SCHOOL BUILDING VALUATION IN RURAL AREAS

8/18/2019 SCHOOL BUILDING VALUATION IN RURAL AREAS

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CHAPTER-I

INTROCUCTION

1.1 GENERAL

Shares, bonds and real estate are the main asset types available in

the capital market. Real estate is usually negatively correlated to shares,

what makes it attractive for the purpose of risk diversification. On the

other hand, bonds and real estate goes along in their volatility. One

difference between these assets is that property is unique and its data on

price transactions is not computed on a daily basis; on the contrary, it is

very difficult to gather data on prices of similar properties. Shares and

bonds have in this respect identical characteristics and it is easy for

investors to assess their performance at high accuracy levels.

In the real estate market the situation is not as simple as that.

Investors are never sure about the value of a certain property if they were

about to sell or rent it. Property valuation methods are needed for

estimating the most probable value of a property on the market. The

accuracy of valuations is tested when an estimated value equals or

approximates the purchase price, which, in this case, represents the

investment cost.


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The need for standardizing and clarifying the meaning and use of

this concept has risen at a point where investors, managers and

supervising authorities in the real estate market look for more reliable

information about the situation in the market.

Theories on macroeconomics, finance and valuation cannot be

viewed separately when examining the valuation concept and its

determinants. As the valuation can be used as a benchmark to

performance, or as determinants of property value or even as an

indicator of bubbles in the property market, macroeconomic

determinants, and financial theories for the general financial market and

for the specific property market cannot be overlooked.

1.2 UNDRESSING THE OVERALL CONCEPT

Property values keep changing over time. The value of a real estate

is attached to the interest behind the objective of its valuation. The

assessment of a property is based, however, on four basic conditions:

need, limited supply, right of disposal and transferable assets in the

market. Once values change, yields are prone to follow its movements,

but in opposite direction. To better understand its relation, it is

important to see how yields relate to property values.


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Property values are classified in three groups, as follows:

1. Market-related value

Efforts have been made to concentrate market value around one

central concept. According to EVS 2000 and TEGoVA recommendations,

the market value concept is defined as follows:

“Market value is the estimated amount for which a property should

exchange on the date of valuation between a willing buyer and a willing

seller in an arm’s length transaction after proper marketing wherein the

parties had each acted

Knowledgeably, prudently and without compulsion.”

It is important to perceive the difference between value and price.

The latter refers to an amount in currency in the time when transaction

takes place.


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2. Income-related value

Income value is related to an investor’s expectancies regarding

future inflows of capital into his/her investment and it should, thus, be

regarded separately for each investment (individual nature).

Sometimes, the income value of the subject property is said to have

a built-in long-run intrinsic value, which implies stable returns over

time. It is also said that a market-adapted income value exists, which

assumes it possesses parameters that reflect the market. In other words,

it is regarded as a form of market value, but estimated out of a return

calculation model.

3. Cost-related value

The cost value is calculated in special circumstances, where:

• Market is inexistent for special properties

• In an insurance context

• In countries where the property market is not functional

Even if the cost value concept is of little extent applied in the

Indian market, one should not ignore its existence in certain contexts. It

is important to notice that a number of other value concepts exist in the


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The relation between both concepts varies accordingly to the point

in time when properties are assessed, as it has been observed that both

concepts’ preferences are strongly correlated to macroeconomic aspects.

The relevancy of each value depends on the objective of the valuation and

to whom the valuation is done. An interesting finding is that during

economic crises, preference was given to the income value. In opposite

situations, the market value was applied.

1.3 VALUATION OF COMMERCIAL PURPOSE

Buying or leasing real estate for commercial purposes is different

from buying a home or even buying residential real estate as an

investment. Commercial leases are generally longer than residential

leases, and commercial real estate returns are based on their profitability

per square foot, unlike structures intended to be private residences.

Moreover, lenders may require more money for a down payment on a

mortgage for commercial real estate than for a home loan.

1.4 VALAUTION OF INVESTMENT

Unlike other investments, real estate is dramatically affected by the

condition of the immediate area where the property is located, hence the

well-known real-estate maxim, "location, location, location." With the

http://www.investopedia.com/terms/r/residentialrentalproperty.asphttp://www.investopedia.com/terms/r/residentialrentalproperty.asp


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exception of a national or global recession, real estate values are affected

primarily by local factors such as the availability of jobs, crime rates,

school quality and property taxes.

Buying real estate directly results in profits (or losses) through two

avenues: revenue from rent and appreciation of the real estate's value.

Rental money comes from land already developed into residential or

commercial real estate. Appreciation can come from either developing

raw land or from the appreciation of the area around the land you own,

for instance the appreciation of real estate in some American cities due to

gentrification in the early 21st century.

1.5 PROPERTY

It means any interest in property; movable or immovable.

Immovable property means any land, building or part of a building

together with machinery, plant and other permanent fixtures.

1.6 LAND APPURTENANT TO BUILDING

Where there are building regulations, the land allowed under such

regulations for the enjoyment of the existing building shall be the

appurtenant land.


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Where there are no building regulations, the land appurtenant to

the building shall not exceed 2.5 times the built-up areas at ground floor

(assuming) 40% ground coverage.

1.7 FREE HOLD LAND

A parcel of land is said to be free-hold when the owner has

absolute right of enjoyment, possession and ownership over it and it is

free from any kind of encumbrance as to the transfer of

title/occupancy/use.

1.8 LEASE HOLD LAND

A parcel of land is said to be lease-hold when the right of

enjoyment and possession is vested in a person other than the owner for

a definite period of time in consideration for a fixed sum of rent known as

lease (ground) rent. The owner of the land is known "Lessor" and the

person holding the lease title is known as "Lessee". Apart from the period

of lease and the rate of lease rent, the lease agreement may stipulate

other restrictive covenants such as use of land, sharing of unearned

profit, conversion of title into free hold, renewal of lease, resumption of

lease and right to sale / transfer of land. Long term leases having term of

99 years and above are considered leases in perpetuity.


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1.9 ECONOMIC LIFE

Economic life of building means its life expectancy with normal

repairs and maintenance. Economic life of structure depends on the type

of construction, the quality of construction materials, climatic

conditions, use of structure and the level of maintenance and upkeep.

