Seminar on Valuation of Properties - 2011
EDUCATIVE FIELD EXPERIENCES AND JUDICIAL DECISIONS
SUPPORTING PRINCIPLES OF VALUATION
1.00 Availability of evidence is proof of existence.
But non availability of evidence does not
necessarily mean proof of non-existence.
1.10 We learn many valuation principles from theory
books. Some we understand but some we do
not understand in its proper perspective or with
its overall view. Only when we find evidence
through our field experience that we say that
such a valuation principle exists and valid
though lack of proof does not mean that
principle does not exist. On finding proof we
thoroughly understand the principles as our
experience supports or endorses the
concerned valuation principles or valuation
terminology.
2.00 A young enterprising valuer was called to value
a factory complex at Dharavi for Bank loan
purpose. Valuer surveyed the property. He
found plot area at 11,450 Sq.Yds. and built
up area of factory and godowns worked out
to 54,000 Sq.ft. He quickly worked out the
figures and informed the owner about the likely
value. Then he casually asked the owner for
title deeds of the property. On the following
day on perusal of documents in his office, the
valuer was shocked to find that property which
he considered worth millions was in reality
worthless i.e. of Nil value. The title document
showed that it was leasehold property and
lease term had expired 3 years back. There
was no renewal clause in the agreement and
land and building were to vest back to the
Lessor free of cost. On date of valuation the
Lessee owner possessed no legal rights and
R.K. Gandhi, Practising Valuer, Mumbai.
1
R.K. Gandhi
he was a trespasser occupant on the property.
Legally the entire property belonged to the
lessor and not to the lessee.
2.10 This field experience opened his eyes. He now
understood the difference between Value of
land and buildings and Value of rights of a
person in land and building. He also realised
that his experience supports the fundamental
principle of valuation that If there are no rights
in the property, there is no value.
3.00 A valuer was called upon to value 70 years
old ancestral bungalow at Versowa Gaothan
for assessing value of rights of 3 brothers. Each
co-owner held 1/3 undivided share in the
property. Only one co-owner occupied the
house and other two co-owners were residing
elsewhere. Sitting co-owner had to pay to
other two co-owners for their rights in the
property.
3.10 Considering 1500 Sq.ft. builtup area of 2
storeyed bungalow and considering 200
Sq.yds. plot area, valuer valued the property
at Rs.9,00,000/- on land and building method.
Sitting co-owner said that the value is too high.
Other two brothers also agreed that value was
high. Valuer replied that he has considered fair
value of the property in open market. He also
clarified that he has assumed vacant
possession of the bungalow because in case
of sale in open market vacant possession is
required to be given (For owner occupied
portion) to the purchaser as per provisions of
Transfer of Property Act.
2 Seminar on Valuation of Properties - 2011
3.20 The three co-owners requested the valuer to
rework out the value with the assumption that
the premises was not available vacant but was
available with continued occupation by sitting
co-owner. Valuer reworked out the value and
arrived at value of the property at Rs.450,000/
- by applying Rental Method of valuation.
Rental value of owner occupied premises was
estimated and Reversionary Value of land was
also considered. Instead of open market,
closed market was considered. This revised
value was acceptable to all the three co-
owners.
3.30 This field experience proves the great
importance of assumptions made by the valuer
while estimating value of the property. If
assumption changes the value would also
change. It also supports the basic principle of
valuation that various methods of valuation are
tools of the valuer. If one method fails, other
method should be tried by the valuer. There
are no water tight compartments that owner
occupied property must be valued by land and
building method only and that rental premises
should be valued by rental method only. Most
appropriate and suitable method of valuation
has to be applied by the valuer after
considering facts and circumstances of each
case.
3.40 There are Court judgements also endorsing this
view. In the wealth tax case of V.C.
Ramchandran V/s. C.W.T. Karnataka,
(1980)126 I.T.R. 157, Karnataka High Court
held If there are more than one valuation of
same property, the one which is reasonable
and nearer to correct market value, having due
regard to all the relevant facts and
circumstances of the case alone should be
accepted. Referring to courts earlier ruling
in case of S. Neelaveni V/s C.I.T. (1980)
125 ITR 665, the court further stated We
held that it would not be correct to say that
the rental value method has no application at
all in determining the valuation of the self
occupied residential house.
There is an old English Court judgement also
not on valuation methods but on accounting
methods for determining profits. Courts view
is interesting. In case of Patrick (IOT) V/s.
Broad Stone Mills Ltd. (1954) (1 ALLELR
163) the Court held There may be one or two
or three methods of arriving at the profits for
the relevant period. The one which shows most
accurately the position between the revenue,
on the one hand, and the tax payer, on the
other, is the one which ought to be adopted.
In other words most appropriate method has
to be applied.
All the above judgements clearly indicate that
Valuer can use any valuation method that the
fact and the circumstances of the given case
demands.
4.00 A renowned Real Estate Co. of Delhi owned
400 acres of land at Gurgaon. Purchase cost
was less than Rs.8,000 Crores. In March 2008
a valuer was appointed to revalue this 400
Acres of undeveloped land. Valuer made
market inquiry. He found that there was not
much demand for plots or for flats in the said
locality. He also learned that rate of developed
land in Gurgaon was Rs.32 Crore/Acre in
2008. The company expected valuation of
Rs.12,800 Crores based on Discounted cash
flow method but valuer valued whole property
at Rs.9,000 Crore only. Giving reasons valuer
stated that looking to poor demand, 400 Acres
of land even if fully developed, will take more
than 20 years period for sale. Hence only 40
Acres of land was valued as developed land
Seminar on Valuation of Properties - 2011
by DCF Method, remaining 360 Acres land
was valued as undeveloped agricultural land
as per prevalent rate for undeveloped land.
This approach also supports the fact that
various methods of valuation are tools of the
valuer and combination of methods can also
be applied in a given case.
5.00 A reputed builder of Bangalore sold 60% of
total flats in a new building at the rate of
Rs.3800/Sq.ft. in July 2007. Remaining 40%
flats were retained for sale on completion of
the building. In the meantime a Township
project was declared in nearby area by another
reputed builder. Booking rate for flat in
township was fixed at Rs.2800/Sq.ft. in
January 2008. Builder was therefore forced
to sell remaining 40% flats at Rs.2900/Sq.ft.
in January 2008 instead of expected rate of
Rs.4,000/Sq.ft. This case shows, how
important it is to consider this very strong
market force viz. Demand and Supply, while
undertaking valuation assignment of the Real
Property. Even anticipated increased supply
of flats in the near future will bring down the
price of present ready stock.
5.10 The above field example proves one more
fundamental valuation principle which says that
Value of the property is inversely proportional
to supply. Higher the supply lower is the value
and lower the supply higher will be the value.
This supply aspect includes present supply as
well as assured supply in near future.
6.00 An industrialist constructed Dream Resort
House at Khandala in 1998/99 for total actual
cost of Rs.430 lacs. On completion of the
project in September 1999, the property was
offered for private mortgage. Mortgagees
valuer estimated its fair market value at Rs.266
3
lacs only. Giving reasons valuer stated in the
report that out of total 16,871 Sq.ft. built up
area, an area of 6479 Sq.ft. was unauthorisedly
built up in the property .Actual construction
on the plot had exceeded permissible limit of
0.5 F.S.I. This was the reason for great
difference between actual cost amount and
reported market value of newly constructed
bungalow. This field example high lights another
very important valuation concept that COST
and VALUE of the property are two different
features of the property. Even for a newly
completed house its Value may be less, more
or equal to the Cost.
7.00 A valuer was asked to prepare a Valuation
Report of a leasehold property in a damage
claim suit for 120 Crores, which was before
Arbitration Tribunal, headed by 3 Supreme
Court judges. Claimant was Lessee and
Respondant was Developer who contracted
to develop the property in 2006 for Rs.14.75
Crore. It was a leasehold plot of 2087 Sq.Mts.
area in prime industrial locality of Sakinaka,
Andheri. Lease was for 99 years period from
1958 with lease rent of Rs.150/month. Lease
was renewable for further 99 years period at
same old rent. Right to Sublease was also given
to Lessee. Valuer valued Lessees rights in the
property, for the year 2008 at Rs.50 Crore.
Lessors interest was valued at Rs.26,000/-
and was deducted from total value.
7.10 In the cross examination the valuer was shown
two Supreme Court judgements for his opinion
on the issue of Value of Lessors interest in the
property.
(i) Inder Parshad V/s. Union of India (1994) 5
S.C.C. 239 . In this compensation case
Supreme Court held that value of Lessees
share in property should be 75% and 25% of
total compensation should be paid to Lessor.
4 Seminar on Valuation of Properties - 2011
(ii) Union of India V/s. Ajitsingh (1997) 6 S.C.C.
50 . In this case Supreme Court held that value
of tenants (Lessee) share should be 60% and
40% of total value should be paid to Lessors .
Value of Share of Lessor as estimated by the
valuer in the arbitral case was only 0.005 %
vis--vis 25 % and 40 % awarded by the
Supreme Court.
7.20 With due respect to the Court it is submitted
that both these judgements are arbitrary and
adhoc. The Supreme Court has not considered
in both these cases several relevant factors and
provisions which decides the value of rights of
Lessor and Lessee in a given case. S.C.
judgement ought to have been based on
following points.
(i) What is the lease rent for land ?
(ii) What is total lease period and what is
unexpired period of lease ?
(iii) Whether lease is renewable for further period
or not ?
(iv) In case of renewal of lease, lease rent will
remain same as old or new rent will be fixed
based on market rental ?
(v) What amount will be payable to Lessor in case
of sale/assignment of property ?
(vi) On maturity of lease land will vest back to
Lessor but what will happen to building
constructed by the lessee on the leased plot ?
Will building vest free of cost with the Lessor
or will the Lessor has to pay its value to the
Lessee?
Generally covenant provides that lessee will
have to demolish the building before surrender
of land to Lessor . All these alternatives have
to be properly examined.
Unless and until all these factors are
considered in valuation , rights of rival parties
in the property can not be ascertained
precisely. Any shares decided without
considering all these relevant aspects, in favour
of Lessor or Lessee is bound to be arbitrary
and without any basis.
The fault of such arbitrary awards by the
Court does not lie on the Judiciary but it fully
lies on valuers representing the rival parties. It
was the duty of valuers, who are expert in
valuation , to point out to the Court, various
relevant points and deciding factors required
to be considered by the Court , while fixing
value of the Lessors right and the value of the
Lessees right in the leasehold property.
7.30 Depending upon lease terms and provisions
which are favourable to Lessee or to Lessors,
the value of share of Lessee/Lessor in the
property could be 20:80, 50:50, 90:10 or even
99 : 1%. In the case cited above value of share
of Lessor in property was as low as 0.005%
of the total value, rest of the value belonged to
the Lessee.
8.00 There are several Court judgements which are
very very educative to the valuers. They not
only lay down fine principles of valuation but
they also critically analyse and clarify proper
methodology and concepts of valuation. These
judgements are pretty old and they pertain only
to basics of valuation but merely its reading
makes our fundamentals very clear. Some of
these judgements are given below.
8.01 Gold Coast Selection Trust Ltd. V/s.
Humphrey. (1948) 2 All-ER 379 and (1949)
Seminar on Valuation of Properties - 2011
17 I.T.R. 19. In this case, justice Viscount
Simon has stated that Valuation is not an exact
science. Mathematical certainty is not
demanded, nor indeed it is possible. It is for
commissioners to express in terms of the
money value attributed by them to the asset,
their estimate, and this is a conclusion of fact
to be drawn from the evidence before them.
In such a nice and clear words the Court has
stated that it is an Art and not exact science.
In common mens language we can explain that
in valuation, 5 + 5 = 10 or 5+ 5 = 9 or even 5
+ 5 = 11 also. However 5+ 5 cannot be 20 in
valuation. Following judgement supports this
view.
8.02 K.P. Varghese V/s. I.T.O. Ernakulam (1981)
131 I.T.R. 597 (S.C.).
In this case Supreme Court held It is well
known fact borne out by practical experience
that the determination of fair market value of a
capital asset is generally a matter of estimate
based , to some extent, on guess work and
despite the utmost bonafides, the estimate of
the Fair Market Value is bound to vary from
individual to individual.
The Court further held that The postulate
underlying Sec. 52(2) is that the difference
between one honest valuation and another may
range up to 15%.
Thus Court has endorsed the view that in
valuation 5 + 5 could be 10 or even 11. Both
valuers could be correct so far as estimate of
value of an immovable property is concerned,
provided of course that variation in value is
not more than 15%.
8.03 Hayes Will Trust V/s. Ruth Hayes and others.
(1971) 1 WLR 758. In this English Court
5
judgement, the Court has held They are
directed to the sale being in such manner as
would obtain the best possible price in the
market. It does not mean that the price to be
fixed by valuation is the highest price that might
be obtained. It has been established time and
again in these Courts, that there is a range of
price, in some circumstances wide, which
competent valuers would recognise , while
estimating the price which the property would
fetch if sold in the open market.
8.04 Ahmed G.H.Ariff & others V/s C.W.T.
Calcutta. (1970) 76 ITR 471 S.C. In this
case for Wealth Tax, Supreme Court held
Property is a term of the widest import and,
subject to any limitation which the context may
require, it signifies every possible interest which
a person can clearly hold or enjoy. Court
was of the view that right to receive an aliquot
share of the net income from WAKF property
did constitute an asset even if it was not
transferable and could not be sold in the open
market. Court also held It has been rightly
observed by the High Court that when the
statute uses the words if sold in the open
market, it does not contemplate actual state
of the market, but only enjoins that it should
be assumed that there is an open market and
the property can be sold in such a market, and
on that basis, the value has to be found out. It
is hypothetical market which is contemplated
and the tax officer must assume that there is
an open market in which the asset can be
sold.
8.05 C.W.T. V/s. P.N. Sikand (1977) 107 I.T.R.
922 S.C. In this case Supreme Court held that
In determining the value of the leasehold
interest of the assessee (Lessee) in the land ,
the price which the leasehold interest would
fetch in the open market were it not
6 Seminar on Valuation of Properties - 2011
encumbered, would have to be reduced by
50% of the unearned increase in the value of
the land on the basis of the hypothetical sale
on the valuation date. In other words
unearned increase payable to the Lessor as
per lease deed should be deducted from the
total valuation.
8.06 C.G.T. Bombay V/s Kusumben Mahadevia.
(1979) 122 ITR 38.
This case is not concerning valuation of
Building but it is a very interesting case on
valuation of shares. Gift Tax officer worked
out the value of the shares (Not quoted on
exchange) by averaging the value arrived at
by two different methods (Going concern profit
method and breakup value on liquidation
method).
In this case Supreme Court held that The
mere averaging of two results obtained by quite
different basis of approach can hardly be said
to represent any logical approach, whatever
its merit as a compromise. Despite its evident
popularity in any quarter it has not been given
judicial recognition in decisions involving the
fixation of a value by the Court. The
combination of two methods advocated by the
revenue has no sanction of any authority and
cannot be accepted as valid principle of
valuation of shares.
This judgement, though very old and regarding
valuation of shares, is applicable even today
with equal force to the valuation of real estate
also. There are few Valuer friends who are
fond of working out the value of the property
by two methods, viz. Land and building method
and rental method and then report the average
value to the client. The knowledge of Supreme
courts view in this case may perhaps stop
them from adopting this novel approach.
8.07 C.I.T. (West Bengal) V/s.Smt. Ashima Sinha
(1979) 116 I.T.R. 26. In this case Calcutta
High Court approved of the I.T. Tribunals
view that The said property having been sold
in two undivided half shares, a further
deduction of 10 % in value would have to be
made
In case of J.N. Bose V/s C.W.T. (1976) 104
ITR 83 also Calcutta High Court approved of
10 % discount in value to account for
undivided share of the co-owner in the
property. It was held by the Court that The
tribunal has also not adverted to the fact that
the assessee was the owner of undivided half
share of the property. This is also relevant
factor affecting the valuation of the property
in respect of market value.
Both these judgement confirm that value of an
undivided share of the co-owner in a jointly
owned property will fetch atleast 10 % less
value in the open market.
8.08 C.W.T. A.P. III V/s. Amatul Kareem (1980)
127 I.T.R. 549. In this Wealth Tax case,
Andhra Pradesh H.C. allowed 50% rebate in
value due to pending litigation and risk and
uncertainty of receiving compensation claim.
High Court held The tribunal rightly took into
consideration the hazard and risk involved in
the litigation and the prospects of the amount
not being received in the near future. These
are certainly relevant factors for determining
the value of the asset. When the tribunal has,
in view of these relevant factors, assessed the
value of the wealth at 50 % we cannot say
that it has adopted any wrong principle of law.
Pandit Laxmikant Jha V/s. C.W.T. (1973) 90
I.T.R. 97 S.C. In this similar case Supreme
Court had allowed 35% rebate in value of the
property due to pending litigation.
Seminar on Valuation of Properties - 2011
In both these cases, asset brought to Wealth
Tax, was amount received by the owner as
enhanced compensation in High Court
appeal, for the land acquired by the
Government.
8.09 U.S. Nayak V/s. C.W.T. (68 I.T.R. 171) . In
this case owner purchased the property but
title of the property was defective. There was
pending litigation and objecting party was in
possession. Mysore H.C. approved of the
view of the Tribunal that The presence of the
objecting party and difficulty to get vacant
possesion are relevant considerations to be
taken into account for deciding the price of
the house property and these would have a
depressing effect. 33% reduction in value for
defective land title was considered fair while
fixing Fair market value of the property.
8.10 Jawajee Naganathan V/s. Revenue Div. Officer
Adilabad. (1994) 4 S.C.C. 595. In this case
Supreme Court held that It is clear that the
Basic Valuation Register prepared and
maintained for the purpose of collecting stamp
duty has no statutory base or force. It cannot
form a foundation to determine market value
mentioned there under in instrument brought
for registration. The Court also held that
The basic valuation register cannot form any
basis to determine the market value of the
acquired land.
8.11 Mani Singh Avtar singh V/s I.A.C. (1984) 151
ITR 233. In this case Punjab and Haryana
H.C. has held that The price of a plot built
upon can not compare favourably with that of
an unbuilt plot on which the purchaser has the
opportunity of exercising a wide choice of
building. But in the former case, he is not a
chooser. Applying that principle, the prices of
the plot could even ratably have been reduced
by a reasonable percentage
7
8.12 C.I.T. V/s C.F. Thomas . decided on 6-6-
2006 (I.V. Feb 2007 p- 165 )
This appeal for Capital Gain Tax was filed
before Kerala High Court by I.T.department
In this case an interesting issue of Pakidi
(Also known as Pagdi-Salami-Key money-
Premium) was discussed by the court. Mr.
Thomas rented 1350 Sq.Ft. shop in
Ernakulam to Mr.Sundaresa Pai for rent of
Rs. 5000/month for 20 years lease period. Rs.
2 Lacs were taken as deposit. Tenant Shri Pai
filed sworn in statement in I.T. office that he
has paid Rs.10 Lacs Pakidi (Unaccounted
money) to the Landlord (Lessor) to acquire
lease rights in shop.
Kerala H.C. held that Any transaction by way
of any agreement which has the effect of
transferring or enabling the enjoyment of any
immovable property is a transfer within the
meaning of I.T.Act. The instrument in question
is a transfer of a capital asset and therefore
any Profit or Gain arising out of such transfer
will generate Capital Gains.
The court also held that The proviso to section
92 of the Indian Evidence Act 1872, indicates
that the law does not foreclose the existence
of contemporaneous oral agreements regarding
such matters on which the written instrument
is silent. The adjudicatory authorities cannot
ignore the ground realities and the common
course of Human Conduct and also the
Mercantile Malpractices. In other words the
court was of the view that Rs. 10 Lacs Pakidi
paid and confirmed by the tenant was a price
paid for an asset of the owner and the said
amount could be brought in as Capital Gains
of the Landlord.
Apart from the above stated judgements,
which are supporting basic valuation principles,
8 Seminar on Valuation of Properties - 2011
there are several other judgements also on the
subject of valuation. Some of these pertain to
Land Acquisition cases, some pertain to Wealth
Tax Act and some others pertain to Capital
Gain Tax. Valuers can refer to those
judgements as and when occasion arises.
9.0 It may interest Bankers who are connected
with Debt Recovery Tribunal or with Auction
of Non-performing assets of Banks, how
properties were sold in India 2300 year ago.
The great author of Arthashashtra , Shri.
Kautilya , in his Volume 2 Chapter 21
describes the procedure for sale of property
by a citizen. He writes: Owner of property
shall call out the sale price three time in public.
If property is sold at higher price than the call
price, the difference will be paid to Govt.
Treasury. This norm shows how precise the
valuer should be in valuation. If the valuer
undervalues the property his client suffers
because surplus will go for government tax. If
valuer overvalues the property then also his
client suffers because his property will not sell
in the market in the open public bid. How many
valuers are confident today that the property
they value will sell in the market at the exact
price or at the price which is very close to their
reported value.
9.10 All these goes to show that Subject of
Valuation is as big as an ocean. The valuer
should continuously update his knowledge by
group discussions, by attending seminars and
by study of valuation books and journals. This
continued education in valuation is the only
way how the valuer can become an Expert
Valuer.
9.20 It is said by one prudent man that Thought
and opinion of Experts are like watches. Every
ones watch shows different time but everyone
believes that only his watch shows the correct
time.
Seminar on Valuation of Properties - 2011 9

