BY

REWATI S MARATHE
What is valuation?
Valuation is the technique of estimation or
determining the fair price or value of property such as
building, a factory, other engineering structures of
various types, land etc.
Types of properties
Personal Property
Money, cash deposited in bank, Gold and Silver Bullion, jewellery and
personal belongs.
Real property
Real property or Real Estate like land with or without building. Whole
or part rights arising out of land and buildings are also real property.

Real Estate property

Income fetching marketable properties
Rented properties, Hotels, Cinemas, Malls fall under this group
Non Income fetching marketable properties
Owner occupied bungalows, flats, shops, offices, factories fall under
this category
Non income fetching – non marketable properties
Temple, Church, School, College, Public buildings, Museum, Fire
station and Govt. buildings fall in this category.
Cost, price, and value
Cost
It is expressed as actual expenditure in terms of money incurred
on labour and materials of the asset (property).
Price
It is an amount paid and expressed in terms of money for
acquiring ownership rights or interest in the asset (property) .
Price normally includes profit of seller over and above cost of
labour and cost of materials that has been incurred by the seller
in creation or acquisition of the said asset.
Value
In the case of land, its value in general can be measured by a
consideration of the price that have been obtained in the past for
land of similar quality and in similar position, and this is what
must be meant in general by terms the market value.
 A dream resort was built on a hill of Khandala in the year 2000,
by actually spending an amount of Rs.500 lakh (Fifty million).
In the year 2001, said property was offered as a security for
mortgage. Mortgagee’s valuer, valued it at Rs.300 lakh only. The
reason was that the certain area was found to be built in excess of
permissible F.S.I. Here, Rs.500 lakh was actual ‘cost’ whereas
Rs.300 lakh is to be termed as ‘value’.

A doctor constructed a four storied building in the year 1990 by

purchasing the plot for Rs.5 lakh (500 thousand) and spending
Rs.15 lakh on building construction. On completion of the
building, it was fully let out to tenants protected under the
applicable Rent Act for total rent of Rs.15,000/- per month. For
bank mortgage, in the next year, i.e. in the year 1991, the valuer
valued this property at Rs.7.50 lakh. Here Rs.20 (5+15) lakh is
‘cost’ to the owner and Rs.7.50 lakh is ‘value’ of the property.
 Types of value
Market Value Market value is an estimated amount of the
interest or legal right of a person in a property, to
derive existing and future benefit by putting land
and building to best possible legal and potential
use
Accommodation It is a value of the land which is not independently
value buildable on account of odd shape, odd size or
small area or land lacking legal access road.
Normally such land is useful only to adjoining plot
owners along its periphery. Such plots invariably
fetch less price than prevalent market price and
land value greatly depends on needs of the
adjoining plot owners and competition amongst
them.
Book value Written down value of an asset as shown in books of
account and balance sheet
Breakup Production unit (running unit of an enterprise) is closed
value down and sale of each individual assets

Distress For immediate sale by the owner who is in distress is

value called distress sale value May be in financial difficulty
Social or health problems like need of money
Forced sale As is where is basis” By negotiations amongst limited
value group of buyers or by public auction Utmost urgency and
with assumption of unwilling seller Auction sale of non
performing assets by banks.
Fair market Not much difference between the words ‘market value’ and ‘fair
value market value‘ Rejection of
Distress sale or forced sale transaction
Transaction between relatives at concessional price
Transaction by speculators or purchasers
Special purpose to pay fancy price
Going It is an estimation of the running business of an industrial
concern and commercial property with all tangible or intangible assets
value or liability of the enterprise on the date of valuation in an
open market. .
Hope value Expected value of the property to rise in the near future
Changes in government or municipal policies Relaxation in
coastal regulations or scrapping of u.l.c. act , Increase in f.s.i.
rules etc.
Intrinsic Actual value or true value of the property Apart from
value [true agreement value
value]

