Amount of Re.

1 :

Means the total amount to which an initial one-time investment of

Re.1 at a specified rate of interest will be accumulated in the end of
a given number of years
If i is the given rate of interest and n is the number of years ,then
the amount of Re.1 =(1+i)n
Example: amount invested : Rs 500
Rate of interest : 5%
n=6 years
rate of interest accumulate at the end of 6 months :
500x (1=0.05)6=Rs.670

Present value of Re.1 :

Present value of Re. 1 is payable or receivable at the end of the

given no. of years
If i is the rate of interest & n is the number of years , then
1
n
Present value of Re. 1.00 =
(1+i)

Example: present value= Rs. 800 receivable at the end of 6 months

Rate of interest= 5%
0.05
1+

800 x
= Rs. 597
1

Amount of Re. 1 per annum :

It means that the total amount which will accumulate at the end of a
given no. of years, if Re. 1 is invested at the end of every year at a
specific rate of interest.
If i is the rate of interest, n is the no. of years
i
1+

Amount of Re. 1 per annum= n1

Example : Amount invested =Rs. 500 at the end of every 5 years

Rate of interest = 6%

500 x

(1.06)
0.06

= Rs. 2,819

Years purchase:

It is the figure which shows how many times the net annual income
is secured for its value
For eg: if the annual income is considered as Rs.1000 & if its value is
Rs.20,000, then it is said that the annual income is secured by 20
times
This number of times security of the annual income indicates the
value of the property .
Years purchase represents capitalised value to receive Re.1 per
annum in perpetuity (for an indefinite period, or for a fixed no. of
years).
Years purchased for a short period is less compared to that for
perpetuity so that investment for a short period is less more over
the income from it must be sufficient to allow interest on capital as
well as for sinking fund , so that the capital is recovered within the
short duration .

Years purchased depends on the following factors:

1. Rate of interest in light of property market forming an integral part

of general investment market
2. Age and condition of the building
3. Mode of letting
4. Situation of an frontage
5. Confirming zone and potential users
6. Government and local authorities rules & regulations affecting the
development of a property
7. Whether the property is full or partly developed
8. Continuity of rent
9. Higher rate of return for a lease hold property as compared to that
allowed on free hold property.

Property market forms a part of the investment market and

therefore has to compete for its capital requirements.
All considerations being equal , an investor will generally invest in
such forms of investment which will give him maximum returns in
the form of interest whose rate will depend upon the demand &
supply of the money.
Interest is a reward for allowing to make use of the money, the only
perfect liquid asset.
The financial requirement of government, public bodies ,industries ,
business etc are raised by issue of stocks & shares which is
commonly known as securities with certain rights attached.
Those are issued in the form of certificates showing the original
value , can be sold for cash & are transferable to the buyer. Their
market value will undergo changes depending upon the market
conditions.
Among the stocks & shares , the valuers have to keep an eye on the
yield available on the fixed interest securities like government bonds
etc, in order to decide what yield would be normally expected by a
purchaser if he were to invest his capital in real estate from the
investment point of view.

Years purchased for a fixed no. of years:

Years Purchased for the fixed no. of years is the multiplier by which
the net income per year, is receivable for a fixed no. of years is
multiplied in order to arrive at a present capital value of an asset.
Years purchased is calculated in the following manner:
Yearly income from the capital invested representing a simple rate
of interest on the amount of capital invested.
Annual sinking fund at a certain rate of compound interest to recoup
the capital invested at the end of a given no. of years.
Years purchased for a fixed no. of years can be either at single rate
or at a dual rate
i
1+

n1

YP at single rate =
i
1+

YP at dual rate =

i
1+

n1

i
1+
( n1 ] +1

OR

1
y + sinking fund for .1

YEARS PURCHASE (Y.P) IN PERPETUITY :

It is the multiplier by which the net income per year recieveable in
perpetuity (i.e. forever) is multiplied in order to arrive at the present
capital value of an asset, at a given rate of interest.
If I is the rate of interest, then, Years purchase in perpetuity =

Eg : Years purchase in perpetuity using 4% interest will be

1
i
1
=25
0.04

,Therefore, for an income of Rs. 500 in perpetuity, a sum of Rs. 500 x 25

= Rs. 12,500 will have to be deposited in a bank at the rate of 4%
interest.

SINKING FUND :

The capital invested in a property can be divided into two parts,

namely, that invested in land and that in building.
The building is subjected to the natural law of decay with the result
that the owner will start losing part of his capital every year till a
time comes when the physical life of the building is zero.
At that time the owner is left with his hand only and as such his part
capital is returned to him, if he had invested his money in other
forms of securities, his capital would have been intact and he would
have received the income from the same regularly and therefore a
provision is necessary whereby an owner can get back his part

capital invested in the building on its expiry of useful life and in the
absence of such provision, the capital will be drifted away from the
property market.
This is overcome by providing what is known as sinking fund
wherein a small portion of rent is set aside every year and deposited
in a bank or invested in government securities at compound interest
such that when the life of building is over, the owner can receive the
full value of his building either from a bank or from securities.
The calculation of sinking fund depends upon the life of a building as
well as upon the rate of interest and it is generally calculated on
9/10 of the cost of construction as the owner will get 10% of the
cost on the sale of old building materials when the life of the
building is over.
If I is the rate of interest and n is the number of years in which
the investment is required to be recouped, then,
i
1.00=
n
Annual sinking fund for accumulation of Re.
(1+i) 1
Eg: An old building having a future life of 20 years has been
purchased for Rs. 20,000/- excluding the value of land. Assuming
that the value of demolished materials will be zero, to recoup Rs.
20,000 at the end of 20 years the annual sinking fund at 4% rate of
interest will be :=

