It is usefull for Technical officer /Managers of Housing Finance Ltd.

1. Introduction to Property
Valuation
The process of estimating the value of property is known as valuation. There are
numerous methods of assessing the value of a property. Valuation gives useful insight
to both buyers and sellers on how to estimate the approximate worth of a house. It is
then multiplied by the actual area of the current property.

2. Valuation
 Market value is the estimated amount for which a property should exchange on the date
of valuation between a willing buyer & a willing seller in an arms-length transaction after
proper marketing wherein the parties had acted knowledgeably, prudently & without
compulsion.
 Various types of values associated with the properties are as follows.
 Fair market Value: The value that an asset can fetch when liquidated in the open market
at real time between a willing seller and a willing buyer involved in the transaction.
 Distress Value: As the name suggests the property under stress such as financial,
ownership, court cases etc. when sold fetches a price lower than the prevailing market
value. This value is called Distress value of the property.
 Net Realizable Value: Net realizable value (NRV) is the value of an asset that can be
realized upon the sale of the asset, less a reasonable estimate of the costs associated
with either the eventual sale or the disposal of the asset in question.

3. Methods of valuation for immovable
properties:
1. Comparison Method
 In this method the prices of the similar properties sold in the market are checked, they are adjusted for differences (like age, amenities, view, upkeep of the property) in compared properties for determining the value of the property. While comparing, the base units shall be the same for all the properties i.e. areas should
either be carpet areas or built up areas or super built up areas.
 This method of valuation is also recommended by Indian Banking Association. The same method shall be largely used by MAHOFIN.
2. Income approach to valuation
 The term ‘’Income approach to valuation’’ suggests that the income from the property forms the basis for value of the property. In simple terms the income from a property is considered as yield (Market related rate of return) on the capital invested in purchasing the property. This method is used to crosscheck the value
arrived by method of comparison for income producing real estate or in cases where appropriate comparison data is not available.

4. Methods of valuation for immovable
properties:
3. Summation or Cost method
 This method is used for self-occupied/ bungalow properties or non-income yielding properties such as schools, colleges, hospitals, industrial sheds, warehouses or
properties belonging to religious trusts.
 This method is used for properties, which do not follow a uniform pattern. Valuation by Land & building method is an example of this method; the value of land &
the depreciated cost of construction are added to determine the total value of the property. This method is also useful in Project finance & self-construction cases
where the valuations changes with the progress of construction.
4. Development or Residual Method of Valuation
 This method is used to access the Market value of land, or land and building where there is potential for the land to be put to a higher value use.
 The method is sometimes known as the ‘development method’. Development in this context refers to the highest and best use, in terms of value, that is physically
possible, legally permissible and economically viable. The economic factors that can cause a change in land use will usually also cause a change in land values.
This method ignores the time required to complete the improvements (structures/ building).

5. Measure of Area:
1. Carpet Area
It is the net usable area of a Property; this area is measured wall to wall inside the property. This is an area which can be carpeted hence called Carpet area. As per RERA, carpet area will also include the area covered by the internal partition wall of the Property.
2. Built up area
It is the area covered by the property including the wall thickness. This area of the property is measured from outside. The thickness of the wall is included in considering the dimensions of the structure. The Built-up Area would generally be 12% - 15% above the Carpet Area. This may be different to independent houses/bungalows.
3. Super built up area/Saleable area
Saleable area of the property is calculated by adding the proportionate share of common area like staircase common passage, terrace, garden, club house and other recreational facilities.
4. Floor Area ration (FAR)/ floor space index (FSI)
The ratio of the total Built-up area of property to the gross area of the plot, on which the property is constructed, is known as Floor Area Ratio. It is also known as Floor Space Index. For example, a floor space index (FSI)/ Floor Area ratio (FAR) OF 2.0 would indicate that the total floor area of a building could be up to 2 times the
gross area of the plot on which it is located. It is defined by the Development Authority based on Development Control Norms.
FAR/FSI = Total Covered Area on All Floors/ Plot Area

6. Types of Construction
1. Load Bearing Construction – Dead load (Building, furniture & Fixtures) & Live Load (Living Person) of the building is
transmitted through the walls and foundation to the soil/rock below, mostly prevalent in smaller cities, towns & villages for low-
rise Buildings.
Features of Load Bearing Construction:
• Cost of construction is lower
• Skilled labour requirement is lower
• Structures are restricted up to 2 floors
2. RCC Construction – Dead load (building, furniture & fixtures) and live load of the building is transmitted through RCC
members i.e. slabs, beams, columns & foundation to the soil/rock beneath, this method is used for construction of multi-storied
building.
Feature of RCC structures
• Cost is higher
• Skilled labour and machinery required for construction.