The expected economic life of different types of structure depends on the

type of construction, the quality of construction materials climatic

conditions, use of structure and the level of maintenance and upkeep.

The expected economic life of different types of structures with normal

maintenance.

1.10 DEPRECIATION

Depreciation means the decline in the value of structure/asset due

to its normal wear the tear on account of its use and age.

1.11 GROUND RENT

When land only is given on lease for construction buildings or any

other use by the lessee, the periodic payment the lessee under the

covenants of the lease is called "ground rent". The ground rent is of two

kinds: Secured ground rent unsecured ground rent.


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1) Secured ground rent: If under the lease agreement the lessee is

required to construct a building on the plot, the ground rent is said to be

secured one.

2) Unsecured ground rent: When under the lease agreement the plot

remains open without any construction of building, the ground rent is

said to be an unsecured one.

1.12 STANDARD RENT

Rent which can be lawfully charged from a tenant under relevant

rent control act is known as standard rent.

1.13 ANNUAL SINKING FUND

Sinking fund is the notional fixed sum of money allocated annually

at the prevailing rate of interest to create the necessary capital for the

replacement of an asset after the economic life span of the asset is over.

1.14 YEAR'S PURCHASE

The multiplier of the net rent or net return to obtain capital value

on material date of valuation is termed as year's purchase. This

multiplier depends upon the rate of return expected from the capital

investment in the property.

1.15 RATE OF CAPITALIZATION


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It is the rate of return which a prudent investor would expect from

a particular kind of investment in an asset or immovable property.

1.16 VALUE AND COST

The cost of an asset represents the actual amount spend in the

construction of the asset while the value is defined as the present worth

of future rights in the property and depends to a great extent on demand

and supply. The cost relates to the past while the value relates to the

future. With the inflationary trend in land values and construction costs,

it is inconceivable that the historic cost could ever represent the value of

a property on a specific date. In simple words the term value means the

amount of money for which the asset will exchange in the open market.

1.17 MARKET VALUE AND FAIR MARKET VALUE

"Market value" is the price that a willing purchaser would pay to a

willing seller for a property, having due regard to its existing conditions,

with all its existing advantages and its potential possibilities when laid

out in its most advantageous manner.

"Fair Market Value" is the estimated price which any asset in the

opinion of WTO/VO would fetch, if sold in the open market on the


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valuation date. The terms "Market Value" and "Fair Market Value" are

synonyms except the word "Fair" introduces an element of a hypothetical

market. The expression "if sold" does not contemplate actual sales or

actual state of market. The expression "Open Market" does not

contemplate a purely hypothetical market exempt from restriction

imposed by law. The fair market value excludes sentimental value

advertisement, brokerage, stamp-duty, commission etc. for affecting the

sale transaction.

1.18 POTENTIAL VALUE

This is the inherent value in the property which is realised when

the property is developed in its most advantageous manner. For example,

land on outskirts of a town possesses building potential. Similarly, an

under-developed property possesses value which can be realised by fully

developing the property.

1.19 GUIDELINE VALUE

The value adopted for stamp duty is based on the land / building

rates fixed by the local authorities for the purpose of stamp duty charges.

1.20 SALVAGE VALUE


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This term is mainly in case plant & machinery. It is the value of an

asset realised on sale after it has outlived its useful span of life but has

not yet become useless. In other words, it is the amount realised over

and above the cost of its removal.

1.21 Present value

It is replacement value less depreciation value. The other value are

liquidation value, intrinsic value, investment value, cost value, warranted

value, true value, written down value, going concern value, commercial

value, rental value, exchange value, appraisal value, face value, utility

value, use value, loss value, tax value, economic value, sale value,

condemnation value, cash value, future value, capital value, mortgage

loan value, forced value etc.

Valuation plays vital a roll in Financial Institutions: Financial

institutions advancing loan to many purposes such as Term Loans, Cash

Credit Loan, jewel Loans, Home Loans, Educational Aiding Loans based

on the Valuation of the property. For Recovery of Loans also Valuation of

Assets becomes necessary.

In this Project the valuation of a property for a Bank for collateral

security purpose is considered. The property is an agricultural land with

an residential building property.


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Globally, plant and machinery valuation is not a popular

profession compared to land or building valuation even though the size

and value of the plant and machinery can contribute up to 80% of the

company total assets. In Malaysia, a plant and machinery valuation

report is required if the companies rely on the market value approach of

accounting.

In a developed colony, the value of the plot goes on increasing

when number of the available plots goes on decreasing. The fancy price

demanded by the vendor for the remaining plots is known as monopoly

value.

1.22 METHODS OF VALUATION

Valuation should be realistic depending on the nature of property,

its use, potential and all other characteristics.

1.22.1 Accounts Method

If the assessee has maintained proper books of accounts wherein

all details are correctly mentioned duly supported by authentic vouchers

and no defects are pointed out and the books are not rejected then the


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figures shown therein have to be followed for determining the cost. If the

assessee has produced less vouchers for some of the materials, the same

is estimated and added at the market rates. Similarly, the quantum of

labour payment is assessed and if the assessee has maintained proper

account, the total cost is worked out on the basis of detailed produced by

him. We rarely come across such cases where the assessee submits

complete technical accounting along with justification statements of

materials and labour. Such cases appear where the assessee is a

professional builder or has taken huge loans and payments made

through financial institutions. In such instances, the VOs should be

more vigilant in pointing out the items and specifications which may

have got escaped from the assessee's submission of facts. Such items can

be valued and added separately. However this method yields to a near to

perfect valuation, if the accounts are correctly maintained.

1.22.2 Plinth Area Rates and Cost Index method

This is a commonly used method for determining the cost of a

building by comparing with the known cost of a building. The cost of a

building interalia depends on the major factors - (i) the area and


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specification of the building (ii) the cost of materials and labour. The first

one is covered by the plinth area rate and the second one cost index.

I. Identify as many places as possible nearest to the place where the

CPWD has approved Cost Indices for many years. These places should be

within hundred kilometer radius (preferably, within fifty kilometer) of the

concerned place.