Liquidation By putting up the property for auction sale After proper

value advertisement
[auction
value]
Monopoly Excellent situation Highly developed area Prime location
value Sold at premium i.e. at fancy price. Unusual and peculiar
advantages.
Mortgage Estimate of mortgage loan amount Safely advanced by the
value mortgagee Security or the collateral security offered by the
mortgagor Deductions varies from 25% to50% of market
value
Net present Present day value of the property Deducting depreciation
value amount
[depreciated
value]
Notional Out for some special purpose Like wealth tax act In reality,
value owner of the property (assessee), does not intend to sell
[hypothetical
value]
Potential Highest and best use
value
Replacement Cost required to be incurred today To create similar
value (identical) property at current prices Estimate of the cost
of replacement of an old existing asset
Salvage value Old property after its probable services life is over Still in
continued use due to its physical conditions
Scrap value (junk Receivable for its material content in the market when it
value) is completely useless Normally 10% of cost.
Speculative value Motive of selling at profit Greater importance in the near
future Special value A value to an individual buyer or
seller A flat close to his work place as well as close to his
children’s school. Willing to pay higher price
Stigma value Assumption of unwilling purchaser Disliking for the said
property for certain reason E.g. Murder of a popular
personality
Land is affected by radio activity
Auction value Most items sell at auction value prices,
which means the price the item is being
auctioned for. Generally, this amount is
higher than market price, which means that
the seller gets to make a profit with respect
to reserved price.
Sentimental Value (Personal This value is determined to the buyer or
Value) seller on basis of ground on sentiment rather
than the considering market forces. It may
be a special or fancy price due to sentimental
attachment to the property. Sentimental
value is a personal value to an individual and
has no consideration in the market value
estimation.
Reinstatement Value Reinstatement Value means the cost of
replacing or reinstating on the same site,
property of the same kind or type but not
superior to or more extensive than the
insured property when new.
Basic elements of value
Air, desert, sea water are useful for certain purposes; but
they are not scarce, hence possess little value in
commercial term. Modern new houses and office buildings
are very useful objects, but if they are in over supply market
price will be reduced. Utility and scarcity cannot create a
market unless there is a demand and purchasing power to
implement it; if there is no transferability the demand is
ineffective.
There are four basic elements of value i.e. S.T.U.D.
Scarcity
Transferability
Utility,
Marketability,(Demand)
Scarcity
If thing has utility it has no value if it is not in scarce. Air
is very important for our life still we don’t have its value
as availability. Same way if a property is in high demand
but has low supply it will be expensive.
Scarcity is the expected supply related to the demand of
a particular commodity or goods.
Transferability
Even if thing has utility and scarcity it must be
transferable to have a value . If it can not be transfer from
buyer to seller value can not exist. Without a legal owner,
there can be no buyer. Transferability is a legal concept
that must be considering the determination of the value
of a property . If an asset is not transferable , in whole or
part it will not have value in the market.
The ownership and the possession of the property can be
transferred or marketable by the way of sale, gift, lease,
mortgage, will etc. in a specific real estate market or
submarket.
Utility
The main criterion in the valuation of any property is
its utility. Utility is the power of goods to render a
service. In order to possess value and assets or ought to
have utility. It is the ability of the product to satisfy a
human need or desire.
The method used in the valuation exercise must have
the main objective of quantifying usefulness of the
property valued.
It means it will satisfy the wants , need or desire of the
potential buyer.
Value is depend on the degree of satisfaction of need
according to the perception of an individual, it is
subjective and varies from person to person.
The latest process has following advantages:
Improved quality
Improved yield
Less capital cost
Less running cost / operating cost

