Indian Legal System: Salient Features of Indian Constitution, Fundamental Rights, Directive Principles of State Policy. Salient features of the Real Estate (Regulation and Development) Act, 2016 and Real Estate Regulatory Authorities established under the Act • The Transfer of Property Act, 1882.
Valuation of real estate
Valuation Table
Valuation Income Approach And Valuation for special purpose
Market approach
Professional Ethics and Standards CHAPTER 7 Report writing
International valuation standard
The prospects for valuers under IBBI and IBC processes
Valuation Real Estate
- Coverage
- Valuation
- Valuation – Aspects
- Different Approaches
- Cost, Price and Value
- Different value definition Market Value
Optimum value (balance potential or highest and best use of the assets) of individual assets is not reflected in the sale transaction price of the ongoing business unit which is carried out on the basis of business valuation of the unit on 'going concern' principles. Net realizable value is generally equal to the selling price of the inventory less the selling costs (completion and disposal).
Valuation Table
- Simple interest amount working
- Compound Interest Amount Working
- Present Value of a Rupee
- Amount of Re.1/Annum working
- Annual Sinking Fund Working
- Present value of an amount of Re.1/year (Single rate basis)
- Present value of an amount of Re.1/year (Duel Rate basis)
If this income stops after 40 years (Future life of building), what is the present value of this property at 7% interest rate. What is the present value of an annuity that will continue to yield income of Rs.20,000/month for a period of 15 years at 6% interest rate.
Valuation Income Approach &
- Introduction
- Income Approach to Valuation
- The Main Steps in Income Capitalisation method
- Principle methods
- Annuity
- Capitalization
- Rate of Capitalization
- Rate of Redemption of Capital
- Quality of Sound Investment like Govt. Security
- Special features
- Immovable Property as Sound Investment
- Theory of Investment
- Theory of Investment
- Valuation of Lease hold properties
- Types of Leases
- Types of Rent
- Concept of Reversionary Value of Land
- Valuation of Rented Properties
- Type of Life of Building
- Cost of accrued structural repairs :major structural repairs for safe and tenantable condition,not include minor repairs and maintenance
- Assignment Premium : leasehold properties transfer charges are payable to Lessor
- Unpaid taxes, water bills or Government land revenue Example
- Types of situations where in rental method is used
- Limitations of Rental Method
- Case laws cited in this chapter
- Investment appraisal
- Few appraisal techniques
- Discount Cash Flow (DCF)
- Valuation of special types of properties
- Valuation for easements
- Hotel and restaurant industry
- Valuation for Time Share Property
- Valuation as a going concern and determination of goodwill
- Market value of goodwill
- Mehods of valuing Good will Source : (Swayamjit)
Gross Annual Rental Income = Rs. b) Value of tenant's interest = Capitalized value of net rental income. On market evidence, it is learned that the total rental income from the house is Rs.84,000/year.
Years’ Purchase of Weighted Average Method
Calculate the value of goodwill based on 3 years' purchase of the average profit for the last 4 years. intends to buy the business of ABC Co. Goodwill for this purpose is agreed to be valued at 3 years' purchase of the weighted average profits of the last four years. The said amount is agreed to be capitalized for Goodwill calculation subject to adjustment of depreciation of 10% p.a. b) The closing stock for the year 2000 was overstated by Rs. c) To cover the management costs an annual charge of Rs.
Capitalisation Method
Dividend has been distributed out of the profits for the first three years @ 10% and for the next two years @ 15% on the paid up capital.
Annuity Method
Super-Profit Method
Number of years over which Super-Profit must be paid 5 Rate Percent per year d) Determine the difference between the actual sustainable profit minus the normal profit. If the Actual Maintainable Profit is higher than the Normal Profit, the excess is called Super Profit and in the opposite case it is not Super Profit. e) Value of goodwill = super profit x annual purchase. Calculate the value of the company's goodwill based on the purchase of super profit over three years, taking the average of the last four years.
Capitalisation of Super-Profit Method
19,30,000 including the cost of Goodwill and balance in the income statement was at the same time Rs.
Sliding Scale Valuation Method
- Adverse possession
- Transfer of development rights
- Development Rights (D.R.)