II. Work out the Cost Indices of required time for each place

commensurate with the period of construction of the building for which

year wise value of investment is to be estimated.

III. For each time average out the Cost Indices of all places nearest to

the place under consideration and adopt this figure as Cost Index of the

place that time.

IV. As further check work out the current Cost Index of the place after

collecting prevailing market rates of materials and labour and compare

with that derived from the above Method. If there is large deviation,

average out Cost Indices of those places which give figure closest to the

figure of current Cost Index worked out considering prevailing market

rates of materials and labour of the place. This can easily be achieved by


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trial and error method. For past Cost Indices, take average of Cost

Indices of those places only whose average current Cost Indices

correspond nearest to current Cost Index of place.

V. It would be appropriate to choose as many places as possible

surrounding the place under consideration so that average figures of

Cost Indices at difference time will represent as closely as possible to the

Cost Indices of the place under consideration related to those time. In

case only one or two nearby places are available where Cost Indices at

different time have been approved by CPWD then following method may

be adopted :

a) Work out the current Cost Index of the place under consideration

based on prevailing market rates of materials and labour and that of the

other nearest places based on CPWD approved Cost Indices of those

places. Work out Cost Index differential factor of the place under

consideration with reference to the nearest places.

b) Determine Cost Indices of the place under consideration for

different time by applying Cost Index differential factor on the Cost

Indices approved by the CPWD for these nearest places. If there is more

than one nearest places, then average figure may be adopted. Cost


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Indices thus worked out shall be adopted for estimating value of

investment in construction.

c) Following practice for arriving at the cost of construction to bring

uniformity may be adopted for working out the Weighted Cost Index:-

1.22.3 LAND AND BUILDING METHOD

As the name indicates, in this method the value of land is added to

the value of structure to arrive at the fair market value of the property.

The method is generally adopted in the following situations:-

(a) In the case of self occupied property.

(b) In the case of property partly self occupied (i.e. more than 60%) and

balance tenanted.

(c) In the case where it is not possible to obtain fair and maintainable

rent.

(d) In case where there is no direct evidence of rent such as schools and

hospitals etc.

(e) In the case where the property is not fully developed, or the return

from the property is not commercial.


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1.22.4 EXTRA ITEM

Mainly the items of flooring, ceiling, internal, external finishing of

walls, doors, windows, costly sanitary water supply fittings, cupboards

and electrical installation etc. are to be accounted for the cost

adjustment. One method is to analyse each item by considering the

amount of different materials, labour and T & P involved and considering

their prevalent market rates. Other method is to account for the cost for

the materials involved and the finished rate of labour.

1.23 SUMMARY

This chapter explains the details of introduction and valuation

method were explained. The next chapter deals with review of literature

are explained.


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CHAPTER - II

REVIEW OF LITERATURE

2.1 GENERAL

Review of related literature is an essential part of research work. It

enables the investigator to know about the related studies and their

conclusion. This gives an idea for the present investigator to do her work.

Sometimes, even the research problem is selected from the studies

reviewed. The review helps the investigator to acquire a thorough

knowledge about the present problem and helps in the development of

research procedures.

Therefore, the present investigation went through the earlier

studies made in her field of research and they are presented in the

succeeding paragraphs.


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2.2 REVIEW OF LITERATURES

Freeman's (1979)comprehensive and often cited study of hedonic

price modeling techniques provides a useful review of the theory and

assumptions guiding this method. Freeman briefly discusses application

of the theory to cases of air, water and noise pollution. He concludes

that, despite limitations and uncertainties, hedonic modeling has

significant explanatory power. Market segmentation (i.e. division of a

regional market into smaller segments each with distinct hedonic price

functions), for example, is one area where Freeman encourages

additional research. Freeman’s recognition of differences within regional

housing markets foreshadows attention to neighborhood variables in

later hedonic studies.

Brennan & Schwartz (1985)Consequently, NPV kills many

projects with strategic value with an expected NPV benchmark. They

proposed that the true value of real asset investment should be adjusted

by adding the values of all embedded real options to the net present

value of the underlying asset. In technology innovation investment, NPV

holds back firms’ effort in disruptive technology exploration. When a

disruptive technology invented and introduced to the market, the new


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technology “S” curve starts below the one of its precursor. The financial

criteria may disapprove the investment of the technology based on a

small discernible market. However, the new products may accumulate its

popularity with an accelerating rate. Therefore, sticking to NPV which

does not tell the potential of a new technology may obstruct firm’s

technology competitiveness development.

Like Reichert et al (1989)employed survey methods to assess

changes in property values before and after a Los Angeles Superfund

hazardous waste site was closed. Notably, the survey results

demonstrated a considerable divergence in residents' and experts'

perceptions of health risks. In addition to the influence of media and

community mobilization variables.

McClelland et al (1989)found that variation in public perceptions

of risk were attributable to specific characteristics of the respondents.

With these additional variables derived from the survey technique, the

study found that, before site closure, value losses totaled 23.6 million.

After site closure values partially rebounded, demonstrating value losses

of 19.7 million. Though the survey technique yielded new information

about how variations in public perceptions of risk impact property


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values, the authors acknowledged standard problems of survey bias.

Examples of survey bias include intentional misrepresentations of risk

perception in an effort to influence policy outcomes.

Smith and Nau (1995)reviewed about decision trees and utility

theory in their project management course. In financial management

courses, they are taught about how the discounted cash flow and

discounted rate are used to model risks. In advanced finance courses,

they learn option valuations in the complete market using risk neutral

probabilities. The result of all these trainings is the graduates who may

understand each method but fail to appreciate the relationships between

them and their relative strengths and weaknesses. A similar gap between

the decision analysis and finance disciplines exists in the academic

literature and professional practice. This gap has become increasingly

apparent with the development of option pricing techniques for valuing

projects in which managerial flexibility or ‘real options’ play an important

role.”

Kumaraswamy (1996)tested the core proposition using data

collected through a mail survey of high-technology firms. Exploratory

analyses indicated that the adoption of a real options perspective of R&D


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encourages investment in long-term R&D, and enhances certain aspects

of R&D performance - particularly, the success rate of projects funded,

the number of new products introduced and the performance

improvements achieved in current products. Results also indicate that

option-based project evaluation practices alone are not sufficient for

enhanced R&D performance. Rather, options-based project evaluation

practices yield desired results only when supported by the adoption of

appropriate organizational structures/practices and a well-endowed R&D

resource base.”