This gives an idea that buildings and equipment used in

old process are functionally obsolete and utility of these
assets is also adversely affected.
Marketability / Demand
Marketability or demand is the desire and ability to buy or
lease goods and services. Desire cant not create demand,
ability to buy is important factor.
The following shortcomings make a property less marketable
and decrease the value significantly.
 Outstanding mortgages/liens
 Restrictive covenants
 Encumbrances
 Easements on the property
 Error in the parent title(s)
 Adverse possession claims
 Structural encroachments
 Existing violations of an equitable servitude or covenant
 Zoning restriction violations
Factors affecting value
Following factors are affecting value
Physical,
Economic,
Legal,
Social
Present worth of future benefits,
Intangible rights
Physical aspects
A. Size/area, shape, access, etc.
B. Location with reference to amenities, facilities
available in locality.
C. Buildings/Development which include
Engineering aspects, architectural aspects and
facilities within property itself.
D. Utilities and other services in the property.
Legal aspects
The various government actions can be classified as
legal forces. They have a far- reaching effect on the
value of real estate.
A partial list of legal aspects affecting value which a
valuer must know includes:
(a) Zoning and land-use regulation.
(b) Central and State Govt. Legislations
(c) Building and safety regulations.
(d) Environmental protection laws.
(e) Government – sponsored urban redevelopment and
housing finance programmes.
(f) Regulation of industries.
Zoning and land-use regulation.
Land use zoning
Land Designated for Acquisition
Development Control Rules

Central and State Govt. Legislations

Rent Control Act
National Highway Act and Railway Act
Civil Aviation Authority
Coastal Regulations
Indian Electricity Act
Ancient Monument Protection Act
Social aspects
The social forces affecting value include all the
characteristics and customs of the people that make up the
community.
(a) In certain parts of southern India, plots on ‘T’ junction
have very limited marketability as hardly anybody comes
forward to buy such plots. In western India, such plots
are sold like hot cake. This is indicative of the effect of
the social forces having effect on market value.
(b) Family sizes and age-group distribution in the
neighborhoods and communities.
(c) Neighborhood stability and attitudes about property.
Population growth, decline or shifts at the community,
regional and national levels.
(d) Life-style and living standards
Economic aspects:
The major economic forces affecting real estate include:
(a) Income level of neighborhood and community
residence.
(b) Employment opportunity and rents.
(c) Level of wages.
(d) Availability of money and credit, and interest rate
levels.
(e) Price levels and property tax burdens.
(f) Personal saving levels and investment returns.
(g) General business activity
Present worth of future benefits