GRADEA INFORMATION TECHNOLOGY PARK AT CHENNAI

PROJECT COST INFORMATION FOR MEP (SHELL & CORE)
INSTALLATIONS
B. Senthil Kumar
Grade-A IT Parks are the one which are built to meet international standards (in full compliance with Local
Authority requirements). Complete MEP infrastructure shall be made available upfront by the developer, so
that the tenants can move in with their own interior works having completed by them.

100% power back up, provision for server room, air conditioning, fire protection and prevention to keeping
up international standards, complete intelligent building management system and adequate vertical transportation
system are some of the features of a Grade-A IT Park.

The following table illustrates the estimated square foot based cost for MEP installation of a typical Grade-A
IT Park of 7 lakhs square feet.

Sl. No. MEP System Cost / Square Foot (INR)

1 Electrical installation 198

2 Diesel Generators 137

3 Plumbing, Drainage and Sanitary Installation 45

4 Fire Fighting System 47

5 Air Conditioning & Mechanical Ventilation System 160

6 Vertical Transportation (Lifts) 98

7 Air-cooled Chillers 87

8 Intelligent Building Management System 63

* The above cost estimate is subject to change due to market fluctuations, site conditions, Local Authority/
Client requirements, etc.

Director, M/s. Enkon Engineering Consultants Pvt. Ltd., Chennai

10
MORTGAGE VALUATION TO SATISFY SECTION 5(N) OF BANKING
REGULATION ACT, 1949
AND
DISTINCTION BETWEEN - MARKET VALUE, 'JANTRY' / CIRCLE
VALUE / GUIDE LINE VALUE, LIQUIDATION VALUE ORDERLY
LIQUIDATION/ FORCED SALE VALUE
1.0 Introduction
Loans from banks and other financial
institutions are often secured by the collateral
of the borrower's property interests. The
lending may be by way of a mortgage or other
forms of fixed or floating charge. The common
factor is that the lender has the power to
recover the loan by taking control of the
collateral in the event of default by the
borrower.
1.1 Valuation u/s.5 (n) of Banking Regulation
Act, 1949
Secured loan or advance has been precisely
defined in clause (n) of Section 5 of Banking
Regulation Act, 1949, as:
a loan or advance made on the security of
the assets the market value of which is not at
any time less than the amount of such loan or
advance.
2.0 Definition and explanation of Market
Value as per IVS
Market value is the estimated amount for which
an asset ought to exchange on the date of
valuation between a willing buyer and a willing
Kirit P. Budhbhatti, Practising Valuer RE and PM - Mumbai, Founder Chairman (Retd.) International Plant
and Machinery Valuation Conference Committee, Founder Secretary, Centre For Valuation Studies, Research
and Training
Seminar on Valuation of Properties - 2011
Kirit P. Budhbhatti
seller in an arm's length transaction after proper
marketing wherein the parties had each acted
knowledgeably, prudently and without
compulsion.
The estimated amount means a price, normally
expressed in terms of money, payable for the asset
in an arm's length market transaction. Market
value is measured as the best or most probable
price reasonably obtainable in the market at the
date of valuation in keeping with the Market
Value definition. The estimate specifically
excludes an estimated price inflated or deflated
by special terms or circumstances such as typical
financing, sale and leaseback arrangements,
special considerations or concessions granted by
anyone associated with the sale, or any element
of special value.
an asset ought to exchange means the fact
the value of an asset is an estimated amount rather
than a predetermined or actual sale price. It is
the price at which the market expects a
transaction should be completed on the date of
valuation, meeting all other elements of the
Market Value definition.
on the date of valuation indicates that the
estimated Market Value is time specific as of a
given date. Because markets and market
Seminar on Valuation of Properties - 2011
conditions may change, the estimated value may
be incorrect or inappropriate at another time. The
valuation amount will reflect the actual market
state and circumstances as on the valuation date,
not as of either a past or future date.
a willing buyer means one who is
motivated, but not compelled to buy. This buyer
is neither overeager nor determined to buy at any
price. This buyer is also one who purchases in
accordance with the realities of the current
market, and with current market expectations,
rather than an imaginary or hypothetical market
that cannot be demonstrated to exist or to be
anticipated by the market. The assumed buyer
would not pay a higher price than the market
requires. The present asset owner is included
among those who constitute the market. A
valuer must not make unrealistic assumptions
about market conditions not assume a level of
market value above that obtainable.
a willing seller means one who is neither
an overeager nor a forced seller prepared to sell
at any price, nor one prepared to hold out for a
price not considered reasonable in the current
market. The seller is motivated to sell the asset at
market terms for the best price attainable in the
open market, and after proper marketing,
whatever that price may be. The factual
circumstances of the actual asset owner are not a
part of this consideration because the willing
seller is a hypothetical owner.
in an arm's length transaction means one regard.
between parties who do not have a particular or
special relationship (for example parent and
subsidiary companies, or landlord and tenant) that
may make the price level atypical of the market.
The Market Value transaction is presumed to be
between unrelated parties, each acting
11
independently.
after proper marketing means that the
asset would be marketed in the most appropriate
manner to effect its sale at the best price
reasonable in accordance with the Market Value
definition. The length of marketing time may vary
with market conditions, but must be sufficient to
allow the asset to be brought to the attention of
an adequate number of potential purchasers. The
marketing period occurs prior to the valuation
date.
wherein the parties had each acted
knowledgeably and prudently presumes that
both the buyer and the seller are well informed
about the nature and characteristics of the asset,
its actual and potential uses and the state of the
market as on the date of valuation. Each is further
presumed to act for self-interest with that
knowledge, and prudently as to seek the best
price for their respective positions in the
transaction. Prudence is assessed by referring to
the state of the market at the date of valuation
not with benefit of hindsight at some later date.
and without compulsion establishes that
each party is motivated to undertake the
transaction, but neither is under compulsion
unduly coerced to complete it.
Having studied the provisions regarding secured
loan or advance and definition of market value,
now let us look at the international scenario in this
In order to ascertain the practice in different parts
of globe, I approached valuers across the globe. The
valuers from New Zealand, UK and Australia
responded to query and their replies are given
below:
12
Querry :
Sub: Valuation of real estate as well as plant and
machinery offered as security against loan in
your country.
Please enlighten me on following issues:
Y Whether Market Value as defined under
International Valuation Standards IVS-1 is alone
required to be calculated by valuers or realisable
price, restricted realisable price as well as
Forced Sale Value are also required to be
calculated?
Y If all the above values are worked out then what
are the bases of each one? How they are worked
out after first computing market value as per IVS.
Y In the event of default by the borrower in order
to safeguard the interest of lending institutions
lending institutions expect that security offered
should be capable of fetching outstanding
principal amount with interest. The borrower is
likely to go in default few years after getting loan.
What is line of action adopted by valuers to
safeguard the interest of financial institutions as
2)
well as his professional insurance is not
adversely affected.
Y If forced sale value is required to be worked
out then do valuers get sale instances of property
sold under duress? Do valuers examine parties
to transaction to ascertain whether there was no
compulsion on either sides buyers or sellers?
Y Any other basis of valuation adopted for security
against loan in your country.
REPLIES TO QUARRY
1) New Zealand
We use the definition you quoted in your first
paragraph. We always begin with the Market
Seminar on Valuation of Properties - 2011
Value regardless of the purpose of the
valuation. There have been a few recent NZ
cases that have supported approach the most
well known is the Bpatpark case. This means
that any property has only one market value
and any other value which is different is hence
not the market value.
For lending security purpose there is then a
security margin computed for that property
which is applied to the market value. The
security margin takes into account the factors
such as sale under duress, the accumulation of
arrears of interest, holding and selling cost,
fluctuations in the value of the security over
the life of the mortgage, etc. In many instances
the lending institutions only request the market
valuation and they decide on the appropriate
security margin, in others they request a
security margin and a recommendation as to
the prudent amount to lend .
We do have an NZIV practice standard on
valuations for mortgage security purposes.
U.K.
Normally the valuation for loan security is done
as a market value. Sometimes lenders will ask
the valuer to make some assumptions that are
a bit conservative and this may create a
reduced market value. One of the assumptions
might be a restricted marketing period. This is
what we think is meant by a forced sale but in
the UK we do not like terminology of forced
sale.
Lenders are increasingly asking for additional
information to undertake future risk
assessments, For example, with investment
property, they would like to know the expiry
date of the leases and may tailor the loan
Seminar on Valuation of Properties - 2011
period so that it expires before lease expiry.
But remember that in the UK we have very
long leases and lenders tend to take much more
notice of lease contracts and tenant covenant
strength as well as the property fundamentals.
Where there are generally short leases, they
only look at the property market fundamentals.
In Germany, there is an alternative Mortgage
Lending Value but I personally think it is a
hopeless attempt to given lenders a lower
valuation base and has no theoretical validity
or practical consistency. But a lot of Europeans
like it and I have upset quite a few people with
my criticisms of it. It is included in the European
Valuation Standards which is called the Blue
Book.
3) Australia
Your definition of Market Value is the one
adopted in Australia. For your info the IVSC
adopted an Australian definition!. Most lending
bodies in Australia called either for Market
Value ( as defined above) or Auction Value.
Auction Value is the estimated amount that
one would expect to achieve at a properly
promoted, conducted and attended auction
sale held on the site and at which substantially
all of the assets in the inventory listing
(valuation) are offered for sale at one time
IVS GN3 (For info the IVSC adopted my
definition!). Both Market Value and its sub-
set Auction Value must be market related if
possible. If comparables are not available the
theoretical methods must attempt to replicate
the market.
In my view it is not possible to define Forced
Sale Value because one is attempting to define
13
a moving target. Is a forced sale one that is
expected to take place within 3 months, 2
months, 1 month, 1 week, 1 day?. Auction
Value reflects the needs of the lender because
by definition it is a value that can be realized in
the relatively short time span.
Illustration for Market Value
A residential flat is offered for a sale. The owner of
the flat collects the information from the market about
the market condition and as per the market he
decides to sell the flat at an 'X' amount. Another
person who is looking for a residential flat comes
across this offer and he also collects the information
from the market about the prevailing market trends
and market condition and after proper market inquiry
establishes an opinion that the amount 'X' for the flat
is reasonable and goes ahead with the transaction
than such an amount 'X' is considered as Market
Value of that flat wherein sufficient exposure time
was given to the asset (here flat) for transaction in
an open market.
Again, it is important to note that,
Transaction Costs
Market value is the value of an asset without regard
to the seller's costs of sale or the buyer's costs of
purchase and without adjustment for any taxes
payable by either party as a direct result of the
transaction.
Sometimes, the Market Value and the Fair Value can
be used as the synonymous to each other but, it is
not so. The Proposed New International Valuation
Standards defines the Fair Value and Special Value
as under:
14
Special Value
Special value is an amount that reflects particular
attributes of an asset that are only of value to a special
purchaser.
A special purchaser is a particular buyer, or a
restricted class of buyers, for whom a particular asset
has special value because of advantages arising from
its ownership that would not be available to general
purchasers in the market.
Special value can arise where an asset has attributes
that make it more attractive to a particular buyer than
to the general body of buyers in a market. These
attributes can include the physical, geographic,
economic or legal characteristics of an asset. Market
value requires the disregard of any element of special
value because at any given date it is only assumed
that there is a willing buyer, not a particular willing
buyer. When special value is reported, it should be
clearly distinguished from market value.
3.0 Realizable Value
The definition and explanation of Net Realizable
Value as per IVS is as under.
Y The estimated selling prices of an asset in the
ordinary course of business, less the estimated
costs of completion and the estimated costs
necessary to make the sale.
Y Net realizable value refers to the net amount
that an entity expects to realise from the sale of
inventory in the ordinary course of business.
Fair value reflects the amount for which the same
inventory could be exchanged between
knowledgeable and willing buyers and sellers
in the market place.
In a simple word, it is
Seminar on Valuation of Properties - 2011
Y Selling Price - Estimated Cost of Disposal =
Net Realizable Value
4.0 Liquidation value
The definition and explanation of Liquidation
Value as per IVS is as under.
The value of assets estimated with regard to
specific circumstances under which the assets
are sold. Liquidation value describes a situation
where a group of assets employed together in a
business are offered for sale separately, usually
following a closure of the business. Although
associated with forced sale, these terms have
distinct meanings. There is no reason why assets
cannot be liquidated by an orderly sale following
proper marketing.
The value of property derived from the
transactions in which sellers are not willing
sellers, and marketing time is not sufficient, is a
liquidation value. Buyer may be motivated by
the knowledge of the disadvantages the seller
suffers from.
Liquidation value is further classified as under
depending on urgency of sale:
(a) Orderly liquidation value
(b) Forced sale value
Forced Sale Value / Distress Value:
The definition and explanation of Forced Sale as per
IVS is as under.
A circumstance where a seller is under compulsion
to sell and/or a proper marketing period is not
available. The price obtainable under these
circumstances will not meet the definition of Market
Seminar on Valuation of Properties - 2011 15

