WORKSHOP ON VALUATION REAL ESTATE AND PLANT MACHINERY

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WORKSHOP ON VALUATION REAL ESTATE AND PLANT & MACHINERY ORGANISED BY CENTRE FOR VALUATION

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

Fundamentals of Valuation By Rupesh T. Shah B. E. (civil) M. V. (RE) LL.

Fundamentals of Valuation By 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

Valuation • it is not as simple as we think • it is not

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

Øland economics Øconstruction technology and cost estimation Øsurveying and land measurement Øvarious laws relating

Øland economics Øconstruction technology and cost estimation Øsurveying and land measurement Øvarious laws relating to immovable properties governing their transfers, tenancies, acquisitions, taxations etc. Øenvironmental laws and regulations Øjudgments of courts in some

Valuation is a complex process of estimating monetary value of the property rights as

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

Immovable property comprises of bundle of rights such as: Ø free hold exclusive ownership

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

Fundamental 1 Valuation is of legal rights, interests and benefits and not merely of

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

Fundamental 2 Value varies with purpose Fiscal purposes (mostly statutory valuation) Ø Wealth Tax

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

Non-fiscal purposes Buying/selling market value Bank loan/security market value, forced sale value Land Acquisition

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

Insurance Town Planning Schemes Liquidation Buying/selling of a running business replacement/reinstatement cost of the

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

Fundamental 3 Four Value ingredients Ø Utility Ø Scarcity Ø Demand Ø Transferability

Fundamental 3 Four Value ingredients Ø Utility Ø Scarcity Ø Demand Ø Transferability

Fundamental 4 Four factors affecting value Economic factors Macro economic Micro economic Govt. policies

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

Legal factors Øtitle and tenure of the property Øland use zoning and other relevant

Legal factors Øtitle and tenure of the property Øland use zoning and other relevant development control regulations Øencumbrances over the property if any - like seating tenant, liability/charge, easement right Øpending litigation if any

Social factors Øavailability of civic facilities such as water supply, sewerage disposal, street lighting,

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

Physical/technical factors For land: size, shape, topography and soil condition of land climatic condition

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

Approaches of valuation Considering type of property and purpose of valuation, above mentioned factors

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: ØMarket approach ØIncome approach ØCost approach

Summary • Value is present worth of future benefits • Valuation of immovable properties

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