PROFESSIONAL PRACTICE

TOPIC:
• VALUATION: THE PRNCIPLE AFFECTING THE SUPPLY OF
LAND AND BUILDING
• PRINCIPLES GOVERNING THE RATE OF INTEREST FOR
DIFFERENT TYPES OF PROPERTIES.

SUBMITTED TO: SUNAKSHI SHOKEEN

SUBMITTED BY: ANURAG PANDEY
MITALI VERMA
VIDHI SHARMA
(4TH b)
Difference between Cost, Price and Value

Price can be understood as value implies the utility of worth

the money or amount to be of the commodity of service for an
paid, in order to get individual.
something.

Cost is the amount incurred in

the production of goods, i.e. it
is the money value of the
resources involved in
producing something. 
What is valuation?
Valuation is defined as the process of the fair value of certain specific property for a specific purpose
on a certain specified date.
• A property may mean a piece of land or a land or only a piece of land with a building. So it is very
important to adopt and establish an appropriate method of evaluation.
• Valuation is done in local monetary unit. In India the valuation is done in Rupees.
• Valuation is done by valuers who have been trained in this particular field.

Comparing the value of the property

Purposes of Valuation:
1. Valuation for sale or purchase:
A prospective buyer wants to know the reasonable value he must offer to the seller and
vice-versa. In most such cases after a series of meetings and deliberations a mutually
acceptable sum is arrived at for the deal.
2. Valuation for Legal Purposes:
Properties are valued for a number of legal purposes.
•Obtaining Probate of a will through a court of law.
•Division of Assets among the owners

•Determine the value of stamp duty .

Determine the court fee
•Reserve Bid in terms of Auction of Properties
3. Valuation for Taxation:
Properties are required to be valued for
•Tax Liability of the owner. Valuation and its features.

•Assessment in the
event of gifting of property or sale of property.
In many cases when an Individual owns properties beyond certain limits he or she may have to pay
Wealth Tax.
4. Valuation for Land Acquisition:
• Any land that needs to be acquired by the local governing body as per the Land Acquisition
• Act 1894 needs to be valued so that adequate compensation may be paid to the owner in
• actual money or land elsewhere as valued on the date of issue of ordinance.
5. Valuation for Accounting Purposes:
• Properties are periodically valued to determine the assets of an Individual or Companies.
6. Valuation for Insurance Purposes:
• Buildings are insured against any calamity like fire or earthquakes etc. In any such untoward
• incidents and the owner claims the insurance, the buildings need to be valued and adequate
• compensation be paid to the owner.
7. Valuation for Loan against property.
8. Valuation for Fair Distribution of Wealth in case of inherited property and its division
amongst inheritors.
Advantages
Better Knowledge of Company Assets. It is significantly important to obtain an accurate
business valuation assessment.

Obtain a True Company Value.

Better During Mergers/Acquisitions.

Access to More Investors.

Disadvantages

• Valuation may change depending on the relationship between the seller and the buyer .

• The value of the property may change from place to place depending upon the location and size
of the plot .
What is Market Value?
Market value of a property is the value a purchaser is willing to pay to the seller in a free and un-
restricted environment. This value is arrived after a series of mutual discussions and bargaining.
The numbers of transactions that have taken place determine the market value of an area.
There must be demand and supply. The land must be trade-able and transferable.

Characteristics of market value are:

1. Vendor: Seller Should be willing to sell
2. Purchaser: Purchaser must be willing to buy.
3. No compulsions on either of the parties in the Transaction.
4. Urgent necessity of purchase or sale to be discarded. (Distress Sale or Purchase)
5. Disinclination of Vendor Seller to be ignored.
6. No sentimental Value.
7. Present and Future potentials are taken into account.