- Types of T.D.R
- Corporate valuation
Permissible FSI is 1, due to acquisition of TDR, FSI on recipient plot has been made up to 2.00. The appraiser must keep in mind other factors that also affect the value of the TDR. How can a company be valued as a going concern and how does this change in the context of a potential acquisition, or when the company faces financial stress.
Asset-Based Methods
Using Comparables
Free Cash Flow Methods
Option-Based Valuation
Special Applications 1. Asset-Based Methods
The P/E ratio takes the share price and divides it by the last four quarters of earnings. Regardless of whether a business has made money in the last year, there is always income. PSR is often used when a company has not made money in the last year.
Option-Based Methods
Free Cash Flows Methods
Assignment: Special Applications
- Valuation of entire business
- Capital Gain tax Source: (Mohabansi)
- Role of the valuer in society & ethics in valuation
- Role of the valuer in lnvestment decisions
- The Valuer as Witness
Cost of improvement means any expenditure or cost incurred by the assessee for substantially improving or increasing the value of the capital asset. The cost of acquisition upon sale of the above self-generated assets is treated as nil. The acquisition cost of the asset that fell into that block of assets in the previous year.
Valuation cost approach
- Introduction Suitable for
- Two methods under this approach
- Two types of properties
- Ownership rights
- The values of land depends on innumerable characteristics
- Land Characteristics
- THEORIES OF LAND VALUATION
- Net Present Value
- Types of Estimating Cost of Construction
- Different types of Life
- Syllabus
- Introduction
- Various Methods Under Market Approach
- Sales Comparision Method : (Direct Market Comparision Method)
- Development Method: (Residual Method/ Indirect Comparision)
- Types of market o Buyers Market
- Types of property
- Four Group of Factors Affecting Value of the Property
- Economic Factors
- Social Factors
- Legal Factors
- Adhoc Comparision Technique
- Plot areas
- Analysis of Data
- Weightages for Land Comparision
- Weightages for ownership flats
- Weightages for Industrial Galas
- Adjustment Grid Model Location Factor
- Price Quality Regression Technique Y = a + b x
- Weightage Score System
- Development Method
- Hypothetical Building Scheme (Income Concept) Example
- Limitations of Market Approach
- Meaning of Business Ethics
- Need of Professional Ethics
- Valuation Standards
- Integrity and Fairness
- Independence and Disclosure of Interest
- Confidentiality
- Information Management
- Gifts and Hospitality
- Remuneration and Costs
- Occupation, Employability and Restrictions
- Report writing
- Process
- Professional integrity
- Accountability
- Inquisitive & analytical mind
- Perseverance & Hard work
- Communication skill
- Contract - offer & acceptance
- I hereby declare that
- Introduction
- Essential attitude & Skill for Report writing
- General structure & process of writing a report 1.Title of the report
- Forwarding letter 7.19. Title of report
- Collection of information and data
- Supporting materials
Covenant in the title document of the plot in such colonies prohibits the sale of property to persons belonging to the other religious faith or cult. The depth of the original plot should be significantly more compared to road frontage (width). Advice on the fair purchase price of the plot using the plot scheme method of valuation.
Find the net present value of the building using the sinking fund method and also using the straight line method if the replacement value of the building is the same. The appraiser may not engage in business that, in the opinion of the authority or registered appraisal organization, discredits the profession.
Case Studies 2 marks
We cannot agree to the submission that in cases where value of the property is determined by more than one method, the lowest should be accepted." Sikand32, the Supreme Court held, "It is clear on the application of this test that in the present case 50% of the unearned increase in the value of the land will be diverted to the lessor before it reaches the hands of the appraiser as part of the price. The appraiser holds the leasehold interest on the condition that if he grants it, 50% of the unearned increase in the value of the land will be payable to the lessor."
Sorab Talati
Jasti
International valuation standard
- Why IVS?
- Contents of IVS Framework
- General Standards IVS 101 Scope of Work
- IVS 101 SCOPE OF WORK a) Identity of the valuer
- IVS 102 Investigations and Compliance 20.0 Investigations
Any restrictions or limitations on the inspection, investigation and/or analysis in the valuation assignment should be identified (see IVS Framework, paragraphs). If relevant information is not available because the terms of the engagement limit the investigation, these limitations and any necessary assumptions or special assumptions (see IVS 104 Bases of Value, paragraphs made in response to the limitation) should be identified. j) The nature and sources of information relied upon by the valuer: The nature and source of any relevant information to be relied upon and the extent of any verification to be carried out during the valuation process shall be identified k) Significant assumptions and/or special assumptions: The format of the report, i.e. the way in which the valuation is communicated, should be described.