Galli & Armstrong (1999)compared with real option pricing

models, decision trees model flexibilities with unknown underlying asset

distributions. In many publications, the distributions of real asset

investments in real option pricing modeling have not been studied

carefully. Rather, Geometric Brownian Motion or Arithmetic Brownian

Motion was adopted for granted in calculation. Moreover, since decision

tree framework models reality without “no arbitrage” assumption, which

is a must in option pricing models, it can be applied in all kinds of

markets, complete or incomplete. Therefore, decision tree modeling

provides an alternative to resolve the fundamental problem in real option

pricing.


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Adam Borison (2003)disagreed and proposed that risks with

different characters should be measured differently. In his model of gas

investment project, he decomposed the risks of the underlying asset into

two categories: the “entirely market-dominated” and the “entirely private-

dominated”. He said if the investment falls into the former category, “risk

neutral” valuation, i.e. the financial option pricing mechanism, should be

used. If the investment falls into the latter, decision trees with the

estimated real probabilities is proper. In his model, he claimed the

amount of the gas discovered has private risk and the price of gas has

market risk. To take advantage of the strength of both decision trees and

option models, his hybrid model incorporates “this binomial model of gas

prices in the tree together with the three-state model of gas amount and

roll the tree back at the risk free rate.” Integrating the risk neutral

valuation and specific risk valuation.

Laate (2006)compared the valuation of a new biotechnology

development and commercialization using NPV and RO. In his study,


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NPV valuation rejected the R&D project but Real Options approved it.

Besides suggesting the value of flexibility, his study also proposed Real

Option models should be adopted in public policy and R&D investment

management. Li and Johnson (2002) build Real Option calculation based

on technology switching costs and the nature of competition.

2.3 SUMMARY

This chapter explains the details of review of literature were

explained. The next chapter furnishes with the review of literature are

explained.


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CHAPTER - III

RULES FOR FIXING CAPITAL VALUE

3.1 INTRODUCTION

No.AC/NTC/1310/2011-12 dated 20.03.2012. In exercise of the

powers conferred by clause of sub section (1B) of section 154 of the

Mumbai Municipal Corporation Act (Act No.Bom. III of 1888), and of all

other powers enabling him in this behalf, the Commissioner, after having

obtained the approval of the Standing Committee, as required under the

said sub-section (1B), hereby makes the following rules to provide for the

factors and categories of users of buildings or lands and the weightage by

multiplication to be assigned to various such factors and categories for

the purpose of fixing the capital value of building and lands in Brihan

Mumbai, namely:-

1. Short title and commencement: - These rules may be called the

Factors and categories of users of building or Lands (Assignment of

Weightages by Multiplication) Fixation of Capital value Rules, 2010.

(2) They shall come into force forthwith.


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2. Definitions – In these rules, unless the context otherwise requires:-

(a) “Act” means the Mumbai Municipal Corporation Act (Bom. III of

1888);

(b) “flat” means a separate part or portion of a building used or intended

to be used for residence, or office, or show – room, or shop, or go down,

or for carrying on any industry, or business, or business, or profession,

or vocation;

(c) “Hoarding” includes boards used to display advertisements, erected on

poles, on the around or on a building;

(d) “land appurtenant to a building” means open spaces on all sides of a

building required to kept open in accordance with the relevant provisions

of the development control regulations for Greater Bombay, 1991 or any

such regulations, for the time being in force; 1

(e) “Luxurious RCC building” includes a RCC building having a

swimming pool, whether in use or not, and also any one or more of the

following amenities or facilities, namely;-

i. Gymnasium

ii. Club house

iii. Jogging track

iv. Health club


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v. Private terrace as a part of each flat in a building

vi. “Multiplex” means a cinema house having more than one screen

with in a building

vii. “Open land” includes land not built upon or land being built upon,

but does not include land appurtenant to a building

viii. “Ready Reckoner” means the Stamp Duty Ready Reckoner, for the

time being n force referred to in sub-section (1A) of section 154 of

the Act;

ix. “Relative rate of base value” means the rate of open land, or rate of

land plus residential building, office, shop, commercial or

industrial building, as the case may be, as indicated in the Ready

Reckoner;

x. “Schedule” means a schedule to these rules;

xi. “Section” means a section of the Act;

xii. “Star hotel” means hotel classified as a star hotel with a specific

number of starts assigned there to by the Ministry of Tourism,

Government of India;

xiii. “Storage tank” includes a tank, whether underground or on any

floor of a building, used for the storage of commodities, except the

one used for storage of water;

xiv. “Tower” includes television tower, cable tower, telecom tower or any

other such tower, transmission tower, cellular antenna,

broadcasting antenna or the like, erected on the surface, or no top,

or on any other open space, of a building;

xv. words and expressions used in these rules and not defined


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xvi. But defined in the Maharashtra Regional and town planning Act,

1966 or in the development control Regulations for Greater

Mumbai, 1991, or any such regulations, for the time being in force,

shall have the meanings respectively assigned to them in the said

Town Planning Act or in the Development Control Regulations, as

the context may require.

xvii. Capital value of open land :- Save as otherwise provided in these

rules, where within the precincts of a building there is vacant land

other than the land appurtenant to the building, such land shall

be treated as open land and the capital value there of shall be fixed

accordingly as provided for in rule 21.

xviii. User categories of open land and weightages by multiplication to be

assigned there to: - User categories of open land shall be as

specific in column of part I of schedule ‘A’ and the weightages by

multiplication to the base value to be respectively assigned there to

for the purpose of fixing capital value shall be as shown in column

of the said Part I of schedule ‘A’.

xix. User categories of buildings or part thereof and weightages by

multiplication to be assigned there to:- User categories of buildings

or part there of shall be as specified in column of each of parts II,

III and Iv of schedule ‘A’ and the weightages by multiplication to

the relative base value to be respectively assigned there to for the


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purpose of fixing capital value, shall be as shown in column of

each of the said Parts II, III and IV of schedule ‘A’.