Value. Rather the price obtainable will depend on the nature of the pressure on the seller or the reasons why
proper marketing cannot be under taken. The price may also reflect the consequences for the seller of failing
to sell within a specified period. The price obtainable in a forced sale typically cannot be predicted, but will
reflect the particular circumstances of the forced sale rather than a hypothetical exchange where the seller is
acting without compulsion and/or the transaction occurs after a proper marketing period.

The difference in above two values is on account of urgency under which property is sold.

It is not possible to define 'forced sell value' in precise terms on account of the following reasons -

Y Is a forced sale one that is expected to take place within 6 months, 1 month or a day?

Y It is difficult to forecast values after five years or so as Indian economy is not that stable. Even expert
economist cannot forecast!

Y Scarcity of comparable sale instances of property sold under duress.

Y Urgency to sale varies from person to person.

Y What could be the bases of its estimation?

Bankers normally ask valuer to report two values Market value and Forced sale value. Bankers should
realise that value of property as on today may not remain same in future when borrower becomes defaulter.
Adequate safety margin should, therefore, be kept on reported value. When property becomes NPA, a fresh
report on valuation of security should be obtained from the valuer, before auction.

5.0 Chart showing difference between Market Value, Realizable Value & Forced Sale Value

Transaction between willing buyer and willing seller wherein both the
parties have each acted knowledgeably and prudently after proper market
inquiry and without compulsion

Market Value

Realizable Value

Seller is forced to sale the asset

The estimated selling price compulsorily with no proper
less estimated costs marketing / exposure time.
necessary to make the sale.

Forced Sale Value /

Distress Sale Value
16
6.0 Guide line Value/ Circle Value/ Jantri
Value as per Stamp Duty Acts applicable
in Gujarat, Maharashtra, Andhra Pradesh,
Tamilnadu, Karnataka and Kerala
Regarding the mode of determining taxable
income for the purpose of capital gains tax,
there was a proposal even in the past to resort
to stamp-duty guideline rates for this purpose.
This proposal was however, not accepted and
Mr. Yashwant Sinha (then Union Finance
Minister) said the following in the Parliament
while presenting his budget in the year 1998.
A number of representations were received
against the proposal to substitute the fair
market value of land with the value adopted
by State Government authorities for the
purpose of stamp duty for calculating
capital gains.
These representations point out that as the
circle values fixed for the purpose of stamp
duty are arbitrary, a large number of bona
fide transactions shall be affected by the
proposed amendment. The value of
properties fixed by the State Government
does not always represent the fair market
value. I agree with the apprehensions
expressed in this regard and hence withdraw
the proposal to calculate capital gains tax
on the basis of circle rates of stamp duty.
(Source: The Economic Times, Mumbai Edition
dated 20-07-1998)
The above provision was, however, made
effective from 1-4-2003 in spite of having any
improvement in the method of preparation of
ready recknor in the intervening period.
Seminar on Valuation of Properties - 2011
The Supreme Court of India decided in the case of
Jawjaee Nagnathan Vs. Revenue Divisional Officer,
Adilabad, A.P. ((1994)4 SCC 595) that the Basic
Valuation Register maintained by the registering
authority for collection of stamp duty has no statutory
foundation to determine market value. The provision
of section 47A of the Indian Stamp Act, 1899, does
not confer power to determine market value of an
entire area, region or block and to maintain Basic
Valuation Register for levy of stamp duty. Neither
the Registrar nor the vendor is bound by it. Evidence
of bona fide sales, the Court observed, between
willing prudent vendor and prudent vendee of the
lands acquired or situated near about the subject land
possessing same or similar advantageous features
would furnish the bases to determine market value.
The Basic Valuation Register prepared and
maintained for the purpose of collecting stamp duty
has no statutory base or force and accordingly, it
cannot form a foundation to determine the market
value of property mentioned in the instrument brought
for registration .
The above observations are absolutely correct which
will be evident from cases cited herein after.
Market Value is defined as under in Gujarat
Stamp Manual
(Extracts from forthcoming book on valuation
of real estate by Kirit P.Budhbhatti)
Market Value in relation to any property which is
the subject matter of an instrument of transfer means
the price which such property would have fetched if
sold in the open market on the date of execution
of such instrument.
Similar definition of Market Value is prescribed in
the Manual of Stamp Duty and Registration in Andhra
Pradesh by M.V.Durgaprasad-Third enlarged edition
Seminar on Valuation of Properties - 2011 17

Meaning of the term If sold:

If sold in the open market does not contemplate actual sale or actual state of market but only enjoins that it
should be assumed that there is an open market and property can be sold in such a market.
(Ref.: Ahmed G.H. Ariff vs. C.W.T. 76 ITR 471)

If sold, creates a fictional position which the Tax Officer must assume. It is a hypothetical case which is
contemplated by these words. Let the price be determined by economic forces sale to be open to competition.
Adequate publicity or advertisement prior to sale, are given as criteria of open market.
(Ref.: Purshottam Amarsey vs. C.W.T. 88 ITR 417)

Meaning of the term On the date of valuation:

on the date of valuation requires that the estimated Market Value is time-specific as of a given
date. Because markets and market conditions may change, the estimated value may be incorrect or inappropriate
at another time. The valuation amount will reflect the actual market state and circumstances as of the effective
valuation date, not as of either a past or future date. The definition also assumes simultaneous exchange and
completion of the contract for sale without any variation in price that might otherwise be made.

3.0 Now let us examine the principles to be taken into consideration for determination of market value (as
per Gujarat Stamp Manual,1991 and Manual of Stamp Duty & Registration in Andhra Pradesh., The
Bombay Stamp (Determination of True Market Value of Property) Rules, 1995, The Karnataka Stamp
Act, 1957, Kerala Stamp Act and Tamil Nadu Stamp Act: :

GUJARAT

Gujarat Stamp Manual, 1991 Authors comments

Principles to be taken into consideration for

determination of market value:

The Collector of the District shall while determining
the true market value of a property which is the
subject matter of an instrument take into consideration
primarily the capitalized value of the property i.e. the
amount of money whose annual interest at the highest
prevailing interest at any given time is its net annual
income, and also the following factors, namely
The manual defines market value but does not define
true market value.
There are three approaches to value income, market
and cost.
The manual recommends income approach with other
factors.
The income approach requires net rent from property
and YP to estimate value. YP is to be computed from
market-derived data from sale of similar rented
property.
18 Seminar on Valuation of Properties - 2011

Gujarat Stamp Manual, 1991 Authors comments

This is not correct on account of following reasons:

a. Most of the property transactions are of either
vacant possession (VP) or owner occupied
(OO).
b. Due to Rent Control Act sufficient data to carry
out the valuation by income approach is not
available.
c. Tenants mainly fall under two categories
- Protected under Rent Control Act
- Not Protected under Rent Control Act
d. The income from protected and not protected
tenants are different.

In view of facts mentioned above, it is not correct to

only recommend income approach.
(a) in the case of agricultural land- No comments are offered on agricultural land as book
is for immovable property other than agricultural land.
(i) Classification of land under the provision of the
Bombay Land Revenue Code, 1879;
(ii) the rate of the land revenue;
(iii) the nature of crops raised in the land;
(iv) the average yield form the land, its nearness to
road and market, its distance from village site
road to land. facilities available for irrigation and
also for transport of produce of such land;
(v) value of adjacent or land in vicinity;
(vi) any factors mentioned in the instrument which is
relevant for the purpose of determination of true
market value;
(vii) any other factors which the Collector of the
District thinks to have a bearing on the valuation
of land;
(b) in the case of non-agricultural land, -
(i) the general value of non-agricultural land in the This is vague.
vicinity;
(ii) facilities such as road, railway station, bus route, These are relevant factors.
shops, market and the like available in the vicinity
of the land;
Seminar on Valuation of Properties - 2011 19

Gujarat Stamp Manual, 1991 Authors comments

(iii) amenities like public offices, hospitals and
educational institutions available in the vicinity
of land;
(iv) development activities including, development of
industries in the vicinity of land;
(v) any factors mentioned in the instrument which is
relevant for the purpose of determination of true
market value;
These are relevant factors.
These are relevant factors.
Factors under this category are neither outlined nor
explained.
These underlined principles need to be completed as
they are to be used as guidelines in preparing a
valuation. Therefore, all the factors need to be
enumerated except a few factors, which will be
required to be taken in to consideration based on
facts and circumstance under peculiar situation.

As this has not been done, it is high time that fresh

guidelines be prepared considering all the factors
mentioned later.

(vi) any other factors which the Collector of the As above.

District thinks to have a bearing on the valuation
of non-agricultural land;

(c) in the case of buildings,-

(i) the area of construction;
(ii) the floor space index;
(iii) type and structure;
Factors mentioned under (i) to (vii) forms part of
(iv) year of construction; physical/technical factors explained in valuation
(v) kind of material used; maxims later.

(vi) locality in which constructed;

(vii) rate of depreciation;
(viii) any factors mentioned in the instrument As per (b) (v) above.
which is relevant for the purpose of
determination of true market value;
(ix) any other factors which the Collector of the As per (b) (v) above.
District thinks to have a bearing on the
valuation of building;
20 Seminar on Valuation of Properties - 2011

Gujarat Stamp Manual, 1991 Authors comments

(d) in case of any other property,-

(i) the nature and condition of the property; This is also vital for property falling under (b) and
(c) above.
(ii) purpose for which the property is being put This is also vital for property falling under (b) and
to use; (c) above.
(iii) any factors mentioned in the instrument As per (b) (v) above.
which is relevant for the purpose of
determination of true market value;
(iv) any other factors which the Collector of the As per (b) (v) above.
District thinks to have a bearing on the
valuation of property.

ANDHRA PRADESH
Manual of Stamp Duty and Registration in A. P. Authors Comments
By M. V. Durga Prasad, Ed. 2005-2006 Page
no.385

34. Calculation of market value of flats in the multi-
storied buildings and 387 of manual.
(a) Where one or more flats in the multi-storied
building are purchased the value of the site to
be added to the market value of the building shall
be to the extent of the rights created in favour of
the purchaser in the site together with the value
of the appurtenant land, in any, on which specific
rights are created.
When an ownership flat in a multi-storied building is
purchased the transaction is for acquisition of right,
title and interest, wherein land and building are not
separately purchased and valued. Market value of
building (flat) includes market value of land.
Therefore, this guideline is misleading and incomplete.

(b) Where the document does not specify any such From the terms and conditions of the document one
rights as above the registering officer should has to find out what is the subject matter of
ascertain by means of a deposition from the transaction and accordingly rights are to be valued.
executants / presentant the information necessary
for calculating the market value. If the information
is not ascertainable or the parties refuse to
furnish such information, clarification as
contained in the Procgs. No. MV_3/2788/85,
dated 6-12-1985 should be followed for
calculation of market value.
[I.G.s Procgs. No. MV-3/2788/87, dated
21-1-1987]
Seminar on Valuation of Properties - 2011 21

37. While arriving at the market value of the It appears that I.T.C.C. means Income Tax
property in respect of buildings and houses, the Clearance Certificate under Chapter XXC of
value mentioned in I.T.C.C. will have also to Income-Tax Act, 1961, which is withdrawn from 1st
be taken into consideration. If the value of July 2002.
property noted in the I.T.C.C. is higher than
the (i) market value assessed by the Sub-
Registrar based on the Basic Register, (ii) the
value noted in the document by the party, (iii)
18 times of annual rental value and (iv) market
value as expressed by the party under Rule 3
of M. V. Rules, it constitutes as market value
of the property and the registering public are
bound to adopt such higher value for payment
of stamp duty and registration fees. In cases
where the registering public do not pay stamp
duty and registration fee. In cases where the
registering public do not pay stamp duty and
registration fee on such higher value noted in
I.T.C.C. the Registering Officers should
impound the document. A separate column
should be opened in Annexure I-B as last
column as Value noted in I.T.C.C.

BOMBAY
The Bombay Stamp Act Determination of the Market Value of Property Authors comments
Rules, 1995

4. Annual Statement of Rates of Immovable Property

(1) The Joint Director of Town Planning and Valuation, Maharashtra State, shall
prepare annual statement of rates showing average rates of lands and buildings
situated in every Tahsil, Municipal Corporation or local body area with the
help of such other officers as may be appointed by the Government from time
to time and submit the same for approval to the Chief Controlling Revenue
Authority, latest by 31st October of each year.

(2) The data in respect of average rates of lands and buildings in every Tahsil,
Municipal Corporation or local body area shall be arranged in the annual
statement of rates as far as possible in ward wise / zone wise manner in respect
of urban properties and in respect of rural properties, Taluka-wise, village-
wise as the case may be. For the purpose of average annual rates, properties
may be divided in groups, sub-groups or classes after taking into account the
types of land, types of construction, location and situational advantages or
22 Seminar on Valuation of Properties - 2011

dis-advantages of property. While working out the average rates, of lands

and buildings, the concerned officers shall take into account the established
principals of the valuation and any other details that they may deem necessary.