Valuation Reports
Compliance with this standard does not require a particular form or format of reporting; however, the report must be sufficient to communicate to the intended users. The report should also be sufficient for a suitably experienced valuer with no prior involvement in the valuation engagement to review. Some of the above requirements may be explicitly included in a report or incorporated into a report through reference to other documents (engagement letters, working documents, internal policies and procedures, etc.).
Valuation Review Reports
Depending on the basis of value, the alleged transaction can take a number of forms:. a) a hypothetical transaction, (b) an actual transaction,. The assumed date of a transaction will affect what information and data the appraiser considers in an appraisal. Most bases of value reflect assumptions about the parties to a transaction and provide some level of description of the parties.
Bases of Value
Appraisers must select the appropriate basis (or bases) of value according to the conditions and purpose of the valuation assignment. The appraiser's selection of a basis (or bases) of value must take into account the instructions and input received from the client and/or its representatives. Appraisers are responsible for understanding the regulation, case law, and other interpretive guidance related to all bases of value used.
IVS-Defined Basis of Value – Market Value
The definition of Market Value must be applied in accordance with the following conceptual framework: a) "The estimated amount" refers to a price expressed in terms of money payable for the asset in an arm's length market transaction. It is the price in a transaction that meets all the elements of the market value definition on the valuation date. The current owner is included among those who make up "the market". e) “And a willing seller” is neither an overeager nor a forced seller who is willing to sell at any price, nor one who is willing to hold out for a price that is not considered reasonable in the current market not be considered.
IVS-Defined Basis of Value – Market Rent
The highest and best use may be to continue the existing use of the asset or for some alternative use. In order to indicate market value using the cost approach, the cost of the asset of equal utility and the corresponding depreciation must be determined through a market cost and depreciation analysis. Market value does not reflect the characteristics of an asset that have value to a particular owner or buyer and are not available to other buyers in the market.
IVS-Defined Basis of Value – Equitable Value
An indication of market rent should only be given in connection with an indication of the most important rental terms that are assumed. When calculating market rent, the appraiser must take the following into account:. (a) in relation to a market rent covered by a lease, the terms and conditions of that lease are the appropriate terms and conditions of the lease, unless those terms and conditions are unlawful or contrary to overriding law, and (b) in respect of a market rent , which are not covered by a lease, the assumed terms and conditions are the terms of a fictitious lease that will typically be agreed in a market for the property type on the valuation date between market participants. assessment of market value, such as certain elements of synergistic value that arise due to the combination of the interests. Examples of the use of Equitable Value include: (a) determining a price that is fair for a shareholding in an unlisted company where the holdings of two specific parties may mean that the price that is fair between them is different from the price that could be obtained in the market; and.
IVS-Defined Basis of Value – Investment Value/Worth
IVS-Defined Basis of Value – Synergistic Value
IVS-Defined Basis of Value – Liquidation Value
Other Basis of Value – Fair Value
- IVS 105 Valuation Approaches and Methods
- Asset Standards
- IVS 200 Businesses and Business Interests
- IVS 400 Real Property Interests
- IVS 410 Development Property
- IVS 500 Financial Instruments
The valuer must disclose what value assumption they are making. the MBCA definition of fair value is the ascertained value of the company's shares:. The highest and best use of an asset valued on its own may differ from its highest and best use as part of a group of assets if its contribution to the group's total value must be taken into account. "Forced sale" is a description of the situation in which the exchange takes place, not a specific basis of value.
The prospects for valuers under IBBI and IBC processes Areas for Valuation Under Companies Act
SEBI Takeover Code: Provision for Valuation of Infrequently Traded Shares/Frequently Traded Shares: Regulation 8(2)(e)/8(4) states that since shares are rarely traded, the following parameters should be considered;. SEBI Regulations for Infrastructure Investment Trusts and Real Estate Investment Trusts: Valuer is as defined in the Companies Act, 2013. SEBI Regulations for Infrastructure Investment Trusts and Real Estate Investment Trusts: Valuer is as defined in the Companies Act, 2013: InvIT which, like MF, is registered under SEBI with my capital of 10 lakhs.
