Valuation of old flats
Evaluating an old flat, C.H.GOPINATHA RAOdiscusses the points to consider
In the sale of used flats, the arrival of the fair market value of the property is a difficult issue. We mostly rely what is being quoted and normally do not have methods to ascertain the fair value. Based on observations of many transactions and after trial and error a method based on cost inflation index seems to be a reasonable method.
Value of used flat = value of undivided share of land on the rate of valuation + depreciated value of the building and amenities + inflated value as on date of overheads, incidental expenses and promoter's profit.
The reproduction cost is obtained by multiplying the amount mentioned in the builder's agreement by the cost inflation index provided by the Central Board of Direct Taxes (refer table below) . Theoretically it is possible to evaluate a flat by comparing with a similar flat constructed recently and the values can be obtained. This is cumbersome and can be contested. A simpler and effective means would be to use the cost inflation index.
This can be understood through the following example. A flat constructed in January 1990 at Mandaveli with an extent of 1050 sft super built-up area inclusive of undivided share in common areas, with 700 sft of undivided share in land is offered for sale. The building is with minimum standard specifications with open car parking. It is a four- storeyed building with eight flats with two flats in each floor. The extent of land is 5600 sft.
Let us assume that the FSI is not exceeded, all the flats are of equal size, the flat is well maintained, the owner has not spent any additional amount in improvement like wardrobe and electrical fittings were provided by the builder. The table above explains the method of valuation.
In case the builder's agreement is not made available, the details of reproduction cost and development charges can be worked out from a similar project in progress. Or this can be worked out utilising the services of an architect/engineer and to the cost of construction, a sum equivalent to about 40% of the cost of construction be added towards the overheads, incidental expenses and promoter's profit.
The author is former National President, Institution of Valuers.
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