7. Development Plan
For every city/town, the town-planning department prepares a plan earmarking various development zones within
Municipal limits and outside Municipal limits, which is approved by the state Government and then implemented. The
development plan shows various zones in different colours.
Following are the types of zones:
➢ Green Zone – Only agricultural activities are permitted.
➢ Residential Zone – Agricultural land can be converted for residential construction purposes.
➢ Residential cum Commercial Zone – Agricultural land can be converted for residential & commercial construction
purposes.
➢ Commercial Zone – Construction of only commercial buildings permitted.
➢ Industrial Zone – Construction of only Industrial activities permitted.
➢ CRZ I – Coastal Regulatory Zone – No new construction shall be permitted within 500mtr. Of the high tide line. No
construction between low tide line and high tide line.
➢ CRZ II – The area up to 200 mtr. from high tide line is to be earmarked as ‘’No Development Zone’’. No construction
shall be permitted within this zone except for repairs of existing structure not exceeding existing FSI.

8. Competent Authorities
The body appointed by the government to look after the administration of an area/district
city/state is called as a competent Authority. It has the right to approve & control the land
development proposals under its jurisdiction. Depending on the various parameters following
are the competent authorities prevalent in India:
➢ Town Planning Department
➢ Metropolitan (Regional) Development Authorities
➢ Municipal Corporations
➢ Municipal councils/Municipalities
➢ Town Panchayats
➢ Revenue Authorities
➢ Gram Panchayats

9. How to Derive market Value
 We have to enquire Market rate for land area near by real estate office with minimum three reference.
 We should know applicant’s opinion rate for land area.
 We have to enquire rate with land broker’s of Local area.
 With all above rate reference and along with all observed points in site visits, we have to fix market rate for land area, land rate should not less than Govt guideline value.
 Calculate Built up area in Sqft or Sqm and multiply with unit cost of present construction cost, then will arrive Building value.
 If it is old building, calculate depreciation value
 Ex : Age of the building is 10 years, Total life of building is 60 years for Rcc structure, New Building value is – Rs.800000/-
a ) Age of the Building / Total life of building * New Building value = Depreciation value
10 / 60 * 800000 = 133333.33
b) New building value – Depreciation value = Present Building value
800000 - 133333.33 = Rs.666666.67/-
 Market value of the property = Land value + Building value + Amenities

10. Points to be covered in site visits :
 Check water connection to the property and which type of water source like Bore well, open well, Public connection,
 Check Electrical connection is done or not,
 Check causion of area whether Community dominant / Fraudulent practices / Land tittle issue/ Flood prone area / Land slide area/ Govt reserved land
 Check Road accessible properly, width of road, which kind of road accessible whether Gally/Passage/ Mud Street/ Concrete Street/ Village road/ Other main road.
 Check Number of units constructed in the property and number of floors,
 Check property dwelling type – whether Individual House / Row house/ Duplex House/ Tenament / Flat
 Check occupancy of the building Whether tenant or self and uses of property whether Residential/ Commercial / mixed use.
 Check near by caution of property whether Lake, Drianage line , canal, High tension power line, railway line, proposed any development of public work,
 Check common wall/Common running slab For Individual property.
 Check type of Roof whether Tiled / RCC / Asbestos sheet / Girder stone slab

11. Documentation
➢ Building Plan – Approved Plan by MC or DA or TCP (in case of under construction collateral or
newly built properties – wherever applicable)/ GP or Architect plan/ Occupation / Completion
Certificate / Commencement Certificate for Mumbai & Pune Properties.
➢ In case of outskirt cases/ Identification challenges, Layout plan/ Pointer Plan/ Naqshbandi/ Ask
Chijra or Building cum location Map prepared by Architect registered with Municipal Council or
Corporation (MC) Shall be collected. This map should specify the plot location, landmarks, road
access, boundaries, land & built-up area details, customer name and legal document detail. Said
document should be signed by architect along with his designation with MC & Council of Architecture
and to be counter signed by Customer.
➢ Sale deed/ Agreement to sale/ Lease deed/ Registered Agreement/ Tripartite Agreement etc
confirming the ownership & boundaries of the unit/property.
➢ Latest Index II/khata extract/land revenue record/etc.
➢ Document showing the land status as Non-Agricultural
➢ Estimate need to be collected which shall be prepared & signed by Architect/Building
Contractors.
➢ In case of allotment by government Agencies to 1st allottee, there is no need of valuation and
case can be processed on direct allotment letter (applicable to all DA allotment/ EWS/PMGAY
scheme)