(3) The Chief Controlling Revenue Authority shall by an order issue annual statement
of rates showing average rates of lands and buildings situated every Tahsil,
Municipal Corporation and local body area (hereinafter called annual statement
of rates) as soon as they are made for the first time, and thereafter, every
year on 1st day of January, taking into account the average rates of lands and
buildings prepared and submitted to him by the Joint Director of Town Planning
and Valuation, Maharashtra State.

(4) If the Chief Controlling Revenue Authority is not in a position to issue annual
statement of rates as mentioned in sub-rule (3) above, on 1st day of January in
any year due to any administrative difficulties, the rates mentioned in the annual
statement of rates for the year immediately preceding may be incremented by
the Chief Controlling Revenue Authority, in consultation with the Joint Director
of Town Planning and Valuation, keeping in view the increase in market rates
of immovable properties.

(5) The Chief Controlling Revenue Authority shall annually supply to Sub-Registrar
a copy of the above statement showing the average rates of lands and buildings
situated within his jurisdiction. Every registering officer shall cause a copy of
the above statement to be affixed outside the Registration Office.

(6) Every registering officer shall, when the instrument is produced before him for
registration, verify in each case the market value of land and buildings, etc., as
the case may be, from the above statement and if he finds the market value as
stated in the instrument, less than the minimum value, prescribed by the
statement, he shall refer the same to the Collector of the District for
determination of the true market value of the property which is the subject
matter of the instrument and the proper duty payable thereon:

*[Provided that, if a property is sold or allotted by Government or Semi-

Government body or a Government Undertaking or a Local Authority on the
basis of the pre-determined price, then value determined by said bodies, shall
be the true market value of the subject matter property] :

Provided further that, where the market value has been stated in accordance
with or more than prescribed in the statement issued by the Chief Controlling
Revenue Authority, but the Registering Officer has reason to believe that the
true valuation of the immovable property cannot be arrived at without having
Seminar on Valuation of Properties - 2011 23

recourse to the local inquiry or extraneous evidence, he may, before registering

such instrument, refer the same to the Collector of the District for determination
of true market value of property and the proper duty payable thereon.

* This proviso was substituted by G.N., R & F.D., No. MUDRANK. 1099/
2251/C.R. 676/M-1, dated 6-12-2001 (M. G. G., Pt. IVB, dt. 13-12-2001,
p. 837).

(7) All the Registering Officers shall send to the Town Planning Valuation Officers
appointed to assist the Joint Director of Town Planning and Valuation for
preparation of annual statement of rates, the extract of the register in respect
of the instruments presented for registration in which consideration for the
subject property is stated to be more than the annual statement of rates by
30th day of the following month.

(8) All the Special Land Acquisition Officers appointed under the Land Acquisition
Act, 1894, or any other Act for the time being in force in respect of acquisition
of lands and properties for public purposes shall, whenever the amount of
compensation awarded by them is higher than the one payable on the basis of
annual statement of rates issued by the Chief Controlling Revenue Authority
under sub-rule (3) and (4) above, send a copy of such award to the Town
Planning and Valuation Officers appointed to assist the Joint Director of Town
Planning and Valuation for preparation of annual statement of rates, referred
to in sub-rule (7) above, within 30 days from the date of payment of
compensation.

KARNATAKA
The Karnataka Stamp (Constitution of Central Valuation Committee for Authors comments
Estimation, Publication and Revision of Market Value Guidelines of
Properties) Rules, 2003

6. Guidelines for the estimation of the market value by the Sub-

Committee.
Each Market Valuation Sub-Committee shall prepare the statement showing
average rates of agricultural and non-agricultural lands, residential,
commercial and industrial sites in the sub-district and municipal or local
body area, on the following general guidelines as reference:
(1)(a) In the case of lands
(i) Classification of land as dry, garden, wet and the like;
(ii) Classification under various classes of soil in the survey records;
(iii) Other factors which influence the valuation of the land in question;
(iv) Value of adjacent land or lands in the vicinity;
24 Seminar on Valuation of Properties - 2011

(v) As far as practicable the nature of crop and average annual yield
from the land for five consecutive years till the determination and
nearness to road and market, distance from village site, its location in
general, level of land, transport facilities, facilities available for irrigation
such as tanks, well and pump sets.
(1)(b) In the case of house-sites
(i) The general value of house-site in the locality;
(ii) Nearness to road, railway station, bus route;
(iii) Nearness to market shops and the like;
(iv) Amenities available in the place like public offices, hospitals and educational
institutions;
(v) Development activities, industrial improvements in the vicinity;
(vi) Land tax and valuation of sites with reference to taxation records of the
local authorities concerned;
(vii) Any other features having a special bearing on the valuation of the site;
(viii) Any other special features bore-well in addition to public water supply,
lawn, garden and swimming pool.
(1)(c) Properties other than lands, house-sites and buildings -
(i) The nature and conditions of the property;
(ii) Purpose for which property is being put to use; and
(iii) Any other special features having a bearing on the valuation of the property.
(2)(a) The suggestions for the estimation of market value of non-agricultural and
industrial lands in general may also be separately indicated either as multiple
of the rate for agricultural land or square feet considering the location of
the property namely, Municipality / Corporation or village. Normally the
values for lands converted for non-agricultural use in a village not near to a
town / city, may be estimated as multiple of the rates for agricultural lands
and those near or in the vicinity of a town or city may be estimated per
square feet.
(2)(b) The value of agricultural lands may be classified as dry, wet or garden,
generally and nearness to the village may be considered for fixing the rates
to each class.
(2)(c) The rate for the lands with coconut or areca plantations may be estimated
as garden lands instead of land plus number of trees.
(2)(d) Public Works Department norms for the cost of construction of buildings
prevailing in the concerned area may be indicated.
(2)(e) Basic civic amenities such as electricity, water supply and drainage need
not be considered as special features for the purpose of cost of construction.
This should be considered as a part of the cost of construction.
Seminar on Valuation of Properties - 2011 25

KERALA
The Kerala Stamp Act, 1959 with Rules and Allied Laws Authors comments

Procedure for determination of the value or consideration and the proper

duty under [Section 45B]

5. Principles for determination of value or consideration:-

The Collector shall, as far as possible, have also regard to the following
points in arriving at the provisional value or consideration, namely:-
5(a) in the case of lands: -
(i) nature of the land or ground such as garden, wet and the like;
(ii) other factors, which influence the valuation of the land in question;
(iii) points, if any, mentioned by the parties to the instrument or any other
person which require special consideration;
(iv) value of adjacent lands or lands in the vicinity;
(v) average yield from the land, nearness to road and market, level of
land, transport facilities, facilities available for irrigation, such as tank,
wells etc.;
(vi) the nature of crops raised on the; and
(vii)* the use of land, domestic, commercial, industrial or agricultural
purposes.
* Ins. By Kerala Stamp (Prevention of Under Valuation of Instruments)
Amendment Rules, 2007, SRO No.153/2007 pub. In G.O.(P) No. 28/
2007/TD. Dt. 17-2-2007.

5(b) in the case of house-sites: -

(i) the general value of house-sites in the locality;
(ii) nearness to roads, railway station, bus route, etc.;
(iii) means to market, shops and the like;
(iv) amenities available in the place like public offices, hospitals and
educational institution;
(v) development activities, industrial improvements in the vicinity;
(vi) valuation of sites with reference to taxation records of the local
authorities concerned, if any;
(vii) any other features having a special bearing on the valuation of the
site; and
(viii) any special feature of the case represented by the parties.

5(c) in the case of buildings: -

(i) type and structure;
(ii) locality in which constructed;
26 Seminar on Valuation of Properties - 2011

(iii) plinth area;

(iv) year of construction;
(v) kind of materials used;
(vi) rate of depreciation;
(vii) fluctuation in rates;
(viii) any other features that have a bearing on the value;
(ix) property tax with reference to taxation records of the local authority
concerned;
(x) the purpose for which the building is being used and the income, if
any, by way of rent per annum secured on building; and
(xi) any special feature of the case represented by the parties

5(d) Properties other than lands, house-sites and buildings:-

(i) the nature and condition of the property;
(ii) purpose for which the property is being put to use; and
(iii) any other special features having a bearing on the valuation of the
property.

These guidelines lead us to conclude that there is no
clarity on factors to be taken into consideration in
estimating market value.
4.0 The following Valuation maxims are
required to be considered for estimating
market value.
1. Physical / Technical Aspects
Y Land characteristics like size, shape,
frontage, vista, plot area, orientation,
topography
Y Infrastructure facilities in area -Roads,
water supply, power, tele communication
Y Building characteristics like load bearing,
steel frame or R.C.C. frame, specifications
for tiles, doors, windows, plumbing,
electrification, etc. Aesthetics, age,
depreciation, workmanship, maintenance
and repairs
Y Prominence : Main road, Bye-lane,
Remote area locations
Y Amenities like swimming pool, garden, lifts,
security intercom facility
Y Modern habitation styles, planning and
design concepts
Y Environmental conditions like noise and
smoke pollution, sea or lake view, proximity
of factory area, railway track, airport
Y Climatic condition: Hot, humid, dry, cool
climate
Y Soil conditions : Poor soil, rocky soil,
reclaimed ground
Y Natural calamities prone area: Earthquake
zone, cyclone typhoon areas, flooding
hazards
2. Legal Aspects
Y Rent Control Act - Frozen rent provisions,
exemption
Y Urban Land Ceiling Act - Limited holding
of land
Y Coastal Regulations - No development in
500 M belt
Seminar on Valuation of Properties - 2011
Y Town Planning Act - Reservations and
zoning
Y Transfer of Property Act - Transfer of partial
ownership by leasing, joint ownership /
co-ownership
Y Building Regulations - F.S.I. and open
space rules
Y Wealth-tax Act - Statutory valuations
3. Social Aspects
Y Locality Poor / middle / high class
Y Proximity to civic amenities
Y Neighborhood
Y Religion
4. Economic Aspects
Y Demand and supply
Y State and Centres economic policies
Y Inflation and deflation
Y Income fetching capacity of property
Y Money market situation
Y Cyclic boom and recession periods in Real
Estate Market
Y High rentals maintainability and outgoings
Y Paying capacity of people in the locality or
region
Y Better alternative uses vis--vis current
inferior use
Y Availability of substitute or alternative asset
Y Employment opportunities in the area
5. Utility
Y Movable personal properties or land with
building have some use and hence value
6. Scarcity
Y The properties which are available in limited
quantity and are not in abundance like air
and sea water
27
7. Demand
Y If there is no demand, there may be no
value.
8. Transferability
Y The ownership and possession of the
property can be transferred by the way of
sale, gift, lease, mortgage, Will etc. and
hence it has a value.
9. Value means present worth of future benefits.
10. In exercise of valuation of tangible assets
actually valuation of intangible rights of owner
in owning the tangible assets is carried out and
not the valuation of tangible assets.
I term these valuation maxims as Ten
Commandments of valuation.
If we compare the above valuation maxims with the
principles given in the manual of valuation Gujarat
and other states, it is found that valuation worked as
per principles of valuation given in manuals will be
without considering all the relevant factors
enumerated above.
Let us consider the case of six properties mentioned
below. If these properties are valued as per principles
laid down in manuals then the value estimated will
not have difference of more than 15%. But in reality
value differs from 22.6 lakhs to 140 lakhs i.e. about
700%!! as given below:
There are six properties located at Chennai, with
same land area with buildings. (having same area,
size, maintenance, shape, design, etc.). There is no
balance potential for further development for all
buildings.
28
Area of land = 400 sq. m.
Built up area of building = 225 sq. m.
Date as on which valuation is made:30th June
2011.
Prima-facie it appears that value of all the property
will be the same. Actually that is not the case on
account of the following facts:-
(a) Property A is owner occupied.
Date of completion of construction 1 st
Aug.2010. Age .11 months
(b) Property B is rented at net rent of Rs. 15,000/
- per month
Date of completion of construction 1 st
June.2006. Age 5yrs.1 month
(c) Property C is rented at net rent of Rs. 15,000/
- per month
Date of completion of construction 1 st
Aug.2010. Age 11 months.
(d) Property D is constructed on land taken on
lease and there is a covenant to pay unearned
increase at 50% in the event of sale or transfer.
Date of completion of construction 1 st
Aug.2010. Age .11 months
(e) Property E is constructed on land taken on
lease. Unexpired period of lease is 10 years.
There is no renewal clause. There is a covenant
to surrender the building constructed by lessee
to the lessor without any compensation after
expiry of the lease period.
Date of completion of construction 1 st
Aug.2010. Age .11 months.
(f) Property F is in residential zone as per
Development Plan in force and as per revised
draft plan which will come into force shortly it
falls under commercial zone. Property is entirely
owner occupied.
Seminar on Valuation of Properties - 2011
Date of completion of construction 1 st
Aug.2010. Age 11 months.
The realizable value of each of the six properties will
be different.
(a) Property A is owner occupied and purchaser
can get the vacant possession and similar vacant
property are sold for Rs. 75 lakhs; giving a
market value of Property A Rs. 75 lakhs.
(b) Property B is fetching net rent of Rs. 15,000/
- per month. It is more than 5 years old
(c) Property C is fetching net rent at Rs. 15,000/
- per month. It is less than 5 years old.
Prima facie it will appear that the value for both the
property B and C will be same as both property
are fetching net rent of Rs. 15,000/- per month.
But that is not the case due to following reasons:-
- Tenant of property B paying a rent of Rs.
15,000/- per month is protected under the rent
control act.
This building is having age more than 5years.
Section 30(i) of Tamil Nadu Buildings (Lease and
Rent Control Act, 1960,exempts building from
operation of rent act for a period of 5 years, but in
this case age of the building is more than 5 years and
therefore tenant falls under the category of a
protected tenant. Hence, land lord will not get the
vacant possession of property, if tenant abides the
provisions of rent control act applicable to Chennai.
Due to this value of right of reversion will be
negligible.
Computation of Value.
Value of rented Property
= Capitalized value of net rent received
+
Value of right of reversion
Seminar on Valuation of Properties - 2011
= Capitalized value of net income for infinite years
(say 100 years) = 15,000 x 12 x 100/8
= Rs. 22,50,000/- (a)
+
Value of right of reversion of property worth
75 lakhs available after 100 years =
Present Value of Rs. 75 lakhs available
after 100 years at 8%
PV of Rs. 1/- available at 8% after 100 years =
Rs. 0.00045
Value of right of reversion
= Rs. 75,00,000 x 0.00045
= Rs. 3,375/- (b)
Total Value = (a) + (b)
= 22,50,000 + 3,375
= Rs. 22,53,375/-
Say Rs. 22.53 lakhs
- Tenant of property C paying a rent of Rs.
15,000/- per month is not protected under rent
control act as the age building is less than 5
years.Due to this property will be reverted back
to the owner after the expiry of period agreed
as per rental agreement, value of the property
will be capitalised value of rent for unexpired
period of rental agreement plus value of
reversion of property worth Rs. 75 lakhs which
will be available after expiry of rental agreement.
In this case if unexpired period of rental
agreement is 3 years than value of property
works out as under:-
Value of rented property
= Capitalized Value of net income for 3
years at 8%
+
Value of right of reversion
29
= [15,000x12x3.246] + [75,00,000 x
0.79383]
= Rs. 5,84,280/- + Rs. 59,54,000/-
Note:
Y.P. for 3 years at 8% = 3.246
Present Value of Rs. 1/- available after 3 years
at 8%
Present Value of Rs.1/- available after 3 years
at 8% = 0.79383
(d) In case of Property D while valuing lessees
interest 50% unearned increase payable to
lessor is a liability and requires to be deducted.
Value of property as freeholder is Rs. 75 lakhs.
Price at which land will originally purchased is
say Rs. 10 lakhs. As per current price it works
out to Rs. 65 lakhs.
Unearned Increase = 65 10
= Rs. 55 lakhs
Value of property after considering 50%
unearned increase
= 75 (55 /2)
= Rs. 47.50 lakhs
(e) Purchaser of the Property E can receive the
benefit for unexpired period of lease i.e. 10
years only. This will depress value considerably.
After 10 years property is to be surrendered to
lessor free of cost. Therefore, purchaser can
expect rent for next 10 years. Current net rent
fetching capacity of property is Rs. 3,60,000/-
per annum.
Value of Property at Y. P. at 8% for 10 years
works out to:-
= Rs. 3,75,000 x 6.7
= Rs. 25,12,500/-
= Say Rs. 25 lacs
(f) In case of Property F existing use is residential
but has a potential for commercial. Due to this,
30 Seminar on Valuation of Properties - 2011

