus stops etc.
neighbourhood and development in the surrounding area

16. Physical/technical factors
For land:
size, shape, topography and soil condition of land and climatic condition in the locality
For building and other improvements:
type and quality of construction, specifications, age of the building, condition and level of maintenance, repairs required if any
floor level
amenities provided

17. Approaches of valuation
Considering type of property and purpose of valuation, above mentioned factors shall be considered for valuing the property by any of the relevant approaches mentioned below:
Market approach
Income approach
Cost approach

18. Summary Four value ingredients Four factors of valuation
Value is present worth of future benefits
Valuation of immovable properties is valuation of legal rights, interests and benefits
Four value ingredients
Four factors of valuation
Three approaches of valuation
Utility
Scarcity
Demand
Transferability
Economic
Legal
Social
Physical/technical
Market
Income
Cost