Valuation of a Residential Building using Land and Building, Rental Income and Composite Rate Method

Abstract

The art of estimating the meaningful present worth of the commodity or property based on experience, logical approach, relevant statistical data etc. is termed as Valuation of properties such as buildings, factories, other engineering structures of various types, land etc. It determines the present value of properties. This study is focused on the valuation of a residential house of Ground plus one upper floor. The objective of this study is to compare the values obtained by three different methods of valuation and identifying the most appropriate one for the property under consideration. The methods of valuation that are used in the process are: Land and Building method, Rental method and Composite rate method. Depreciation is also given due importance in all the methods. In land and building method, the value of land and the value of the building are estimated independently to obtain the present value of the property. Rental method involved capitalizing the net annual rental income using a suitable rate of interest. Composite rate method is also employed to determine the present value based on the prevailing market rates. Breakup of composite rate for the building under valuation is calculated based on the breakup of composite rate of the building under comparison For the independent residential house, it is observed that Land and Building method showed the least variation from the Fair Market value (INR 7500000 approximately). The value obtained by Land and Building method is INR 7700000.The value obtained through composite rate method is INR 8300000, whereas the value obtained using rental method of valuation is INR5500000.