it will command high value if commercial use is Summary of Valuation ( in lakhs)

lucrative. Let us assume that commercial use is Property A 75.00
lucrative. Current land rate for commercial B 22.53
land in locality is Rs. 35,000/- per month C 59.54
which gives a value of about Rs. 140 lakhs. D 47.50
(Value of structure is not considered as it will E 25.00
be required to be demolished). F 140.00
Seminar on Valuation of Properties - 2011
EFFECT OF RENTALS ON COMMERCIAL PROPERTIES ACROSS
THE CITY
Preamble:
It is a common observation made by valuers that the
rentals for commercial Properties such as commercial
shops, office spaces, malls and Tech parks varies in
different parts of the same city. It is also observed that
though there is a marginal change in the market value of
the land, the rents varies disproportionately with that of
change in the market value of the land. The valuers
might have also observed that different office spaces in
the same road fetch differential rents.
The recessionary trends in the real estate market during
the last two years and the present recovery process
of property values across various cities, albeit slowly,
makes an interesting study in this matter. During the
recessionary period, the market values of properties
situated at the heart of cities and Central Business
Districts have shown lesser downward variations than
that at the outskirts. In some cases, a marginal increase
in the land value is also noticed. On the other hand, the
fall in rentals during this period have been more steep
both at central areas of the city and outskirts compared
to that of the market value of the land.
Though this behavior of the market looks simple and
cognizable, valuer may find it difficult to estimate the
market value of these properties. Since, these are
income fetching properties, income approach is most
suitable one and generally it is cross verified by other
methods.
The task before the valuers would be:
a) How to recognize the market behaviour?
b) How to study the impact of such behaviour on
market value of the properties.
c) How to identify the parameters required for valuing
the property under income approach?
Chief Manager, Syndicate Bank, Hyderabad
31
Narayanaswamy B.S.
d) The market is supreme and the estimation of market
value by valuers may go awry and may put the
related parties and them in awkward position.
The purpose of this article is to look for the reasons
for such a behaviour by the market and to identify the
parameters which impact the market value of income
fetching properties to estimate the fair market value.
City of study
The city of Bangalore is chosen for this purpose as this
is one of the cities which has sizable number of
commercial properties in India.
Instances
Instance 1
A Tech park situated just off the CBD area was
demanding a rent varying from Rs.45/- to Rs. 50/- per
Sq.ft. during 2008 for the warm shell. The rentals were
for the large floor plates and are occupied by MNCs
and other major IT companies. Earlier, the rentals were
as high as Rs.75/- per Sq.ft. It is now gathered that
the rentals have fallen to Rs. 35/- for warm shell in the
said tech park by the end of 2010. On the other hand
the market value of the larger size of land which was
around Rs.3500/- per Sq.ft during the peak period
during 2005-06 have marginally reduced to
Rs. 3200/- now. The present position is that the rentals
have fallen further in the vicinity but the land value
remains more or less at the same level.
Instance 2
A commercial office space at heart of the city with land
area of about 12000 Sq.Ft and built up area of about
33000 Sq.Ft and leasable area of about 25000 Sq.ft
was fetching rent of Rs.60/- per Sq.ft. as per the lease
32 Seminar on Valuation of Properties - 2011

agreement entered during the year 2006 for the entire Rs.13.50 Crore. While the investor was looking for a
leasable area. The lease was for 5 years with a minimum loan in the vicinity of Rs.11.00 Crore, he got a rude
lease period of 3 years. After three years, the lessee shock when the bank sanctioned loan of Rs. 8.00 Crore
vacated the premises for the reason that the rent was after considering the margin. There was a big argument
high and better premises were available at lesser rent. between the investor and the bank. While the investor
During Dec. 2010, the rents have fallen to Rs.30/- to was quoting his own instance of purchase / sale, the
Rs. 40/- in this area. The lessee had all the reasons to panel valuer of the Bank was defending his estimation
vacate the premises. On the other hand the land value based on the following factors.
had a small correction from Rs.20000/- to Rs.18000/
- for the similar and comparable land. There was a recent instance of sale wherein 175,000
Sq.ft. floor space was sold at Rs. 44.00 Crore
Instance 3 (About Rs.2500/- per Sq.ft.). Earlier comparable
land parcels of similar size were exchanged at
A tech park at outskirts of the city surrounded by Rs.2800/- to Rs.3000/-.
commercial spaces and situated on National Highway
A portion of the same building of about 90,000 Sq.ft.
was commanding a rent of Rs.45/- per Sq.ft for the
was let out on lease at ` .23/- per Sq.ft.
bare shell and the entire leasable area of more than
4,00,000 Sq.ft was leased out to two major IT giants. The rental values have fallen down from Rs.45/-
Now the rentals have fallen to Rs.25/- per Sq.ft. for per Sq.ft. to Rs. 23/- to Rs. 25/- per Sq.ft.
the bare shell where as the land value has shown a
There was oversupply of office space and rents have
downward correction of about 10%. There has been
fallen.
over supply of office space in this area and more supply
is expected in next two years. It is expected that due
Panel valuer further defended that he has taken in to
to market forces the rentals may fall further.
consideration over supply of office space, sale and rental
instances and arrived at yield, the rate of capitalization,
Instance 4
and accordingly the years purchase to estimate the value
of the property.
An investor had bought 40,000 Sq.ft. of floor plate
space in Ground floor of a large Techpark in the suburbs
Instance - 5
of a city developed by a reputed developer. The
undivided share of the land is about 18,500 Sq.ft. The
An office premises at CBD located abutting the main
developer was quoting a rate of Rs.5000/- per Sq.ft.
road with total office space of 2,00,000 Sq.ft. was
The investor engaged the services of local valuer, who
commanding a rent of Rs.40-45 since last 6 years. The
arrived at the fair market rate of the property at
rent is almost stagnated since last 6 years. This is due
Rs.4500/- per Sq.Ft. Accordingly after due negotiation
to the fact that the type of structure, quality of office
including payment terms etc., this property (floor space
space and amenities provided were outdated even
of 40,000 Sq.ft) was purchased by investor at Rs.4500/
though the location was ideal than many other premises
- per Sq.ft i.e. Rs.18.00 Crore. The investor in order
situated on the same road. Other premises situated in
to part fund this project sought loan from a Bank. The
inner roads are commanding more rent. Office premises
Bank agreed in principle to fund 60% of the value
with better ambience, infrastructure and amenities are
arrived by their panel valuer. The panel valuer of the
commanding more rent in the same road. The land
Bank estimated market value of this property at
price which was about Rs.16000/- per Sq.ft. in the
Seminar on Valuation of Properties - 2011
year 2004 have now moved to Rs. 25000/- despite
recession.
Instance 6
A small shop at the ground floor admeasuring 670 sq.ft
in a major commercial building built by leading
developer abutting 80 ft road on the outskirts of the
city occupied by a Retail MNC player was commanding
a rent of Rs.36000/- p.m. (Rs.54/- per Sq.ft. per
month). The said shop is situated in the ground floor
facing the main road. The Developer is quoting a rate
of Rs.6500/- per Sq.ft. for outright sale. A Valuer has
advised the investor to accept the rate in the vicinity of
Rs.5750/- per Sq.ft. The larger Office space in the
same building / road is available at Rs.2500/- per
Sq.ft. for outright sale and at rentals at Rs.25/- per Sq.ft.
Analysis of instances
Analysis of these instances indicates that there is a need
to study this divergent behaviour of the market in depth
and to adopt suitable changes to arrive at fair market
value. Following observations can be made out of these
instances.
The capital cost of the building and other amenity
remain more or less same across the city, whether it
is centrally located or in the outskirts and it is the
land value which makes the difference in property
value.
The rentals both at heart of the city and at outskirts
have fallen steeply when compared to the variations
in the land value.
The fall in the rentals at the heart of the city is more
steep than and at the outskirts in some cases.
The land rates have shown small correction and in
some cases at city centre and CBD it has moved
upwards also.
There have been instances of variation in rentals of
commercial properties situated in the same road.
33
The smaller shop at ground floor and abutting main
road which has retail commercial potential are
exchanged at higher market value than a larger
commercial office space in upper floors of the same
building / in the vicinity.
The micro economic factors and other factors
impacting the local scene and the overall macro
economic factors such as recession etc have been
responsible for this behaviour.
There is a pronounced need for the valuer to understand
the local market behaviour and also the economic factors
on the large canvas. Otherwise the related parties and
thereby the valuers may come across embarrassing
situation as mentioned in Instance No 4.
The analysis indicate that the fall or rise in rentals have
impact on the yield. It may also be seen that yield is
not the same at Heart of the city /CBD and outskirts.
The yield is also not the same across the various
commercial properties situated in the same road/locality.
What is yield?
Yield = Net annual rent / Capital value of the property.
Yield is the tool for the valuer and it is also the defined
path for the rate of capitalization. The concept of rate
of capitalization is to be seen in a holistic manner and
compared with other forms of investments.
A closer study of the above instances indicate that the
capital value of the properties situated at the heart of
the city/CBD will be more than that at the outskirts as
the cost of the buildings and the amenities provided are
more or less the same at both the places. The difference
in land value constitutes the difference. Now what
happens to the yield?
From the analysis of the instances, it is evident that the
yields for commercial properties are more at outskirts
than at the Heart of the city/CBD. Further, the yield
34 Seminar on Valuation of Properties - 2011

varies amongst the commercial properties situated at
the same place. While the small commercial shop
fetches lower yields, large office space fetches higher
yield. The yield for the tech park is more due to the
risk factors involved.
Yield and Year's Purchase
Market value of the property is arrived by multiplying
the yield in absolute terms with number of Years
purchase.
The above discussions indicate the importance of yield.
Hence, the skill of the valuer is in correct assessment of
yield.

Yield In the instances quoted above, it may be seen that the

The yield is also the net income of the property
expressed in terms of percentage to the capital value of
the property. In other words it also is the rate of
capitalization. Since the valuer has to estimate the
market value of the property ( i.e. capital value of the
property), he has to estimate the yield using his
experience, data bank and study of local and macro
market. His estimate of yield becomes the key for
valuation and that is the reason it is rightly said that
yield is the pathway to rate of capitalization.
What will happen to assessment of market value of
the property if same yield is taken in to account for
commercial properties across the city?
yield at the outskirts are more than the yield at the heart
of the City/CBD. More the yield lesser is the market
value and vice versa. In the instances quoted above,
as per the valuation made, the yield at the heart of the
City/CBD was about 3.50% to 4.50% and at the
outskirts it was as high as 10-11%. Given the same
rentals, the market value of commercial properties at
the heart of the City/CBD would be more than two
times than that of the similar rent yielding properties at
outskirts.
The relation between the yield and Years purchase is
graphically represented as follows.
YIELD & YEARS PURCHASE

1
0.9
What will happen to assessment of market value of 0.8
)
the property if the same yield is taken in to account s
r 0.7
a0.6
e
for all types of commercial properties in same area? y
f 0.5
o
. 0.4
o
N
( 0.3
Years purchase P
Y0.2
0.1
0
The years purchase can be defined as capitalized value 1 2 3 4 5 6 7 8 9 10 11 12
paid at one time to receive annual income (Annuity) Yield (%)