The decision of making any investment is based on the

current value of the future benefits to be earned by
that investment, and the value of a particular asset is
represented by the present value of its projected future
benefits.
Highest and best use
The utilization of a property to its best and most profitable use.
Highest and best use must satisfy four criteria viz., physical
possibility, legal permissibility, financial affordability, and
maximum profitability which result in highest property value.
Inherent factors in determination of highest and best use of real
estate are:
Time
Location
Market demand
Legal right to develop
Topography/resource quality of site
Technological feasibility
Financial or economic feasibility
Public utilities
Value in use
Value-in-use is the net present value of the benefits that an
asset generates for a specific owner under a specific use.
As value-in- use is related to specific user’s needs, it is often
referred to as subjective value. Value in use is estimated at a
use which is less than highest-and-best use, and hence it is
generally lower than market value.
Value in use is open to market prices
Bridges, roads, flyovers and other infrastructural assets are
generally not exchanged and they have value-in-use and their
value depends on the benefit derived by the society.
Value in exchange
It is the price of an individual good which can be sold
and bought in the market.
Thus, value-in-exchange depends on two things:
• Time
• Location
Giving money, a good, or service that is worth
something in exchange for another good or service
provided by the other party. An example is paying cash
for the market price of a home.
The peculiar characteristics of real estates are
 Fixity – It is permanence (remaining unchanged) of
investment
 Immobility - Land cannot be moved if the market
becomes better in another location.
 Durability - A building can last for decades or even
centuries, and the land underneath it is practically
indestructible.
 Heterogeneity - The real estate market is typically
divided into residential, commercial, and industrial
segments. It can also be further divided into
subcategories like recreational, income-generating,
historical etc
Bundle of rights
Despite being physically non transferable, the rights
associated with real estate can be transferred. (Either
entire Bundle of rights or leasehold or mortgage)
A conveyance deed on appropriate stamp paper is
drawn when such a transfer occurs.
It is the transferred rights, privileges and
encumbrances that dictate the market value of the real
estate unit.
• The right to possess
• The right to use
• The right to manage
• The right to the income of the thing
• The right to the capital
• The right to security
• The rights of incidence of transmissibility
• Right to absence of term
• The prohibition of harmful use
• Liability to execution (eg: in case of lapse in repayment
of debt, property is taken away from the owner)
• The incident of residuality (eg. Succession after the
death of owner)
The principal types of interest in
real estate
Freehold interest
Leasehold interest
Co-ownership right
Easement right
Transferable Development Rights (TDR)
Ownership
The right to possess is Ownership. Such rights can be on
any objects, Real estate or Intellectual property.
Ownership can be of several types
Individual or Sole ownership
Joint ownership
Co- ownership
Ownership by firm
Ownership by limited company
Ownership by Trust
Ownership by mortgage
Vested (or) Contingent Ownership
Possession
Possession is the control exercised by a person / entity
over any object or property. The intention to enjoy the
rights… to own, gets reflected in possession.
The following are the different types
Physical possession
Symbolic possession
Judicial possession
Legal possession
llegal possession
Adverse possession
Occupancy
Occupancy reflects the details about who is in physical
possession of the property.
It can be of various types
Occupancy as owner (100% Rights)
Co-owner occupancy
Tenant occupancy
Leave & License occupancy (Lease)
Sub Lease occupancy
Protected Tenant occupancy
Occupancy with Life interest
Under ‘Occupancy rights holder’
Trespasser’s occupancy
 Annuities; capitalization and rate of capitalization;
years purchase; sinking fund; redemption of capital;
reversionary value-
Some terms
• Annuity is defined as a fixed income over a period of time
from investing a large amount and receiving a series of
small payments over time.
Rent from land or house, Interest on Bank fixed deposit or
yield on government security are the examples of Annuity.
• Capitalization It is the amount required to be invested at
present desiring to acquire right for future benefit or profit.
It is the conversion of a regular income to an equivalent
capital value.
• Rate of Capitalization It is the rate of return at which an
investor is willing to invest his capital to get future benefits.
It is the return represented by the income produced by an
investment, expressed as a percentage.
Years purchase
