BOOK BUILDING
How to value flats
D. MURALI
What is an apartment? "A room or set of rooms fitted especially with housekeeping facilities and usually leased as a dwelling," defines www.m-w.com, the site of Merriam-Webster Online Dictionary. The word dates back to 1641, and means, "private rooms for the use of one person within a house," Online Etymology Dictionary states.
Keeping the `root' research aside, let us look at a legalistic definition of apartment, from a State law that governs apartment ownership. It reads thus: "A part of property intended for any type of independent use including one or more floors or enclosed spaces located in one or more floors in building, intended to be used for residence, office, practice of any profession or for carrying on any occupation, trade or business or for other type of independent use and with a direct exit to a public exit to a public street, road, or highway or to a common area leading to such street, road or highway."
Before you exit, there's more: "An apartment shall be deemed to be intended for `independent use' notwithstanding that provisions for sanitary, washing, bathing or other conveniences have been made as common for two or more apartments."
After reading that extended definition, it is quite probable that you may look at your apartment in a new light, even if it were a good old one. And, with the appreciation in real estate property all round, what is very likely is that your apartment, or more rightly the land that it relates to, has been adding value to itself and to you, the owner, even when you sleep!
On how to value flats, here is a simple guide from the veteran architect C.H. Gopinatha Rao: `Apartments: At what cost, at what price.' Fair market value is the estimated amount for which a property may be transacted between a buyer and a seller, he begins. The adjective `fair' connotes that the value is not to be unfair or biased, explains Rao.
A few basic essentials in valuation are that the property should be exposed to the market bringing the attention of adequate number of potential purchasers. "The parties should have been reasonably informed about the nature and characteristics of the property. The title should not be defective and the property should be a freehold and is to be handed over with vacant possession," insists the author.
The formula for valuing used flats is as follows: "value of undivided share of land on the date of valuation + depreciated value of the building and amenities + inflated value, as on date, of overheads, incidental expenses and promoter's profit."
What specifications and facts are compared, in such an exercise? Type of foundation, its depth, FSI (floor space index) utilised, number of units in the complex, floor planning, covered area, access to transportation, convenience of locality, neighbourhood and surroundings, age and condition of the building, common areas, parking facilities, details of the flat's interior, internal wall finish, doors and windows, floor height, sanitary, plumbing, electricity, external wall thickness, landscape, lift, fire-fighting, children play area, provision of generator, common hall and so forth.
This valuation process is cumbersome, and there is no certainty that you would arrive at a precise value, cautions Rao. Also, prices vary widely of the different items. For example, the price of marble from Rs 60 to more than Rs 600 per square foot, and "in doors and windows, size of frames and shutter, fittings provided may vary."
A note of alarm is that the fair market value holds good only if the construction is not unauthorised, and it does not suffer from deviations from approved plans. Else, a sum equivalent to a certain percentage of the value arrived at, depending on the extent and nature of deviation and other conditions, should be deducted from the computed fair market value, counsels Rao.
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