Rs.1/- for a certain period at certain rate of return. The

rate of return is nothing but yield (i) which requires an
intelligent assessment.
Mathematically years purchase (YP) is YP = 100/ i,
where i is the rate of interest which is nothing but
yield. Hence yield is an independent variable and Years
purchase is dependent variable.
It may be seen that the resultant graph is an Hyperbola
and with increase in yield, the years purchase ( In years)
reduces and consequently the market value also gets
reduced given the same rentals. This concept is to be
clearly understood by the valuers especially while
assessing the market value of the property under income
Seminar on Valuation of Properties - 2011
approach. Income approach to valuation is also known
as Investment method, Rental method and Rent space which has retail potential due to locational factors
capitalization method
The yield which determines the rate of capitalization
behaves in a divergent manner and is very sensitive to
local factors, parameters and other macro economic
factors. The market is supreme and is affected by
various micro and macro factors. It also takes in to
consideration other social, legal and environmental
factors also. The interaction of all these factors will
reflect in market value and rentals. Hence, yield reflects
the fair market value provided it is recognized and
assessed properly. Thus, estimation of the yield assumes
the paramount importance.
The valuer generally will not get the feed back as to the
correctness of his valuation until he has knowledge of
the sale instances of similar property in the same location.
Till such time, he will be under the impression the
valuation exercise carried out by him reflects the fair
market value. Hence, a professional valuer must be
doubly sure to assess the yield and thereby the market
value taking in to consideration the required parameters
and factors.
Now, let us analyse the instance 5 with this
background. As seen in Instance 5, the rentals have
stagnated at Rs.40 45 since last 6 years. Now
ascertain whether the yield is same for the last six years.
Prima facie, it appears that the yield is same, but it is
not. With the increase in the land value over the last
years, the market value of the property has increased
resulting in lower yield year after year. The reduction
in yield results in higher Years purchase and the
increased market value due to increase in land value
will be reflected. What will happen if the same yield is
taken in to account? The estimation of the market value
of the property will go awry.
35
Let us analyse instance -6. The smaller commercial
fetch more market value/rentals than the large office
space situated in the same building. The yield is low
for smaller retail commercial space and high for larger
office space indicating that the fair market value of
smaller retail commercial space is higher than that of
the office space.
Yield of lease hold properties:
Yield of lease hold properties are influenced by terms
of lease such as period of lease, balance period of
lease, lock in period of lease and interest free deposits
both refundable and non refundable. In instance No.2,
due to fall in rentals between 2006 and 2009, the yield
varied. After completion of the lock in period, in the
scenario of falling rents, it is advantageous for the
lessee to terminate lease immediately after the lock in
period. On the other hand it is advantageous to the
lessor, if no lock in period is specified and the period of
lease is long, when rentals fall and vice versa. Interest
free deposits are generally agreed along with minimum
lease period. If there is any agreement to the contrary
or not specified, they will influence the yield.
How to arrive at the yield:
It is to be clearly understood that yield is an independent
variable which is impacted by time factors, location
factors, individual preferences, legal factors, social
factors, environmental factors and any other local factors
apart from micro and macro economic factors. The
yield can vary for the same property in different time
factors. The yield may vary for same type of properties
in the same road. Yield is thus independent of any
particular behaviour and is outcome of interaction of
many factors and becomes complex. Hence, it is for
the valuers to first understand the various factors and
their impact on the yield and recognize the correct yield.
36
The skill of the valuers lies in correct assessment of the
yield so that he can estimate the fair market value.
In order to estimate the correct yield, comparison is to
be made with yield fetching investments such as Bank
deposits, Treasury bonds, debenture and bonds of
companies, appreciable investments such as stocks,
gold etc. The criteria of security, the risk factors
involved, the chances of capital appreciation are also
to be taken in to account. The yield for the properties
Seminar on Valuation of Properties - 2011
which is capable of appreciation will be low as observed
in properties situated at the heart of the city/CBD.
The yield which is expressed as a single arithmetical
number in percentage terms appears very simple.
In reality, this number reflects interaction of umpteen
number of factors affecting the market value of the
property and the success of the valuer is dependent on
assessing this simple arithmetical number.
Seminar on Valuation of Properties - 2011
VALUATION OF A PLANT FOR THE PURPOSE OF LIQUIDATION
1.0 INTRODUCTION
With Banks or Financial Institutions taking a stringent
step for recovery of financial assistances that they had
made, liquidation has become a common Term and
the role of an Official liquidator is gaining importance.
To know about liquidation, we will first understand what
is 'Liquidation'?
Liquidation means to pay off or settle a debt or claim
or an obligation.
It also means to windup the affairs of a business or a
bankrupt estate by determining the liabilities and applying
the assets to their discharge. In short, it literally means
turning business assets into readily available cash.
It also helps for avoiding further losses on the same
business that erodes the capital.
The value of Liquidation will be either the forced sale
value or less and not the fair market value. It is the
amount that may reasonably be received from the sale
of a property within shortest period. Here, neither the
seller nor the buyer may act prudently with the
knowledge of the product.
2.0 WHY A LIQUIDATION?
Any business may require a transformation in due course
of time. It is nothing but to rechannalise the human and
economic resources of the country for an efficient use
to increase the overall productivity of the country. As
the success of any business is based on efficient and
speedy procedures to start up, it also requires speedy
procedures for exit also.
Practising Valuer, Trichy
37
Vr. NA. Arunn
There is a saying that An able leader should be firm
to use the word No, when he is required to use it and
should not kneel down or accept everything on all
occasions. In a similar way if a business is not thriving,
the owner should be brave enough to close the business
and venture in to a new one and succeed. World over,
insolvency procedures help entrepreneurs to close down
unviable businesses and start up new ones.
The closure may become inevitable due to change in
Technology or non availability of adequate raw material
/ labour / power, or poor management or bad business
judgement or even fraud. In such cases it is not advisable
to hang around the same business. In such cases, the
productivity of the enterprise could be restored at a
low cost by providing more capable managerial talent
and opportunity to run it. The entrepreneur who had
lost the business may not be interested in pumping in
additional resources; the best way is to liquidate and
venture in to a new business allowing the capable man
to run the show successfully. It is nothing but turning
around of a sick firm and transforming it to be a profit
making unit. In fact in recent times, a lot of
entrepreneurs, even from India, have become dominant
business entities internationally.
It is a fact to be noted that the systems in India do not
provide any opportunity for speedy and effective
rehabilitation or for an efficient exit unless the
entrepreneur decides to liquidate. In our country, the
process for rehabilitation is regulated by the Sick
Industrial Companies (Special Provisions) Act 1985
through the institutional structure of BIFR. The
procedure is a very lengthy one and it causes the delay.
It does not provide a balanced or effective framework
for all stakeholders. As a result, the entire assets lose
their material value in the process of liquidation and
winding up.
38
Similarly, for the banks and financial institutions, they
need to liquidate their Non-Performing Assets as early
as possible to realize more value, otherwise, the value
of such Non-Performing Assets reduces very quickly.
Fortunately THE SECURITIZATION AND
RECONSTRUCTION OF FINANCIAL ASSETS
AND ENFORCEMENT OF SECURITY INTEREST
ACT, 2002 widely known as 'SRFAESI' Act has been
introduced to provide a faster relief to some extent,
3.0 WHO ELSE CAN OPT FOR
LIQUIDATION?
Y The entrepreneur himself for switching over to the
next profitable line of activity.
Y The partners when they opt for a judicial remedy
to come out of the partnership
Y Banks/financial institutions who have offered the
financial assistance
'Financial assistance' means any loan or advance
granted or any debentures or bonds subscribed or
any guarantees given or letters of credit established
or any other credit facility extended by any bank
or financial institution
Y Any Reconstruction company, (a company formed
and registered under the Companies Act, 1956 (1
of 1956) for the purpose of asset reconstruction)
to whom the Bankers have assigned the job of
reconstruction for the purpose of realization of
financial assistance offered by them and which has
become a non performing one.
Y Securitization Company
4.0 VARIOUS TYPES OF LIQUIDATION
There are actually two types of liquidation,
depending on the time available for the liquidation
process:
Seminar on Valuation of Properties - 2011
(a) Liquidation under normal conditions
(b) Liquidation under distress conditions
4.1 LIQUIDATION UNDER NORMAL
CONDITIONS
By this method, the liquidation is almost like auctioning
on a normal course, in a reasonable time frame to the
highest bidder. It assumes an orderly sale process and
the seller can take time to sell each asset in its
appropriate season and through channels of sale that
can fetch the highest price.
4.2. LIQUIDATION UNDER DISTRESS
CONDITIONS
It is selling off the entire assets under a 'distress' condition
to any price at the same time or closer to that time.
Generally, the buyers may be regular bidders of auction
or sellers of scrap. They look at everything on the
material of construction basis and not on their functional
basis.
It goes with out saying that the Liquidation under distress
condition will always be lower than the Liquidation
under normal condition. There is no fixed percentage
of deviation between these two conditions. Depending
on the enterprise and the nature of its assets, the
difference between the two values may be substantial.
If the property to be liquidated is of perishable / fragile
variety, then liquidation under distress condition
automatically sets in.
5.0 WHAT ELSE TO BE DONE IN THE
PROCESS OF LIQUIDATION?
5.1. The property is to be valued first to ascertain the
liquidation value
Seminar on Valuation of Properties - 2011
5.2. To find out a buyer who could run the unit as unit
itself or
5.3. To push through the buyer, may be a scrap
merchant, the special purpose machines and to sell the
general purpose machines to a trader of second hand
machines
5.4. To realize the cash as early as possible on behalf
of lenders
5.1 VALUATION TO ASCERTAIN THE
LIQUIDATION VALUE
Whenever a Valuer is assigned a job to carry out
valuation of Fixed Asset for the purpose of Liquidation
the following points are to be considered.
5.1.1 IF THE PROPERTY IS RESIDENTIAL
OR COMMERCIAL PROPERTY, THEN,
The property is to be physically inspected.
The built up area is to be measured and the
depreciated value of the buildings are to be
estimated.
The market value of the property for the land portion
with reference to the demand and supply that prevails
in that area is to be studied.
The details of recent sale instances with reference
to the details of area, date of transaction, technical
specifications are to be acquired; the offers for a
sale, if any are also to be considered,
The plus and minus points of the property are to be
considered to add or deduct weightages.
The time required to liquidate subject asset based
on market study is to be estimated.
The market value and the value for liquidation are
then to be estimated based on the above findings.
Necessary photographs are to be taken.
39
5.1.2 IF PROPERTY IS AN INDUSTRIAL
UNIT, THEN,
The functioning of the unit is to be studied first, as a
running unit is valued more than any unit under
closure.
Valuer should remember that Value is a function of
Time: Since obsolescence plays an important role
while valuing the machines, the value arrived at on a
particular day holds good on that day alone and
cannot be decided for any particular period.
He should also remember that Value is a factor of
environment. Industry situated in a sea shore or in
an air polluted area suffers corrosion when compared
to the industries of other belt.
The Macro and Micro aspects of the Industry as a
whole and subject unit in particular are to be studied
on the following aspects
5.1.2.1 MACRO ASPECTS OF THE INDUSTRY
TO BE LOOKED UPON ARE:
The nature of industry
The technology used and its obsolescence with
reference to the date of valuation
The profitability, average return on capital invested,
demand of the products, present capacity, excess
or shortfall of supply compared to demand.
Government policy, tax and duty structure and other
incentives available to the industry as a whole.
Other comparable units which fall in the same
industry group. Their product capacity, year of
establishment, investment made in fixed assets,
Balance sheet, Profit & Loss account and other
financial ratios. This information can be had from
the following websites, of which some are paid
services:
Y www.capitaline.com (Paid Service)
Y www.cmie.com (Paid Service)
Y www.mca.gov.in
40
5.1.2.2 MICRO ASPECTS OF THE SUBJECT
INDUSTRIAL UNIT ARE LIKE:
Location of the subject property, its connectivity by
road, rail, air, sea and the distances from nearby
major cities with the advantages and disadvantages
of the location.
If it is in an industrial estate, every information about
Industrial Estate like infrastructure provided by the
industrial estate, nos. of plots available, no. of
industrial units in the estate with their nature of
functioning.
Type of industry: small, medium or large scale
industry
The present use of the subject property, the highest
and best use or the available alternative use like
godown, warehouse etc.
The recent sale instances with date of transaction or
even the offers of similar property along with Area,
technical specifications etc
The weightages to be assigned on various aspects
or parameters according to importance attached
The time required to liquidate subject asset based
on the market study, study of demand and supply
The market rate based on above sales analysis and
also the liquidation value
Types of Plant & Machinery: continuous process or
a batch process; used for general purpose or special
purpose or custom built machinery,
Physical and working condition; the approximate
cost of repairing and overhauling to make the
industry marketable
5.1.2.3 DOCUMENTS TO BE COLLECTED
TO VERIFY THE DETAILS ON MICRO AND
MACRO LEVEL:
Memorandum and Articles of association of the
company
Copy of fixed assets register
Seminar on Valuation of Properties - 2011
Copies of financial statements for past 2 years
Copies of all statutory permission / approvals
obtained
List of machinery imported as well indigenous
Copies of purchase details if the machines are second
hand and if the manufacturing plant as a whole was
purchased in public auction
Drawings of the building
Optimum requirement of land and details of excess
land if available and its value
Details of production carried out since inception of
the unit
Period of working of the unit with details of closure,
lay off etc and the reasons for the same
Requirement of financial assistance and its availability
5.2. TO LOOK IN TO THE POTENTIAL
PURCHASERS OF THE PROPERTY
To prepare a list of potential buyers that they might
have come across and submit it to the assigner
To provide the details of brokers of real estate and
the dealers of machinery separately to enable them
to liquidate easily
The information about Real Estate Market, Agents,
Brokers, Property available for Sale, Rent etc can be
available from the following websites:
www.99acres.com
www.indiaproperty.com
www.indiaproperties.com
www.magicbricks.com
www.indiarealestatedirectory.com
www.realestateonline.com
www.realtymart.in
www.realestatemumbai.com
www.timesproperties.com
www.persquareyard.com
Seminar on Valuation of Properties - 2011
6.0 CONCLUSION
After the enactment of 'The Securitization and
Reconstruction of Financial Assets and Enforcement
of Security Interest Act, 2002 (SRFAESI Act)', the
procedure to take charge of the Assets and get it
liquidated becomes very fast and this will really help
the Banks or Financial Institutions and even borrower
to liquidate the asset as quickly as possible and realize
maximum value, otherwise the Value of NPAs erode
very fast. So the valuers must study about liquidation
and possibly about the SRFAESI Act to justify our duty
as a valuer to estimate the Liquidation Value of the asset
in a much better way.
7.0 CASE STUDY I (FOR DISPOSAL OF A
SINGLE MACHINE OF AN
ESTABLISHMENT)
A manufacturing unit of HDPE woven sacks unit was
having a Tape manufacturing unit (Extruder with cheese
winders) with a capacity of 150 kgs of extrusion. As
there were frequent unscheduled power cuts, they
preferred to increase the capacity of production during
the non power cut period to extrude tapes and use the
same during power cut periods also in the weaving
machines. (The requirement of power for weaving
machines was manageable by augmentation of power
through generators.)
The purchase cost of an extruder of 150 Kg/hr.
capacity in 2004 was : Rs. 7880504/-
The replacement value is estimated by using RBI indices
as Kolsite have stopped production of extruders in
2008 itself.
RBI Index in April 2004 for : 100
industrial electrical M/c
RBI Index projected for current period : 123.4
on same head
41
Replacement value projected = 7880504 x123.4/100
= Rs. 9724542
Life is estimated as 20 years.
Salvage value is assumed as 15%
Depreciation arrived in Straight line method
= 9724542 x 7/20 x (100-15)
= Rs. 2893051
Depreciated value = 9724542 2893051
= Rs. 6831490
Say : Rs. 68,31,000
There is no offer for the machine as it is of a machine of
specific purpose. Other manufacturers of the machine
quote a lower rate for the machine of the same capacity
(The RIV of the same capacity m/c of other brands is
around Rs. 70 lakhs). There are fabricators like
Kalimatha & Co., Bangaluru, who could sell the
machine at a very reasonable price, say for Rs. 50
Lakhs, as they could fabricate the same with the
components that they bring at the site itself. They avoid
Tax and duty elements.
Advertisement in local daily was in vain and the
information by word of mouth brought a customer, who
from his existing capacity of 75 Kg/Hr. was looking for
a plant of 150 Kg/hr.
Both of them have adequate knowledge about the
machine. It is not Liquidation under distress condition.
The seller is in need to sell and the buyer has interest on
the Machine. What could be the price that could be
negotiated?
What are the effects if the sale is not concluded? Will
there be a scope for a better consideration?
42
VALUER'S OPINION
The depreciated value of a similar machine of other
brand works out as Rs. 49,17,500/- and that of the
fabricated one as Rs. 35,12,500/-. As it is an asset
under liquidation for the present owner, the value could
be anywhere in between. The valuer prefers to reduce
10% towards obsolescence and 30% towards the rare
preference in market and estimates the value for a total
discounted price of 40% lesser to the depreciated value.
i.e. the value assessed on liquidation is 60% on
Rs. 68,31,000
which will workout to Rs. 40,98,600
The real consideration was ascertained to be
Rs. 32,00,000/-
Note: If it is a general purpose machine the reduction
factor could be 10 to 20% of the depreciated value.
8.0 CASE STUDY - II
A manufacturer of detergent cake was trying to market
his product in down south and wanted an entrepreneur