20,000 x

0.004
=Rs .672
20
(1+0.04)

METHODS OF VALUATION:
Income capitalization or investment method:
1. Rental method: the term rent denotes periodical payments made
by the tenants for use, occupation, and possession of land or land
with buildings. Rent paid by the tenant caters for the return on
investment made by the owner and also for the various outgoing
expenses on the property borne by the owner of the property.
2. Profit method: the value of property consisting of licensed business
premises such as cinemas, hotels depends primarily on the profit
earning capacity of establishment. These properties have visible
assets in the shape of land, building , machinery etc, as well as
intangible assets like goodwill, managing staff. Owner of the
property will expect the best possible price obtainable & is likely to
find a purchaser if the price demanded represents fair market value.
The valuer should also ascertain the market value by using methods
like rental method , land plus break up value method, land plus
depreciated value method.

Physical method:
1. Land & building method: It is also known as capital value method, it
consists of estimating the cost of the building , depreciated to allow
for age of the building on the relevant day of valuation , and adding
to it the fair market value of the land on the relevant day of
valuation. This method is suitable when the land forming part of the
property is not yet utilized to the extent of the allowable limits by
rules.
2. Development method: this method is used in the case of a large
vacant land which has gained a building potential due to movement
of building activity towards the land. The purpose of this method is
to find out the potential value of the land if it is developed by laying
out roads & dividing the land into plots of reasonable size for sale to
buyers after providing them essential amenities & infrastructure.

Laws relating to repairs:

Introduction
1. The relationship between landlord and tenants is created by a
contract of tenancy called the lease where by the landlord allows
the tenant exclusive possession and enjoyment of the landlords
premises for a definite period in exchange for a periodic payment
called the rent.
2. If the lease is from year to year ,it has to be by a registered
instruments
3. The latter type of arrangement is to be found in case of monthly
tenancy where in rent receipt and delivery of possession of
premises form important ingredient s to justify relationship between
landlord and tenant.
4. The liabilities of repairs can be contracted one or statutory one
depending upon the circumstances of the case .

COVENANTS:
When there is a written lease or agreement, the respective liabilities of
the lesser (landlord) the lessee (tenant) are usually fixed by express
clauses in the deed itself.

COVENANTS by the lesser:

1) To put lessee in possession of the property.
2) Allow lessee quiet and peaceful possession of premises or payment
of rent regularly.
3) To carry out heavy or special or structural repairs if so provided.
4) To renew the lease if so provided.
5) To pay the specified outgoings

COVENANTS by the lessee:

1) To pay the rent regularly.
2) To repair and keep in repair the demised premises.
3) Not to make additions or alterations to the premises.
4) Not to commit waste

5) Not to change the user of premises.

6) Not to erect permanent structure
What is repairs?
Repairs is a term of widest connotations whose range varies from upkeep
to maintain the property as far as possible in its original condition and
efficiency without the renewal and also include restoration ,reconstruction
or even renewal of existing part of a building and at times renewal of
complete building ,

Statutory provisions for repairs:

1) Section 354 provides that if any building, wall or other structure is likely
to fall in any way. The owner of such structure to repair such structure.
2) Section 381 provides that the state of the building in any broken walls,
broken floorings and leakages through walls or floors causing damages
,the landlord is required to take suitable action to rectify.
3) Section 257 provided for repairs to drainage works including
replacement of broken drain pipe by new ones.

Modality on failures of landlord to excute repairs :

If the landlord has failed to execute the repairs he will be
prosecuted in the court and authority will be granted to the tenants
under section 499 of B M C ACT. Which provides for a grant to
recover resonate expenses incurred by them on repairs from the
rents that may become due from time to time ,

Procedure and terms conditions for authority:

Under section 499

1) Appointment of an architect or an engineer to prepare the plans

and estimates of repairs as per municipal notices as well as for
other works
2) Applications signed by the occupiers from authority to be
submitted with the plans as well as an architect to supervise the
works of repairs.
3) Authority limits deductions by the occupiers of the amount spent
on repairs.
4) The date of commencement of repairs be communicated to the
authority within a week .
5) The authority carries a validity period and if the works are not
completed within the period .
6) No additions alterations are permitted for the structure for which
authority has been grated for repairs.
7) Applications by the architect for issue of completion.

What is dilapidations:
The word dilapidations is a state of disrepair and waste is the resultant
effect of that disrepair.
Dilapidations is the injury which has occurred to houses, buildings during
temporary possessions of one party .

illustrations:
1) To stop leakage of water from a toilet block will be tenantable
repairs.
2) If not attended to in time. it will affect a few of the timber joints
,beams and posts of the toilet block
3) Again neglect in attending the above structural repairs.