xx. The nature and type of building and the weightage by

multiplication to be assigned there to: - The nature and type of a

building shall be as specified in column of schedule ‘B’ and the

weightage by multiplication to be assigned there to for the purpose

of fixing capital value, shall be as shown in column of the said

schedule ‘B’.

xxi. The weightage by multiplication to be assigned to a building on

account of the age there of : - The weightage by multiplication to be

assigned to a building on account of age factor, for the building as

shown in column of schedule ‘C’ and the weightage by

multiplication to be assigned there to shall be as shown in column

of the said schedule ‘C’.

xxii. The weightage by multiplication on account of floor factor to be

assigned to RCC building with lift: - Weightage by multiplication on

account of floor factor to be assigned to a RCC building with lift for

the purpose of fixing capital value shall be according to the

number of floors as shown in column of schedule ‘D’ and the

weightage by multiplication to be assigned there to shall be as

shown in column of the said schedule ‘D’.


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xxiii. Area of hoarding or tower for the purpose of fixing capital value: -

Area of hoarding or tower for the purpose of fixing capital value

there of shall mean, in the case of a hoarding the area of the

square of the extremities of the poles on which the hoarding is

erected plus the area of the hoarding and in the case of a tower the

area covered by the extremities of the foundation of the tower. Built

up area of a flat or a building;

The total built-up area of a flat shall be reckoned by including the area

of the following items namely:-

1. Terrace in exclusive possession

2. Mezzanine floor

3. Loft (excluding loft in residential flat) or attic

4. Dry balcony and

5. Niches; and the total built up area of a building shall be reckoned

by including the areas of the following items, namely;-

6. Total area of the flats in the building computed in accordance with

sub rule

(ii) Basement, (iii) stilt, (iv) porch, (v) podium, (vi) service floor, (vii) refuge

area,

(viii) entrance lobby, (ix) lounge, (x) airconditioning plant room, (xi) air

handling room, (xii) the structure for an effluent treatment plant and


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(xiii) watchman cabin (3) The built up area of any of the following items

shall not be reckoned while computing the built up area of a building or

part there of namely:- (i) lift room above ropmost storey, (ii) lift well, (iii)

stair case and passage there to including staircase room, (iv) chimney

and elevated tank, (v) meter room, (vi) pump room, (vii) underground and

overhead water tank, (viii) septic tank, (ix) flower bed and (x) loft in

residential flat.

4. Where only the carpet area of a flat or building is available on the

record of the Corporation and the total built up area there of computed

in the manner as aforesaid in sub rule (1), or as the case may be sub

rule (2) is not available on such record then the total built up area of the

flat or as the case may be of a building shall be arrived at in the following

manner namely: -

Built up area = 1.2 x carpet area as available on the record of the

Corporation + the built up area of the items specified in sub rule (1) or as

the case may be sub rule (2), unless already reckoned in such carpet

area.

11. fixation of capital value of a flat or building or part thereof

(1) while fixing the capital value of a flat the capital value of any one or


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more of the relevant items specified in sub rule (1) of rule 10, as fixed in

accordance with the provisions of rules 14, 15, or sub rule (1) of rule 16,

as the case may be shall be added to the capital value of the flat.

(2) While fixing the capital value of a building or part there of the capital

value of any of the one or more of the relevant items specified in sub rule

(2) of rule 10 as fixed in accordance with the provisions of sub rule (2) or,

as the case may be, (3) of rule 416, shall be added to the capital value of

the building or part thereof.

12. Fixation of capital value of a building where there are tenants:-

The capital value of a building or part thereof which is occupied by

a tenant shall be fixed at 75% of the capital value of such building or

part thereof; fixed in accordance with the provisions of sub rule (1) or, as

the case may be sub-rule (2) of rule 11.Explanation for the removal of

doubts it is hereby declared that the provisions of this rule shall not

apply to a building or part thereof it,

1. it is occupied by a licensee to whom it is given on leave and licence

2. it is occupied by an office bearer or officer or an employee of the

landlord


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13. Fixation of capital value of religious buildings:- The capital value of a

religious building which is a temple math gurudwara, mosque, takth,

church, durgah, synagogue, or agiary or the like, and is used or intended

to be used for the purpose of religious worship or offering prayers or

performance of any religious rites or rituals by a person of or belonging

to the relevant religion, creed, or sect, shall be fixed at the rate of base

value applicable to a residential building as indicated in the ready

Reckoner; and by applying the relevant weightages by multiplication

provided for in these rules.

14. Fixation of capital value of open terrace:- If an open terrace in

exclusive possession is attached to a flat, the capital value of such

terrace of a non-residential flat shall be fixed at 40% of the relative rate

of base value of such flat and of residential flat shall be fixed at 10% of

the relative rate of base value of such flat; and by applying the relevant

weightages by multiplication provided for in these rules.

15. Fixation of capital value of mezzanine floor loft and attic floor,

a. the capital value of mezzanine floor shall be fixed at 70% of the relative

rate of base value of the flat beneath the mezzanine floor; and by


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applying the relevant weightages by multiplication provided for in these

rules;

b. the capital value of loft or attic floor shall be fixed 50% of the relative

rate of base value of the flat beneath the loft or as the case may be the

attic and by applying the relevant weightages by multiplication provided

for in these rules; Provided that where the rate of base value applicable

to the mezzanine floor loft or attic floor having regard to its user is higher

or as the case may be lower than the rate of fixed at 70% or 50% as the

case may be of such higher or lower rate of base value and by applying

the relevant weightages by multiplication provided for in these rules.

16. Fixation of capital value of certain other items which are part of a flat

or a building or part thereto, (1) The capital value of dry balcony and

niches shall be fixed at 25% of the relative rate of base value of the flat if

any one of these items are part of the flat; and by applying the relevant

weightages by multiplication provided for in these rules (2) The capital

value of any one or more of the following items namely:- (i) porch (ii) air

conditioning plant room (iii) air handling room (iv) structure for an

effluent plant (v) watchman cabin and (vi) refuge area, shall be fixed at

25% of the relative rate of base value of the building or part thereof if any

one or more of these items are part of the building or part thereof and by


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rules. (3) The capital value of any one or more of the following items,

namely: (i) service floor, (ii) entrance lobby and (iii) lounge, shall be fixed

at the relative rate of base value of the building or part thereof; and by


rules.