to manufacture his products alone to his requirement.
This made the entrepreneur to come out of his tie ups
with other brands and made him loyal to the new
product. The sailing was good for 6 months and the
manufacturer was interested to produce detergent
powder and compete with the popular brands existing
in the market. Hence they urged the entrepreneur to
install a spray dryer at a cost of 4 crores assuring of
their entire order of manufacture of detergent poser will
be offered to him. The entrepreneur with flying colours
Seminar on Valuation of Properties - 2011
took a project report from the detergent unit, submitted
to the bank, gave his bungalow as security availed a
loan and installed the unit. After 3 months of production,
the detergent manufacturer felt that it was not easy to
fight against his competitor and withdrew the order.
The entire industry was on loss and the bankers seized
the plant and other assets, liquidated the house and are
struck with the spray dryer.
The valuer is unable to fix the value with all his
experiences as there are no off takers.
As these are specific purpose machines, a better
consideration cannot be assured and the owner may
have to suffer loss on following heads:
1. Lower amount of consideration. (The difference
in amount of this bid and the one that may take
place after some time)
2. On payment of interest for the amount that is
blocked. i.e. on the amount of liquidation.
3. On the earnings from the liquidated amount, if it
were invested on a profitable investment
4. On safeguarding the machine with all accessories.
5. On purchase of items that are stolen
6. On establishment charges made to retain the asset
free from loss by natural perils or made up perils.
Hence, if an asset is a non productive one, it is better to
liquidate as early as possible and the liquidated amount
could be invested in some other venture for profitability
Seminar on Valuation of Properties - 2011
DESTINATION CHENNAI
There has been an influx of developers from
other cities leading to setting international
standards and offering lifestyle hitherto unheard
of in Chennai.
As the fourth largest city of the country, Chennai has
been focusing the attention of global investors in
varied areas. The city has played a major role as
the hub of economic, geographic and political
scenario in the country. However, it has been a late
entrant to realise the potential engulfing IT sector
unlike neighbouring cities like Bangalore and
Hyderabad.
When the thrust was laid on IT sector by way of
fiscal sops and liberal FSI norms, Chennai took the
lead and since then it has been luring corporates and
MNCs to its fold. The inherent strengths are
availability of human resource and real estate. No
wonder the city is the nerve centre of development
centres, high-end BPOs in financial services, health
care and other back office operations. Twelve IT
SEZs have been approved which is expected to
increase the availability of space in the city.
Around 26 million sqft of IT/ITES space is under
construction ever since the liberalisation of FSI
norms for construction of IT buildings. Additional
20 million sqft has been proposed in the city. The
IT sector contributes about 90 per cent of the total
demand for office space in the city. Demand exceeds
supply for built, plug-and-play quality office space
in the city. In fact there is an acute shortage of quality
office space for new entrants in CBD areas. The
V Nagarajan, Editor and Publisher, Priya Publications, Flat 10, Shyam Durbar Apartments, Old No.26,
New No.21, South Mada Street, Sri nagar colony, Saidapet, Chennai 600015. Tel. 42043857,
98400 27139. Email: priyapublications@gmail.com Web: www.priyapublications.com
43
V. Nagarajan
city has already made an indelible mark as the Detroit
of South India with major automobile units setting
up shops and expanding their existing operations.
The government is speeding up the IT expressway
work on the 20-km stretch on Old Mahabalipuram
road from Madhya Kailash to Siruseri. The second
phase will extend upto Mahabalipuram. The
CMDAs outer ring road covering 62 km on BOOT
mode is yet another boost to the citys infrastructure
development. There will be flyovers at five locations
along inner ring road. The airport will be expanded
on 1440 acres. Project development work for 92
km on NH 205 from Tiruvallur to Renigunta will be
a big boost to millions of pilgrims visiting Tirumala.
The national highways authority of India has been
constructing grade separators at the Kathipara,
Koyembedu and Padi junctions, a flyover near the
Chennai airport and an underpass, connecting
Tirusoolam railway station and the airport. It is said
that the traffic volume in terms of the number of car
units was 0.27 million a day at the Kathipara junction,
0.25 million at Koyambedu and 0.14 million at Padi.
The western part has already seen electronic
hardware corridor with land prices zooming along
the corridor. The stretch of mega units with Hyundai-
Nokia-Saint-Gobain-Motorola-Foxconn-Dell-
Samsung-Flextronics-Caparo lining the corridor is
ample testimony to the major industrialisation drive
undertaken by the government to give a virtual boost
to the citys all-round development.
44
After a considerable lapse of time, north Chennai is
gearing up for development. The widening of Ennore
expressway for 6.8 km stretch at an estimated cost
of Rs 1.5 billion will give a new lease of life to the
area.
Seminar on Valuation of Properties - 2011
The city is well connected by air, rail and road
network. With a comfortable power situation and
telecom infrastructure, cosmopolitan outlook,
Chennai is all set for a major turnaround with world-
class housing planned in suburbs by established
property developers in association with global
realtors.
Seminar on Valuation of Properties - 2011
WRITING A REPORT
REAL ESTATE VALUATION
1.0 INTRODUCTION
A report, in general, is a device to communicate facts,
information & data etc. together with opinion and
advice if called for. The process of writing a valuation
report usually starts after the process of valuation is
completed. Writing a report on valuation is often
neglected or taken lightly by valuers mainly because
once the main work of valuation is completed the
enthusiasm and energy with which the work has been
persued gets slackened and writing a report about
the work already done becomes a burden.
Considerable inertia may have therefore to be
overcome in explaining & repeating whatever has
been already done. Further most of the financial
institutions insist on valuation reports in the
prescribed proforma. The valuers are therefore
accustomed to such format reports which require
answers to the points on the check list in the form of
short notes. Such format reports hardly leave any
scope for explaining logical reasoning for arriving at
the conclusion and opinion and therefore tend to be
arbitrary.
2.0 COMMUNICATIVE SKILL AND
TECHNICAL SKILL
2.1 A report on valuation is a communicative device
not merely to communicate information & data its
analysis and opinion & advice but most importantly
to communicate it efficiently, effectively &
convincingly. Report writing is basically a technique
primarily concerned with 'HOW' to communicate
rather than 'WHAT' to communicate though 'what'
to communicate is also important. It therefore
The article gives glimpses into some of the important aspects of the subject covered in the forthcoming book
"Writing Valuation Reports:Real Estate Valuation" by Shri P. T. Hardikar, Pune
45
- P.T.Hardikar
requires reasonable command over the language in
which a report is written.
2.2 A valuation report, no doubt, requires sound
technical knowledge & skill. However for presenting
information & data, its analysis and communicating
conclusion, opinion & advice efficiently (i.e.
conveying maximum meaning in minimum words) and
effectively & convincingly also requires
communicative skill which needs to be acquired and
constantly improved. One may have sound technical
knowledge and expertise but it may not be of any
practical use if he is unable to present information &
data, its analysis & conclusion and express his opinion
& advice in an effective & convincing manner. On
the other hand one may have acquired skill of
communication but his opinion and advice may be
misleading and erroneous if the same are not based
on sound technical knowledge. A bad technical work
will never produce a good report while even a high
quality technical work will be endangered by poor
reporting causing harm to the reputation of a valuer
since the work of a professional valuer is usually
judged by clients and others through his valuation
reports. Technical skill and communicative skill are
thus complementary to each other and not substitutes
for one another.
3.0 FORM OF A REPORT
3.1 The physical appearance of a report together
with its from, style of presentation as well as analysis
of information & data by application of technical
expertise, arrangement and phrasing of concepts &
ideas leading to conclusion all play an important role
46
in understanding technical contents of a valuation
report. A valuation report has therefore a distinct
form indicated by objectivity, structure and style &
tone of writing which distinguishes it from other forms
of communication.
3.2 Objectivity
A report should be objective and not subjective with
any preconceptions or bias including bias favourable
to the clients. The information & data should be
collected by carrying out rigorous and comprehensive
(i) search of records (ii) inquiries and (iii) site
inspection without any preconceptions or bias. The
information & data collected should be analysed and
evaluated objectively by application of professional
expertise leading to sound conclusion and
professional opinion. A report will then have
professional credibility generating confidence in the
mind of a client or a reader.
3.3 Structure
3.3.1 Writing a report is preceeded by the process
of valuation, which includes (i) receiving instructions
from a client (ii) inspection of relevant documents,
site inspection and inquiries on & off the site for
collecting information & data (iii) analysing
information & data and (iv) arriving at conclusions.
This process is reflected in the form or structure of a
valuation report and in deciding logical & systematic
sequence of the contents of a written report forming
structure or framework of a report. A report should
ideally stand as a document in itself.
3.3.2 The final part of a report will comprise of
drawing inferences from analysis of information &
data etc., resolving balance of alternative solutions,
by using technical expertise and identifying possible
effects of such alternatives. This process leads to (i)
the conclusion and final opinion. (ii) recommendations
regarding actions to be taken for implementation of
Seminar on Valuation of Properties - 2011
opinion and (iii) possible consequence of such
actions. The opinion should always be accompanied
by detailed reasoning and explanation for better
appreciation of the opinion. A characteristic structure
of a report helps a reader to use a report efficiently
and effectively.
3.4 Style
3.4.1 A valuer may have all the technical expertise
but it will be of no practical use if he is not able to
present the information & data, its analysis and
opinion clearly. Clarity is one of the most important
requirement of a valuation report which can only be
achieved by careful attention to the style, tone, choice
of words & phrases and layout or arrangement of
the report.
3.4.2 A valuation report is an essay on technical
subject written in simple non-technical words. The
style of a report should therefore be that of an essay
with simple words and simple, short & complete
sentences. Complex complicated & long, flowing or
winding sentences which often create confusion,
should be avoided. At the same time incomplete &
disconnected sentences giving impression of short
notes or specifications should be avoided.
3.4.3 The style adopted should be impersonal style
using passive voice, instead of active voice. Repeated
use of "I", "my", "me", "we" is often annoying to a
reader and may sound egoistic. A report written in
first person may also give impression of lack of
objectivity and may result in loss of interest on the
part a reader. Instead of saying "I inspected the
property" it is better to say "the property was
inspected". The use of 'simple past tense' however
suggests that the action of inspection was completed
long back in the past. It is therefore better to always
use 'present perfect tense' and say: 'the property has
been inspected' suggesting that the action has been
completed just before writing the report.
Seminar on Valuation of Properties - 2011
3.4.4 Language is developed by formal & informal
education and continuous efforts for improvement.
It is therefore difficult to suggest a good style. A valuer
needs to develop his own style by the continuous
efforts to improve his command over the language
and by study & analysis of well acknowledge reports
in the past.
3.5 Tone
A valuer writing a report should primarily have sound
technical expertise and be considered as having
authority in the concerned field. A report should not
however be written in a highly authoritative, dictating
or official tone as it may carry sense of arrogance
annoying a reader. At the same time a report should
not be written in too casual tone as it will not be
effective, will give impression of lack of expertise
and will not generate confidence in the mind of a
client or a reader. A report should therefore be written
in the style of a Demi-Official (D.O.) letter which is
neither too authoritative nor too casual. It is also
necessary to preserve certain dignity of tone so that
the information & data, its analysis, conclusion and
opinion can be expressed effectively & convincingly.
3.6 CHOICE OF WORDS
3.6.1 Effective Use of Words
In a written report words and words alone are the
basis of communication. When used properly they
describe the object / property and actions of analysis
& drawing conclusions etc correctly. When used
poorly they lead to poor communication often
misleading the reader. In writing a valuation report
every word should therefore be chosen with utmost
care so that the maximum & precise meaning is
conveyed with minimum words.
47
3.6.2 Clarity
Clarity is one of the most important qualities of a
good report. Use of inappropriate & ambiguous
words or improper constructionsof sentences often
results in lack of clarity. Choice & use of proper and
appropriate words conveying the exact and precise
meaning is therefore crucial for a good report.
Whatever is to be stated in a report should be stated
clearly in simple, plain & straight forward words &
sentences.
3.6.3 Use Simple, Short Words
Good English or any other language requires not only
good command over the language but also requires
rich vocabulary and clear understanding of the
precise meaning of words. The best effect of a report
is usually achieved by using simple, short and plain
words rather than by using long, pedantic words.
Pompous expressions and long uncommon &
complicated words used for creating impression of
scholarship often result in creating bad impression.
Further with use of longer, bombastic words there is
a tendency of exaggeration which needs to be
avoided in a report.
3.6.4 Words and Phrases To Be Avoided
When a writer fails to appreciate correct meaning of
words a report may become unnecessarily repetitive
& verbose. Use of technical terms redundant words,
repetitive words, hedge words, trite or common
place expressions, pointless phrases, false, elegant
& bombastic words which make a report
unnecessarily verbose should be avoided.
'Quite', 'relatively', 'exceptionally' 'in my opinion' etc.
are some of the redundant words while 'basic
principles' 'fundamental principles' [Principles are
48
basic or fundamental] 'exactly identical' 'true facts'
etc. are examples of repetitive words. 'Appears',
'seems' 'possibly' etc. are hedge words. A valuer is
not paid to say what it 'appears'. He is paid to say
what it 'is'.
"At your earliest conveience" [i.e. "soon"] & "Please
find enclosed herewith" [i.e. enclosed is/are] are some
of the trite or common place expressions while
"Interesting to note" "needless to say" are a few
meaningless phrases.
Further a client being a common man not familiar
with technical terms, the general rule is that no
technical terms, should be used in a report &
explanatory sentences should be used instead of
technical terms. More often technical words can be
substituted by simple words. In case where technical
terminology is unavoidable it should be defined &
explained in simple words when first used.
Care needs to be taken to ensure that adverbs are
placed in correct position, usually as near to the verb
as possible. Do not say "The Property needs repairs
badly" (may mean that repairs are to be carried out
badly) when it is intended to say "The property badly
needs repairs".
4.0 ESSENTIAL QUALITIES OF A GOOD
REPORT
4.1 General
A valuation report should be an essay on technical
subject written in a simple language for easy
understanding by a common man. It should create
interest in the mind of a reader so that he is tempted
to read it right from the beginning to the end in one
sitting like a good story or a good novel. In addition
to the quality regarding its form i.e. style, tone and
choice of words, a valuation report should also have
certain specific qualities which are essential to make
it a good report.
Seminar on Valuation of Properties - 2011
4.2 Systematic and Methodical
The report should be systematic & methodical. This
implies that before writing a report the exact order
in which it is proposed to present information & data,
analysis, findings and conclusions should be decided.
Such order should follow a clear, definite, systematic
& logical sequence. The presentation of information
& data, e.g. description of a property should not be
shifting from one aspect to another at random, and
analysis & conclusion should follow logical sequence.
A report should be a logical sequence of simple, short
& complete sentences. Each sentence should
communicate only a single element or point of
information and each group of sentences i.e. a
paragraph or subparagraph should cover only one
aspect of information & data or analysis etc. The
information & data, its analysis and findings should
be given in a series of paragraphs, each paragraph
or sub paragraph being independent and yet logically
following the earlier paragraph or sub paragraph.
4.3 Continuity
A report should be such that it can be read as a
complete and continuous reading from start to finish,
without any break in its reading. There should not
be any jerkiness and there should not be any break
felt between any of the parts of a report. It is
therefore imperative that schedules, tables,
statements, maps, plans, graphs, charts, photographs
etc. should not be included in the main body or text
of a report but should be attached to the report as
annexures. A reader who may be interested in any
details can find them in the annexures while a reader
who may be interested only in the findings or
observations of the annexures and who may not be
interested in details is not compelled to go through
the details.
Seminar on Valuation of Properties - 2011
4.4 Well set out
A report should be arranged in such a manner that a
client can easily refer to any particular part of a report
at any time without any difficulty. Headings given to
a group of sub paragraphs covering a particular
broad aspect and sub headings given to a sub-
paragraph or a group of sentences covering a
particular part of such broad aspect, will serve this
purpose. Such headings and subheadings can be
given either in the margin or just to the right of margin
in a broad type so that they can be seen easily.
It is also a good practice to give serial numbers to
headings and subheadings. Headings may be
numbered in single or two digits e.g. 2 or 3.1 while
sub-headings can be numbered in two or three digits
such as 2.2 or 3.1.4 etc. Such numbering should
invariably be given in the margin.
4.5 Definite & Concise
A valuation report should be concise and definite.
The length of a report should be such as may be
necessary to convincingly convey the information &
data, analysis and opinion with reasoning. It should
be no longer & verbose and no shorter than
required. There should be no ambiguity any where
in the report. The opinion and advice given in a report
must be definite and should be expressed in clear
and unambiguous words so that only the meaning
intended is drawn and any meaning other than what
is intended cannot be drawn.
4.6 Legible
The report, if handwritten, should be legible. In the
present era of computer typing not only this essential
qualify of being legible is ensured but a report can