Market Value
Market Values are classified as:
1. Fair Value: Fair Value is that value which is fair and reasonable to the seller and purchaser both.
This is determined by an expert Valuer taking into account all related features like Utility, Satisfaction,
Ability, and Availability.
2. Rate-able Value: This value is determined by the civic officials, Local Authorities for levying of
Municipal Tax, Property Tax, and Education Tax. This value is determined with the first occupancy of the
premises and remains unchanged unless there is change of use of premises or some improvements are
made to the premises.
3. Book Value: Depreciation: Every building grows old due to wear and tear and this reduces or
depreciates the value of the building. Depreciation is the value by which the property reduces in value
every year. Normally a building depreciates 5 – 10 % every year. The BOOK VALUE is this deprecated
value of the building.
4. Capitalized Value: A Building has some income value. The income yielding capacity is the basis of
working out the Capitalized Value. It is multiplied by a factor based on current rate of interest for
capitalization. Another Term of Importance here which could be another Market Value (but I have
excluded it and mentioned it separately) that is Distress Value of Property
5. Distress Value: Property that is under a foreclosure order or is advertised for sale by its mortgagee.
Distressed property usually fetches a price that is much below its market value.
In real estate terminology, "distressed property" is when the loan amount on a property is greater than
the Market Fair Value
The Mathematics of Valuation:
1. Valuation of Buildings: This is a relatively simple task. Precise Govt. rates are available in a ready
reckoner. This Multiplied with the area would give us the value of most properties.
• However one has to depreciate the value depending on the age of the building.
• To arrive at the actual market value one must also take into consideration factors like function of the
Building, importance of the Building, and most important the locality of the building
2. Valuation of Land: This is much more complex and numerous tangible and intangible
• factors are involved. Land is said to be a scarce commodity.
Factors affecting Valuation of Land:
• 1. Volatile Market Scenarios. ( Wars/Riots/Socio-economic Situations)
• 2. Annual Escalation. (Unlike Building Depreciation)
• 3. Demand and Supply (Shortages and Surplus)
• 4. Location and Topography. (Prime location, Terrain/Slope)
• 5. Tenure and Transferability. (Ownership/Tenants, Lease etc.)
• 6. Neighborhood and Locality. ( Class/Culture)
• 7. Physical Encumbrances. (Trees, Wells, Poles, H.T lines)
• 8. D.C. Rules and Regulations. (Land Use/Zoning)
• 9. Government Policies. (Reservations, Proposed Roads, Canals, Rivers.) 10.
• Sentimental/Emotional Issues. (Ancestry/ Heritage)
Factors affecting Valuation of Land (elaborated):
• Location
Buildings, real estate and properties, located in commercial and market areas, hold
higher value than their counterparts in the residential areas.
It is common to find brokers quoting a higher price for buildings in well developed
and approved colonies and areas as against those in the lesser developed and
upcoming areas.
Similarly buildings which are constructed on freehold land tend to command a higher
valuation than those on leasehold plots.
• Amenities
The valuation of properties with better infrastructural capabilities and modern
amenities are costlier than those which fail to provide proper electric connections,
telephone lines, water sewerage facilities and all other infrastructure such as
community centers, children parks, swimming pools, gymnasiums, parking lots or
general stores.
Valuation of property is clearly based on the availability of necessities and facilities
connected with comfortable housing.
• Infrastructure
Infrastructural development is one of the most important factors which influence
real estate prices in India. The presence of roads, airports, flyovers, malls and bus
terminals and other facilities in the vicinity of the property, helps in value escalation
of the same.
• Commercial real estate
Places such as Noida, Gurgaon, Pune, Hyderabad, Navi Mumbai and Andheri-Borivili in Mumbai, are striking
examples of commercial development which have affected the valuation of property in these areas.

The development of malls, IT offices and Special Economic Zones near residential areas help in cutting down
the time and energy wasted in commuting to workplaces and increase the price of real estate in the area.
• Demand and Supply
Demand for real estate in a particular area is inversely proportional to its supply. As the supply or availability
of real estate decreases, the valuation of property increases.

Changes in population are the key drivers for demand. Along with an increase in the number of people
inhabiting a particular area, the popularity of a particular locality in terms of people wanting to be a part of the
locality also increases its price.
• Affordability
Affordability refers to the cost incurred by the owner in the process of enjoying or retaining a property. In
layman's term, it is the term which establishes a relationship between interest rates, property prices and
wages.

• Structure
The valuation of property is dependent on the specifications of materials used, layout, design, durability and
life cycle of the building.

The quality and cost of materials during construction, size, current rates of labor, frontage and other physical
attributes such as roof covering, height of the building, type of foundation , waterproofing and plinth level, also
affect the price of a particular property.
RATE OF INTEREST
• INTRODUCTION
An interest rate is the cost of borrowing money or the return for investing money .
For example : A bank charges interest on amounts loaned out or on the balance of an overdrawn
bank account An interest rate vary depending on the type and provider of borrowing.

Definition of Interest Rate

In any case , as in the case of profit, interest is treated in different ways by different specialists.

Interest is the price the borrowers must pay to lenders to obtain the use of money for a period of time In
India, interest rate decisions are taken by the Reserve Bank of India’s Central Board of Directors.