Understanding Property Valuation Methods Prevalent in India

Property valuation is a crucial process that is needed at the time of selling or buying a property, availing insurance for the said property or a loan against the property, and also for investment evaluation. This blog aims at defining property valuation, prevalent property valuation methods in India, factors that affect it, and different ways to calculate it.

What is property valuation?

Property valuation is the process that is used to determine the cost of a property, be it a parcel of land, a residential property, or a commercial property.

Application of Property Valuation

Why is property valuation necessary? It is important for sellers and buyers to get a property valuation done to determine the correct value. This ensures that no party feels overpaid or underpaid.

Insurance companies conduct property valuations to determine the appropriate monetary coverage in case of an unforeseen situation/accident. Insurance companies conduct property valuations to determine the appropriate monetary coverage

A valuation report assists in assessing property, income, and wealth taxes, helping determine accurate tax liabilities and sometimes reducing tax burdens.

Banks and NBFCs require a property valuation report to arrive at the right interest rate on the home loan. Terms and conditions while availing a home loan also sometimes depend on the valuation of the property.

Factors Affecting Property Valuation

Registered valuers consider various factors to produce an accurate and reliable valuation report. The factors include:

Location

Buildings located in commercial or well-established areas fetch more premium as compared to properties in not-so-prime localities. This clearly reflects in the valuation reports too.

Infrastructure

Infrastructural development including proximity to main roads, flyovers, metro stations, bus terminals, railway stations, airports, and social infrastructure such as schools, markets, and hospitals, and even places of work is an important parameter that may increase or decrease the value of a property.

Structure

The quality of material used in the construction of a building, its layout, including its FAR and FSI, and the scope of rental income, if any, are prime value-deciding factors for a property.

Amenities

Apart from essential utilities like power, water, and sewage, modern amenities such as kids’ play areas, clubhouses, green cover, and similar facilities have become major deciding factors when it comes to the valuation of a residential property in a gated complex.

Demand and Supply

This is factual economics that as the availability of properties decreases in a locality, the pricing goes up, especially if the location has facilities to offer.

Common Methods for Property Valuation

While there are many property valuation methods used all over the globe, the following three methods are majorly relevant in the Indian context.

Sales Comparison Method

Used majorly for residential properties, this method compares the prices at which other properties have recently been sold in the vicinity of the said property. This also keeps adjustment scope for any difference in features, size, condition of the property, and amenities included.

Profit Method

Also known as the income capitalization method and investment method, it is primarily used for commercial properties that generate income. Public places that hold the potential to create income, such as hotels, party halls, and theaters, etc., come under its purview. Investors depend on it to analyze the net income they can generate as per gross revenue and working expenses.

Cost Incurred Method

In cases where comparison data is not available and a proper is newly constructed, this method comes into the picture. It adds the value of the land to an estimated construction cost of a structure of the same size in the same locality and subtracts the depreciation based on how old the property is on the said date.

Accurate valuation of a property helps all involved parties make informed decisions. It empowers buyers and sellers and helps them set realistic expectations. Buniyad Realty advises its clients to get in touch with certified property valuators to arrive at reliable valuations.

Also Read: What is the Role of TDR in Real Estate?