Capitalized Value required to be paid once and for all,
in order to receive annual income of Rs. 1/- for
specified period of time at specified rate of return.
It is the capital sum to be invested in order to receive a
net receive a net annual income as an annuity of rupee
one at a fixed rate of interest. .
Years’ Purchase (Y.P) = C / N.
where,
C - capital value
N - net income per annum of a property
• Annual Sinking Fund is an account that is used to
deposit and save money to claim the capital invested at
a given rate of interest.
• Rate of Redemption of capital is adopted to earn
the capital invested in types of properties where
income would terminate after some years.
• Reversionary Value is defined as the present amount
of value which is obtained after a specified period.
Construction and use of
valuation tables-
Urban infrastructure
its influence on value of real estate- Real estate market
and its characteristics;
Urban infrastructure
Infrastructure and development projects are of vital
importance, especially in developing countries, in view of
their impact on economic development. Investment in
infrastructure projects and development project acts as a
catalytic agent for further economic growth.
Infrastructure sector includes power, bridges, dams, roads
and urban infrastructure development. It should give a
decent quality of life to its residents, promising clean and
sustainable environment by applying smart solutions in the
domain of sanitation, waste management, public transport
and governance
 Infrastructure and development projects can broadly be
grouped under two categories, viz.
(i) projects at National, State or regional level
Infrastructure projects of new railway lines, new
National Highways and Express Highways, Cable
Communication Lines, Tele Communications, Satellite
Networking, Port Development, Thermal Power Projects
etc. are examples of projects at National or State level.
River valley regional development project, irrigation dams
and command area development projects, development of
large industrial estates, construction of new state
highways etc. are infrastructure projects at State or
regional level.
(ii) projects at local and area – specific level.
New town development projects, Town planning
schemes under Town Planning Acts, area development
projects, Integrated Urban Development Projects
(I.U.D.Ps) Site and Services Schemes, Housing projects,
development of commercial areas and shopping centers,
water supply projects, sewerage projects etc. are some of
the infrastructure projects at local level and are deemed
as area – specific projects.
Power
Higher rate of value is observed in urban areas with
superior power facilities.
When compared to areas having records of poor power
supply, residential areas with no threat to power
supply have always been more profitable.
Market value increases with the availability of
adequate power supply
Road infrastructure
Higher rate of development is seen in cities having
better road network.
Demand is observed to be more for areas having better
road facilities.
Railway Infrastructure
The sub-urban railway system helps to shield the local
government from pressure of the increasing
population.
The trouble free communication through the railway
increases the demand for spaces near the railway
network.
Hence the properties near to the railway channels
fetches a better value compared to their counterparts.
Water Infrastructure
Most of the city governments have banned the
withdrawal of ground water due the increasing rate of
fall of the ground water table.
In cities, the only source of drinkable water is the rivers
flowing through them.
Houses with rain water harvesting units have a better
demand.
From the above trends, it is observed that the value of
real estate increases with good water infrastructure.
Social Infrastructure
Social infrastructure includes schools, parks and
playgrounds, structures for public safety, waste
disposal plants, hospitals, sports area, etc.
Increased proximity to social infrastructure increases
the value of real estates
 Indian Government Policies for urban
infrastructure development
• Housing Policy
• Jawaharlal Nehru National Urban Renewal Mission
• Swachh Bharat Abhiyan
• Atal Mission for Rejuvenation and Urban
Transformation
• SMART Cities Mission
• National Heritage City Development and
Augmentation Yojana
SMART Cities Mission
Adequate water supply,
Assured electricity supply,
Sanitation, including solid waste management,
Efficient urban mobility and public transport,
Affordable housing, especially for the poor,
Robust IT connectivity and digitalization,
Good governance, especially e-Governance and citizen
participation,
Sustainable environment,
Safety and security of citizens, particularly women,
children and the elderly, and
Health and education
Atal Mission For Rejuvenation And
Urban Transformation (AMRUT)
The purpose of (AMRUT) is to:
Ensure that every household has access to a tap with
assured supply of water and a sewerage connection