17. Fixation of capital value in respect of demolished building:- (1) Where

a building is fully demolished or has fully collapsed the land beneath it

shall be deemed to be open land and the capital value thereof shall be

fixed accordingly as provided for in rule (21). Explanation for the purpose

of this rule it is here by declared that where a building is or is being

demolished or has collapsed resulting in the land on which it stood or

stands being rendered open land or only walls or the like are standing

but there is no structure as such which can be occupied and no such

demolition or collapse debris or any remains of the demolished or shall

be deemed to be open land (2) Where only part is yet occupied by

occupiers land beneath the portion of the building which is demolished

or has collapsed shall be deemed to be open land and the portion of the

structure which is occupied shall be treated as a building for the purpose

of fixing the capital value thereof. 6 (3) Notwithstanding anything


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contained in sub rules (1) and (2) where a cessed building is or being

demolished or has collapsed the land beneath the building or portion of

the building which is demolished or collapsed shall be deemed to be open

land and the capital value thereof shall be fixed as open land and

assigning there to a weightage by multiplication of 0.30 of the base value

of open land.

18. The capital value of storage tank. The capital value of storage tank

shall be fixed in the following manner namely: - (1) storage tank above

the ground level.

(a) land – at the rate of open land in the Ready Reckoner and weightage

by multiplication to be assigned there to shall be 1.25,

(b) storage tank – capacity of storage tank in litres multiplied by the rate

of Rs.40 per litre, with weightage by multiplication to be assigned thereto

on account of age factor as in schedule ‘C’.

(c) total capital value of a storage tank = total of items (a) and (b).

(2) storage tank below the ground level.

(a) land at the rate of open land in the Ready Reckoner and weightage by

multiplication to be assigned thereto shall be 1.25,


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(b) storage tank – capacity of storage tank in litres multiplied by the rate

of Rs.50 per litre, with weightage by multiplication to be assigned thereto

on account of age factor as in schedule ‘C’,

(c) total capital value of a storage tank = total of items (a) and (b).

19. Capital value of amenities of luxurious RCC building not to be

separately fixed again where the capital value of a luxurious RCC

building is fixed under these rules then no capital value of the amenities

specified in the definition of the expression luxurious RCC building shall

be separately fixed for the purpose of levy of property tax.

20. Valuation of open land capable of utilizing more than 1 floor space

index (F.S.I.) or transfer of development right (T.D.R.) as the Ready

Reckoner provides for the rate of base value of open land with 1 floor

space index open land which is capable of utilizing more than 1 floor

space index or any transfer of developed right shall be valued at an

increased rate in proportion to the higher floor space index or transfer of

development right proposed to be utilized and approved under the

building plan submitted to the Corporation for approval.


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21. Capital value of open land or building or part thereof capital value of

open land or building shall be fixed under the provisions of the Act and

these rules in the following manner namely:-

(1) Capital value (CV) of open land – Rate of base value (BV) of a open

land according to Ready Reckoner X weightage by multiplication as per

user category (UC) (part I of schedule ‘A’) X permissible or approved floor

space index (FSI) X area of land (AL). CV=BVxUCxFSIxAL (2) Capital

value (CV) of a building Relative rate of base value (BV) of a building

according to Ready Reckoner X weightage by multiplication as per user

category (UC) (Parts II, III, or as the case may be, IV of schedule ‘A’) X

weightage by multiplication as per the nature and type of building (NTB)

(schedule ‘B’) X weightage by multiplication on account of floor factors

(FF) for RCC building with lift (schedule ‘D’) X built up area (BA) CV = BV

x UC x NTB x AF x FF x BA examples:- Some examples based and worked

out on the formulae as aforesaid are shown in the Appendix.

22. Non – application of Guidelines of stamp duty valuation.

Notwithstanding anything contained in the “Important Guidelines of

Stamp Duty Valuation” as specified in the Ready Reckoner the provisions

made in these rules shall have primacy over those guidelines and none of


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those guidelines shall apply for fixing capital value under the Act and

these rules.

DETAILS OF FACTORS AND USER CATEGORIES OF BUILDINGS AND

LAND AND WEIGHTAGES BY MULTIPLICATION TO BE ASSIGNED

THERETO

SCHEDULE - A (See rules 4 and 5)

Part – I Open land

User categories of open land and corresponding weightages by

multiplication Sr. No User category of open kand Weightage by

multiplication to the base value (1) (2) (3)

1 Airport land:-

(a) Land used for movement and parking of aircraft including runway

and taxying bay 1.25

(b) Any land other than land covered by entry (a) 1.002 Amusement

park 1.253 Golf course 1.254 land around weighbridge 1.255 land of

open air thenatre 0.106 land of stadium where no tickets are sold for


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entry 0.10 7 land of stadium where tickets are sold for entry 1.008 land

of petrol pump/service station/LPG, CNG station/kerosene station 1.259

open air electric substation 1.25 10 open land – non residential:- (a)

Commercial 1.25 (b) Industrial 1.10 11 open land – residential 1.00 12

open land under reservation:- 9(a) partial impermissibility 0.10 7 land of

stadium where tickes are sold for entry 1.00 8 land of petrol

pump/service station/LPG, CNG station / kerosene station 1.25 9 open

air electric substation 1.25 10 open land – non residential:-

Part – II Residential buildings

User categories of residential buildings and corresponding

weightages by multiplication Sr.No.

User category of residential building or part thereof weightage by

multiplication to the related base value (1) (2) (3) 1. Bungalow 1.25 2. Car

park in stilt, or basement, or podium 0.25 3. Clubhouse and any other

amenity in co-operative housing society used its members 1.00 4. Duplex

flat / apartment 1.25 5. Enclosed garage 0.25 6. Penthouse 1.25 7.

Room, or flat, or apartment, or tenement and like 1.00 8.Row house 1.25

9. Society office 0.10 10. Swimming pool 1.00 10.

PART – III


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Shops / Commercial Building user categories of shops commercial

building and corresponding weightages by multiplication Sr.No. User

category of shop / Commercial Building or part thereof weightage by

multiplication to the related base value (1) (2) (3) 1. Advertisement

hoarding 1.00 2. Airport building 1.10 3.Asset management company

and trustee company of Mutual Fund 1.20 4. Automatic Teller Machine

Center and Money Changing Center 1.20 5. Bank 1.20 6. Car parking

in still/basement/podium 0.25 7. Cinema hall/theatre/drama theatre

1.00 8. Club house, etc. (excluding the one in co operative housing

society used by its members) 1.00 9. Co-operative credit society 1.00 10.

Coaching class 1.00 11. Commodity exchange 1.20 12. Department

store and shoping center 1.10 13.Dispensary clinic and pathological

laboratory 1.00 14.Educational institution 0.70 15. Electric sub-station

of a commercial building 0.80 16. Electric sub-station of a residential

building 0.10 17. Enclosed garage 0.25 18. Film shooting studio 1.00 19.

Godown/Storage/warehouse 1.00 20.Hanger and workshop at airport

1.10 21.Hospital 1.00 22.Hotel – five star and above 1.25 23. Hotel up to

four star and service apartment 1.10 11 24.Life and non-life insurance

corporation or company 1.20 25.Mall 1.25 26.Mangal

karyalaya/hall/community hall/convention hall/ party hall, etc. (air


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conditioned) 1.20 27. Mangal karyalaya/ h all. Community hall/

convention hall/party hall, etc. (non air conditioned) 1.10 28. Multiplex

1.25 29.Non-banking financial institutions 1.20 30.Nursery, kids’ corner,

playgroup0.70 31. Nursing home 1.00 32. Office 1.00 33. Open air

theatre –stage and other structure 0.30 34. Passenger terminal at airport

1.10 35. Private health club, gymnasium 1.00 34.passenger terminal at

airport 1.10 35.private health club gymnasium 1.00 47. Tires of seats

for specter in a stadium where no tickets are sold 0.06 48. Tower 1.00

49. Unstarred hotel 1.00 12 50. Weighbridge 1.00

PART – IV Industrial building

User categories of industrial buildings and corresponding

weightages by multiplication Sr.No user category of industrial building or

part thereof weightage by multiplication to the related base value 1, 2, 3

1. car parking in still basement podium 0.25

2. Enclosed garage 0.25

3. Factory including refined 1.25

4. Industrial estate 1.25

5. Service industrial estate 1.05

6. Society office 0.25

7. Workshop 1.25

SCHEDULE –B (See rule 6)


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Weightages by multiplication to be assigned to a building on

account of nature and type of building Sr.No.Nature and type of building

or part thereof weightage by multiplication 1,2,3

1. Luxurious RCC building 1.20

2. RCC building other than luxurious RCC BUILDING 1.00

3. Pucca building excluding chaw 1 0.70

4. Semi permanent / Kachha building including 0.50 explanation:-

For the purposes of this schedule – 13

a. RCCbuilding means a building having RCC columns /walls

b. Pucca building / structure shall include following

c. Steel frame structure or

d. Load bearning structure or

e. Any type of non RCC structure having brick

f. Hoarding

g. Semi permanent kachha building means any other type of building

structure not covered by any of the categories and includes temporary

structure made from any materials whatsoever.

SCHEDULE –C(See rule 7)


account of age of the building Sr.No.age of building or part thereof

weightage by multiplication 1,2,31. 0 to 5 years 1.0

2. more than 5 years up to 10 years 0.97






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11. more than 50 years 0.70 14

SCHEDULE –D(See rule 8)


account of floor factor of a RCC building with lift Sr. No. Floor weightage

by multiplication

(1) (2) (3)

1. Basement used for car parking 0.70

2. Basement used for other than car parking 1.00

3. Lower ground floor 1.00

4. Upper ground floor 1.00

5. Ground floor 1.00

6. From 1st to 4th floor 1.00

7. From 5th to 10th floor 1.05






13. Above 100th floor 1.35


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=80600x1.00x1.00x0.97x80

C.V.=Rs.62,54,560

(3) OPEN LAND IN ISLAND CITY

Weightage

Rate of base value Rs.36,400 not applicable

User category Residential 1.00

Nature and Type of building not applicable not applicable

Age of building not applicable not applicable

F.S.I. Factor 1.33 1.33

Land area 80sq mtr not applicable

CV=BVXUCXFSIXLA

=36400X1.00X1.33X80

C.V.=Rs,38,72,960

(4) OPEN LAND WHERE RESIDENTIAL BUILDING PLAN WITH HIGHER

F.S.I HAS BEEN APPROVED


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Weightage

Rate of base value Rs.36,400 not applicable

User category open land (Resi) 1.00

Nature and type of building applicable not applicable

Age of building not applicable

F.S.I. Factor 2.50

Land Area 80sq.mtr.not applicable

CV= BV X UC X FSI X LA

= 36400 X 1.00 X 2.50 X 80

C.V.=Rs.72,80,000

(5) OPEN LAND IN SUBURBAN AREA

weightage

Rate of base value Rs.33,200/- not applicable

User category residential 1.00

Nature and type of building not applicable


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Age of building not applicable

F.S.I. Factor 1.00

Land Area 80sq.mtr. not applicable

CV = BV X UC FSI X LA

= 33200 X 1.00 X 1.00 X 80

C.V.=Rs. 26,56,000

3.2 SUMMARY

This chapter explains the details of rules for fixing capital value

were explained. The next chapter deals with the methodology adopted in

this study. In methodology the objectives and other details are clearly

explained.


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CHAPTER - IV

METHODOLOGY

4.1 GENERAL

In the present chapter, variables used in this study, formulation of

the objectives and hypotheses to be used in this study and also the

sample used in this study, distribution of the sample, statistical

techniques used in this study, and all other related aspects are presented

here.

4.2 METHODOLOGY:


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Methodology is an important aspect in any research work. Every

research study has its own objectives. The procedure adopted by the

research works for the realization of these objectives is known as

methodology.

4.3 OBJECTIVE:

The following are the objectives of the present study.They are

• To identify the school building valuation in rural areas.