Increase the amenity value of cities by developing

greenery and well maintained open spaces (e.g. parks)

Reduce pollution by switching to public transport or

constructing facilities for non-motorized transport
(e.g. walking and cycling)
Pradhan Mantri Awas Yojana-
Housing For All (URBAN):
In-situ rehabilitation of existing slum dwellers using
land as a resource through private participation
Credit-Linked Subsidy
Affordable housing in partnership
Subsidy for beneficiary-led individual house
construction/enhancement.
Swachh Bharat Mission (SBM) Urban:
Modern and scientific Municipal Solid Waste
Management
To effect behavioural change regarding healthy
sanitation practices
Generate awareness about sanitation and its linkage
with public health
Capacity Augmentation for Urban Local Bodies (ULBs)
To create an enabling environment for private sector
participation in Capex (capital expenditure) and Opex
(operation and maintenance)
 Real estate market and its
characteristics
The real estate market is distributed in three levels -
Local market, national market and international
market.
It is difficult to obtain information on the price of real
estate.
This absence of transparency in communication is a
unique characteristic of real estate seen world wide.
Real estate market is said to be lethargic due to the fact
that supply cannot be immediately increased in
response to increase in demand.
Factors influencing demand in real
estate
• Population changes
• Economic growth
• Accessibility
• Inflation
• Change in taste and choice of people
Factors influencing supply schedule in
real estate
Due to demand being high and supply being
unaffected, prices rise harshly.
The suppliers could be forced to sell properties at lower
prices due to the fall in property price to avoid
additional losses
The flow of fund in the property market is controlled
due to limitations in the capital investment, thereby
the supply of property will descend and prices will rise
due to increasing demand.
Rent restriction acts may stand in the way of
investment in property sector for letting causing a
shortage of supply of rental accommodation
The supply of land may be reduced due to zoning
restrictions and hence prices may rise due to increase
in demand.
Green building
Green building (also known as green construction or
sustainable building) refers to both a structure and the
application of processes that are environmentally
responsible and resource-efficient throughout a
building's life-cycle: from planning to design,
construction, operation, maintenance, renovation, and
demolition.
Green building also known as sustainable building
expands and complements the building design
concerns of economy, utility, durability, and comfort
Green Buildings are the EcoFriendlyStructures.
Common objective of green buildings is to reduce the
overall impact of the built environment on human
health and the natural environment by:
Efficiently using energy, water, and other resources
Protecting occupant health and improving employee
productivity (see healthy building)
Reducing waste, pollution and environmental
degradation
Fundamentals of green building
Sustainable design /Structure design efficiency
Energy efficiency
Water Efficiency
Material Efficiency
Indoor environment quality i. e. Waste and toxic
reduction
STRUCTURE EFFICIENCY:
It is the concept of sustainable building and has largest
impact on cost and performance.
It aims to minimize the environment impact associated
with all life-cycles.
ENERGY EFFICIENCY:
The layout of the construction can be strategized so that
natural light pours for additional warmth.
Shading the roof with trees offers an eco-friendly
alternative to air conditioning.
WATER EFFICIENCY:
To minimize water consumption one should aim to use the
water which has been collected, used, purified and reused.
MATERIAL EFFICIENCY:
Materials should be use that can be recycled and can
generate surplus amount of energy.
An example of this are solar power panels, not only
they provide lightening but they are also a useful
energy source.
WASTE AND REDUCTION
It is probable to reuse resources.
What may be waste to us may have another benefit to
something else.
ENVIRONMENTAL BENEFITS
Enhance and protect ecosystems
Improve air and water quality
Reduce waste streams
Conserve and restore natural resources
SOCIAL BENEFITS
Enhance occupant comfort and health
Heighten aesthetic qualities
Minimise strain on local infrastructure
Improve overall quality of life
ECONOMIC BENEFITS
Reduce operating costs
Improve occupant productivity
Merits of Green Building
Efficient Technologies
Easier Maintenance
Return On Investment
Improved Indoor Air Quality
Energy Efficiency
Water Efficiency
Waste Reduction
Temperature Moderation
Water Conservation
Economical Construction For Poor Healthier Lifestyles
and Recreation Improved Health.
Demerits of Green Building
Initial cost is high
Availability of materials
Need more time to construct
Need skilled worker
Rating sysem of GB
Green building rating system is tool that evaluates the
performance of building and its impact on
environment.
There three rating system
Leadership in energy and environmental design
(LEED)
Green rating for integrated habitat assessment
(GRIHA)
Indian green building council (IGBC)
Indian Green Building Council (IGBC):
The Indian Green Building Council (IGBC) was formed
by the Confederation of Indian Industry (CII) in 2001.
The council is based out of the CII Green Business
Centre, Hyderabad which is India’s 1st Platinum rated
green building. The vision of the council is to enable
‘Sustainable built environment for all.
Some green building projects in
India
Suzlon energy limited pune
Rajiv Gandhi International Airport Hydrabad
Bank of india Goa
Olympia Technology Park Chennai
The Valuer has to consider following points while
valuing the Green Buildings.
Identify the relevant components of a sustainable
property
Discover green buildings resources
Evaluate construction costs in the context of long-term
benefit, capital and operating costs, and relative to net
income from operations and reversion;
Analyze the relevance of green features in the
marketplace;
Assess market and investment risks relative to potential
rewards;
Identify who pays the costs and who receives the
benefits for the sustainable elements incorporated in
green construction; and provide a competent and
reliable estimate of market value in the context of
available data.
THANK YOU