• To establish the common valuation concepts, awareness, and

application of valuation methodology and valuation process for

school building valuation in rural areas.

4.4 SCOPE

The scope of this research will initiate and enhance the common

awareness, understanding and implementation of school building

valuation in rural areas in India. It will focus to improve school building

valuation in rural areas, and not for the valuation for the assets as a

whole. This research is the first phase in developing school building

valuation in rural areas guidelines in India that can be evolved in the


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future. This proposed school building valuation in rural areas guidelines

will assist various organisations and individuals, such as the government

agencies, financial sectors and clients to have a better understanding of

school building valuation in rural areas basis and process, as well as

guidance for valuers in conducting school building valuation in rural

areas.

4.5 DATA USED

Primary and Secondary data are to be used. The Primary data it is

the fresh data collected from the survey. The Secondary data are to be

collected from the secondary sources like records documents and

internet resources.

4.6 STATISTICAL TECHNIQUES USED

• Descriptive analysis

• Differential analysis

4.6.1 Descriptive analysis

The means, standard deviations of the entire sample are computed.

4.6.2 Differential analysis

Differential analysis is an important procedure by which the

researcher is able to make inferences involving in the determination of


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the statistical significance of difference between groups with reference to

selected variables. It involves the use of‘t’ test. A‘t’ test is a numerical

procedure that takes into account that the difference between means of

two groups, the number of subjects in each group and the amount of

variation of spread present in the score. Thus the‘t’ test is used to

determine whether the performance of two groups is significant or not.

4.9 SUMMARY

This chapter explains the details of research methodology were

explained. The next chapter deals with result and discussion are clearly

explained.

CHAPTER – V

RESULT AND DISCUSSION

5.1 GENERAL


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Year Mean Std. Deviation Std. Error

Mean

2012 24$40 6$3! 2$"6

2013 23$"0 5$!3 2$65

2014 24$00 5$43 2$43

2015 26$20 5$26 2$35

Table 4.3 Independent Samples Test

Year t df Sig.

2012 "$542 4 $001

2013 "$!70 4 $001

2014 !$""1 4 $001

2015 11$131 4 $000

%&'istribution result (ill relect the 'ierence bet(een the t(o sa*+les$ ,ere the

ans(ers gi-en b. both inancial .ears an' 'ierent one are sa*e ece+t$ ro* this test

(e can conclu'e both one an' .ears ha' the sa*e le-el o a(areness (ith res+ect to

cost$

Table 4.2 Significance analsis

ANOVA

Source of

Variation SS df MS F P-value F crit

Rows 456.8 4 114.2

18.031

58 0.00518 3.259167

Columns 18 3 6

0.9473

68 0.044815 3.490295

Error 76 12 6.333333

Total 550.8 19


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The calculated P-value is significant. P < 0.01. So the null

hypothesis is rejected and alternate hypothesis is accepted as shown in

Table 4.3. So it is concluded that there is a significant difference in zone

wise school building rate in lakhs as shown in fig 4.1 -4.4.

!ig 4." #one $ise sc%ool b&ilding in 2'"2


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!ig 4.2 #one $ise sc%ool b&ilding in 2'"3

!ig 4.3 #one $ise sc%ool b&ilding in 2'"4

Fig 4.4 Zone wise school building in 2015


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5.3 SUMMARY

This chapter explains the details of result and discussion were

explained. The next chapter deals with summary of findings and

conclusions are clearly explained.


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CHAPTER – VI

SUMMARY OF FINDINGS AND CONCLUSIONS

6.1 CONCLUSION

The findings of the present study lead to the following concluding

remarks. It is inferred that there is a significant difference in zone wise

school building rate in lakhs.

Based on the findings of this research, there are numbers of

research that can be ignited in the future. Firstly, the study on the plant

and machinery fundamental structure for practices can be conducted in

the future. The fundamental structure can be replicated from Chapter 2

of this research and be tested in the Malaysian market on their

suitability to be applied. The following list contains the most common

errors that the author has detected in the more than one thousand he

has had access to his capacity as business consult or trapped in a

speculative bubble is to not enter it to never buy what seem to be

extensions even if advised to do so by certain.


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6.5 SUMMARY

This chapter explains the details of summary of findings and

conclusions were explained.

(E!E(E)*ES

1. Valuation of real estate – Annamalai University.2. Practical valuation (Vol – I To VIII) by B.Kanagasabapathy, senor

valuer and former national vice president of institution of valuers.

3. Valuation practice of immoveable properties B Sri C. H. Gopinatha

Rao.

4. Books for valuation of properties by Er.S.Mohan, lecturer, civil

engg. dept., Annamalai University and Er.Perumal Kabilan,

chartered engineering, Chidambaram, Tamil nadu.

5. A text book of estimating and costing by D.D. Kholi & R.C. Kohli.

6. Property valuation hand book, published by college of estate

management, U.K., R.I.C.S Books stall – 12 A., great George ST.

Parliament square, londan.

7. Ashoke nain, professional valuation practice, tata Mcgraw Hill

Publishing Co.,Ltd New delhi.

8. Model town and country planning act published by town and

country planning organization (2002), govt. of India.


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9. Publication of international Valuation, standards committee on

various valuation standards, valuation and appraisal manual

published by the royal institution of charatered surveyors and

guidance note published by the European group of valuers of

assets. Joseph C.Mancuso, Mastering Technical writing.

APPENDIX

#one : Tirupathi S(O : Thilak Road

S&rve )&mber$ise +&ideline val&es Enter the Survey Number

74

SURVEY NO GUIDELINE VALUEGUIDELINE VALUE

(IN METRIC)CLASSIICATION

74/1 300/S$t 3230/S$t Resi'ential Class %.+e &

74/2 1300000/cre 3212500/,ect$ #et ake irrigation ouble Cro+ %.+e &






S&rve )&mber$ise +&ideline val&esEnter the Survey Number

76


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SURVEY NO GUIDELINE VALUEGUIDELINE VALUE

(IN METRIC)CLASSIICATION






76/4 1300000/cre 3212500/,ect$

,OTO IE/S O!

S*OO0 1I0DI)+


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SCHOOL BUILDING VALUATION IN RURAL AREAS

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