be neatly arranged & well set out without any
difficulty.
49
5.0 GENERAL STRUCTURE OF A REPORT
5.1 General
5.1.1 The basic or general structure or framework
of a valuation report follows the system or process
of valuation. It therefore remains almost same with
variations in the details according to the purpose of
valuation and according to the type of property to
be valued.
5.1.2. A valuer may be required to report on
valuation of different types of properties for various
purposes. Every report on valuation of any specific
property for any specific purpose should be built upon
certain basic framework, so organised as to lead the
client or a reader smoothly from defining the problem
through descriptive information & data, analysis
thereof and eventually to the reasoning process
producing specific conclusion & opinion.
5.2 Definitions, Assumptions & Limitations,
Method of Valuation
5.2.1 Definitions
It is not necessary to give definition of market value
in a report. As a general rule where no definition of
market value is given in a report the standard
definition of market value held by the Supreme Court
of India and also adopted by the International
Valuation Standards Committee (I.V.S.C.) is
presumed to have been adopted in a report. In cases
where value estimate is other than the standard
definition it should necessarily be clearly defined in
a report.
5.2.2 Assumptions and Limitations
No assumption should be made in a report, as far as
possible, unless necessary by compulsion which is
rare.
50
Where a valuer is prevented or obstructed in
collecting & verifying information & data either due
to physical circumstances or due to legal
circumstances the limitation should be stated in the
report in the paragraphs relating to data collection
or recital of facts.
There may be limiting conditions regarding use of a
report. These should be clearly stated in the form of
caveats as also the limitations regarding leading
expert evidence in the Court or Tribunal.
5.2.3 Method of Valuation
A valuer cannot be compelled to adopt any particular
method of valuation. The method of valuation or
approach to valuation should be evident from
collection of data, its analysis and reasoning leading
to conclusion & opinion. It is therefore redundant to
make specific mention regarding method of valuation
adopted. In case the valuer makes specific mention
of method of valuation adopted he is required to give
reasons for the same.
Further it is not necessary to estimate fair market
value of a property by adopting two or three
approaches to valuation unless the valuer himself
desires to have cross - check. In any case, however,
temptation to arrive at an average value should always
be scrupulously avoided.
5.3 Parts of a Valuation Report
5.3.1 General
Every report should comprise of five parts, viz.
1. Introduction, which includes a forwarding letter
and the title of a report.
2. Recital of facts, after collection of information
and data.
3. Analysis of information & data
4. Conclusion, opinion and advice if needed.
Seminar on Valuation of Properties - 2011
5. Supporting material i.e. Statement, Plans,
Graphs etc.
5.4 Introduction
5.4.1 A short forwarding letter addressed to the
client and title of the report constitute introduction
part of a report.
5.4.2 Forwarding Letter
A report is usually sent to the client under a short
forwarding letter written on the letter head of a
valuer. It should briefly refer to identification of the
property being valued and the purpose of valuation.
The letter should include a concise statement of
conclusion about value, recommendation & advice,
if any, and the date on which the value is estimated.
It may point out that the value estimated is subject
to certain conditions, if any. It may also enclose the
bill of fees.
5.4.3 Title of Report
A report should begin with the title comprising of (i)
identification of the property being valued i.e. C.T.S.
No. or F.P. No. & TP Scheme No. locality, city /
town etc. (ii) the purpose of valuation and (iii) the
date of valuation. The purpose of valuation & the
date of valuation both are very important and the
title will be incomplete without any of these three
elements.
5.5 Data Collection and Recital of Facts
5.5.1 General
A valuation report should give sufficient information
about the property to be valued and other data
relevant for estimating its value so as to be of
assistance to a client or to those for whom a report
is intended. The type of information and data to be
Seminar on Valuation of Properties - 2011
collected, quantitatively & qualitatively, depends on
and is rather determined by (i) the instructions given
by the client (ii) method of valuation and (iii) the date
of valuation.
5.5.2 The Instructions
Instructions given by the client (a) identify the
property and interest to be valued (b) define the
purpose of valuation (c) state the date of valuation
and (d) suggest the scope and limitations, if any.
The information & data to be collected should be in
respect of (i) details of the property to be valued
including the interest to be valued and (ii) instances
of sales & rentals in respect of properties in the
vicinity & comparable to the property to be valued
with details thereof.
The purpose of valuation & the type of property to
be valued determines the type or nature as also the
extent of details of the information and data required
to be collected.
5.5.3 Method of Valuation
The method of valuation adopted also determines
the nature of data to be collected in addition to the
data regarding the property to be valued including
its location.
The cost approach requires data regarding the
prevailing schedule of rates of construction and recent
instances of sale of comparable open lands in the
nearby areas. The market approach to valuation will
require information & data regarding transactions of
sale of similar and comparable properties nearby
while Income approach will require information &
data regarding instances of rentals as well as instances
of sale in respect of comparable properties in the
locality for the study of the local Real Estate Market.
51
5.5.4 Date of Valuation
The material date of valuation sets the time limit since
the information & data to be collected should be as
on the date of valuation or in the recent past. The
postdated information & data including instances of
sale & rentals which have taken place after the
material date of valuation are irrelevant and are not
considered as admissible evidence.
5.5.5 Factual Data
It is the duty of a valuer to give all relevant & true
facts, information & data to the client. He must always
be prepared to prove and defend his evidence about
the information & data in the Court of Law whenever
needed. He must therefore himself ascertain,
personally verify and get himself satisfied that the
information & data given in his report is true &
correct. The information & data given in a report
should be first hand evidence and not hearsay
evidence.
5.6 Sources of Information and Data
5.6.1 General
Information & data can be collected from various
sources. These sources mainly include
1. Record of Govt. and Municipal Offices - City
Survey office or talathi's office can provide
information about survey No., area, tenure, title
ownership & occupier, encumbrances if any as
recorded on P. R. cards or VII / XII extracts
and city survey maps or village maps etc.
Instances of sale & now instances of leases &
rentals can be obtained from Index II maintained
in the Registrar's or Sub-Registrar's office.
Information about planning proposals, D.C.
Rules & building bye laws, & F.S.I. permissible,
development / building permission granted or
52
otherwise, part plans of development plans,
municipal taxes etc. can be obtained from
municipal offices.
2. Publications and Economic Journals provide
information about (a)various economic indices
like Capital Market Indices i.e. B.S.E., N.S.E.
or Nifty indices, foreign exchange rates, inflation
indices, rates of interest on Central & State
Govt. securities, fixed deposits, bank lending
rates, G.D.P. growth rate etc. Similarly
information of per capita income (P.C.I.),
domestic savings & its investment in various
forms including investment in Real Estate, Net
Fixed Capital Formation (N.F.C.F.) in economic
sectors especially in Construction sector (supply
side) & Real Estate sector (demand side) can
be obtained from such economic journals
including R.B.I. journals & journals of Central
& State Govt's. Bureau of Economics &
Statistics, C.M.I.E. journals etc.
Census books provide information regarding
population, growth & changes in population,
housing conditions, changes & growth in
occupancy i.e. employment patterns etc. which
give some idea about property values, in a town
/ city.
5.6.2 Site Inspection
The third and most important sources of data &
information is site inspection. The principle 'Inspect
before Value' should therefore be strictly, followed.
A valuer can observe many important facts and gather
information & data by careful & rigourous site
inspection and inquiries on site. He has therefore to
do perfect homework and decide a definite
systematic order for inspection of site. At the time of
site inspection he can collect information about (1)
Identification of property i.e. its survey No or CTS
No. etc., its boundaries , owner & occupier etc. terms
Seminar on Valuation of Properties - 2011
& conditions of occupancy etc. and easement rights
& encumbrances etc. 2) Land : area, shape, level,
foundations etc. 3) access to property 4) Location
& situation with reference to social amenities &
facilities, transport facilities etc. 5) Type of locality,
social & economic status of local residents 6) Utility
services provided in the Locality etc.
During site inspection observations should be made
about the structures in the property i.e. main &
subsidiary buildings, if any, including engineering &
architectural aspects etc. in a systematic order, utility
services provided to the property itself, common
facilities & services provided in the property, state
of maintenance & repairs etc. During site inspection
economic aspects of the property should also be
inquired into.
Instances of rentals should be collected and verified
by inquiries during site inspection especially
regarding rate of rent and the date of letting.
Instances of sale collected from Registrar / Sub-
Registrar office should also be verified by inquiries
with vendors & purchasers etc., particularly about
the price actually paid including unaccounted money
which requires to be elicited by using skill of inquiry
and winning confidence of the person being
interviewed. Enquiry should also be made regarding
preferences, priorities & importance attached by the
local residents to various actions like comparison of
the properties let out, sold & property to be valued.
A valuer should also ensure that all the original field
notes are preserved as record for further reference
if & when required.
5.7 Analysis
5.7.1.. Analysis of information & data collected
involves
1) Estimating fair market rent or fair market value
or land value.
Seminar on Valuation of Properties - 2011
2) Finding out net annual income, or depreciated
cost of construction and
3) Estimating appropriate rate of interest for
capitalization.
5.7.2 Estimating Fair Market Rent of Fair
Market Value or Land Value
Estimating fair market rent or fair market value or
fair land value involve comparison of properties let
out, sold & property to be valued. Such comparison
can be done by directly comparing the properties
taking into consideration various factors of
comparison. Such comparison often becomes
subjective. In order to eliminate the element of
subjectivity and compare the properties as
objectively as possible it is advisable to adopt Total
Weightage System for comparison of properties. As
many as 60 or more factors of comparison grouped
in seven broad categories viz. (i) Land (ii) Location
(iii) Buildings (iv) Utility Services (v) Social (vi)
Economic and (vii) Legal alongwith their 5 levels can
be identified. Appropriate weightages are to be
assigned to these factors (as may be applicable in a
particular case) and their levels according to priorities
& importance given by local residents. Multiplication
of weightage assigned to a factor of comparison &
weightage assigned to its level gives weightage score
of that particular factor. Total of such weightage
scores of all the factors of comparison as may be
applicable in a particular case gives the Total
Weightage Score (T.W.S.) of a property.
Comparison of properties on the basis of such
T.W.S. tends to be objective depending on
weightages being appropriate & nearer to reality.
Properties can then be compared on the basis of (i)
Total Weightage Score (ii) area let out or sold and
(iii) the date i.e. the date of letting, or the date of
sale and the material date of valuation and fair market
rent or fair market value or fair land value can be
estimated. Discussion regarding comparison of
53
properties let out with properties sold and the
property to be valued is the most crucial & integral
part of any valuation report. A sales plan showing
the instances of rentals (usually in green) instances
of sale (usually in blue) and property to be valued
(usually in red) in terms of rate of rent, area let out
or sold, T.W.S. & date of letting / sale / valuation is
much helpful in estimating fair rate of rent or fair
market value or fair land value.
5.7.3 Net Annual Income
Gross annual income can then be estimated by
multiplying rate of rent per sq.m. per month by area
of the property & 12 months. Deducting annual
outgoings from gross annual income gives net annual
income of the property sold or property to be valued.
5.7.4 Rate of Interest for Capitalisation
In Income approach to valuation Y.P. is estimated
by dividing price actually paid by net annual income.
In case of properties having future life of 60 years or
more remunerative rate of interest is equal to 100 /
Y.P. In case of properties having future life less than
60 years remunerative rate of interest is found out
with the help of Valuation tables considering the
accumulative rate of interest at 2 1/2% to 3% and
the future life of the property sold. The appropriate
rate of interest for capitalizing the estimated net
annual income of the property to be valued as on the
date of valuation, is estimated by comparing rates of
interest yielded by the properties sold with the
economic indices especially B.S.E. & N.S.E. indices
and foreign exchange rates etc.
5.8 CONCLUSION
Every valuation report should conclude with opinion
and advice if called for. The opinion and advice must
be definite & clear and must be expressed in
unambiguous words.
54
5.9 SUPPORTING MATERIAL
Valuation of properties is becoming increasingly
subject to greater scrutiny and analysis. It has
therefore become necessary to collect comparatively
large quantity of information & data. A text alone is
inadequate for presentation & analysis of such data
which contributes to formulation of professional
opinion. The narrative part of the report is therefore
supported by a wide range of annexures such as
statements, schedules, tables, maps, plans, graphs,
diagrams, charts, and photographs etc. which are
appended to the main write-up of a report. Graphs,
bar charts, plans, photographs etc. creating visual
impact are helpful in achieving effective
communication.
Each of the supporting material must have the same
title as that of the main report as heading and must
have sub-heading indicating the contents of the
annexure. All the annexures should be arranged in
Logical sequence with annexure number at the right
hand top corner. The annexures which need folding,
should be folded in such a manner that the Annexure
number, heading & sub-heading and job number
should be seen easily & clearly.
It is advisible to write, at the end of each of the
annexures, statements of findings or observations.
Such statements arranged in logical sequence may
make writing of the narrative text of the report easier.
6.0 DATA & INFORMATION AND ANALYSIS
ACCORDING TO PURPOSE OF VALUATION
6.1 General
6.1.1 A valuation report mainly consists of two major
parts viz (1) Description of the property to be valued
& (2) Analysis of information & data leading to
conclusion. The general framework of every valuation
report will be the same but the details regarding
Seminar on Valuation of Properties - 2011
description of a property will vary according to the
purpose of valuation.
6.1.2 Though the details of information & data about
the property to be valued will vary according to the
purpose of valuation and the type of property, the
details of the information & data required for
estimating fair rent or fair market value i.e. information
& data regarding instances of rentals & sale will
however be more or less the same irrespective of
the purpose of valuation and will vary according to
the basis and the method of valuation to be adopted
for estimating fair market value as per requirements
of a particular purpose and as per requirements of
the provisions of the relevant legislation for taxation
etc.
6.2 Purpose of Valuation
6.2.1 Reports on valuation of properties for various
purposes can generally be classified in three
categories on the basis of details of information &
data required to be collected, mainly for description
of the property.
6.2.2 Purposes requiring all the Details
a) Purchase for self occupation or taking on lease:
Since the purchaser / lessee intends to occupy
the property for his own use he would like to
know all the details.
b) Insurance: All details are required for claiming
full damages, when insured for fair market value.
c) Land Acquisition: For claiming compensation &
damages for financial reinstatement.
6.2.3 Purposes requiring fair or reasonable
details, but not in minute details
a) Purchase as an investment. (b) Sale or letting on
lease (c) Mortgage (d) Management of Estate /
Property.
Seminar on Valuation of Properties - 2011
In these cases the purchaser or owner or lessor is
not intending to occupy the property & hence minute
details are not required. However since the purpose
involves financial aspect, all reasonable details having
effect on income fetching capacity of a property are
required.
6.2.4 Purposes where Brief Description of the
Property is sufficient
a) Rating or Municipal Taxation (b) Income Tax
c) Estate Duty & Wealth Tax, d) Capital Gains Tax.
The owner knows his property and the taxation
authority is not interested to know the details.
6.3 Valuation for Mortgage
Valuers are often instructed by financial institutions,
including banks, to report on valuation of properties
for purpose of mortgage and hence it requires special
mention. In addition to reasonable details of
information & data regarding usual aspects the nature
of mortgage necessitates consideration of some
special points in a valuation report. Since the
property being mortgaged has to be considered as
security for loan & interest the possibility of the
mortgagor failing to pay interest and repay the loan
and the client mortgagee eventually being required
to take possession of the property needs to be taken
into consideration. In such cases it needs to be
ensured that the actual & realizable net annual income
from the property is sufficient to cover annual interest
as well as annual installment for repayment of
principal loan amount. Further the fair market value
may also give fair idea about the value realizable in
distress sale which however can hardly be estimated.
A valuer should also point out to the client the defects
in a property as security and possibility of sudden &
violent depreciation in its value. Where there is
possibility of slow but steady depreciation of value
periodic revaluation should be advised.
55
7.0 DATA AND INFORMATION REQUIRED
ACCORDING TO THE TYPE OF PROPERTY
7.1 General
7.1.1 A valuer may be called upon to report on
valuation of various types of properties for different
purposes. While the extent of details of information
& data vary according to the purpose of valuation
and the analysis of information & data varies
according to the method of valuation adopted, the
aspects relating to which the information & data is
required is to be given in a valuation report vary
according to the type of property to be valued.
Valuation of agricultural properties will require
information & data regarding certain specific aspects
like quality of soil etc. while valuation of residential
properties will require information & data on different
specific aspects. Similarly aspects about which
information & data is required for valuation of
commercial properties will be different than the
aspects to be considered in valuing industrial
properties.
It is necessary for a valuer to develop his own logic
& reasoning regarding the aspects that would be
relevant or irrelevant for valuation of different types
of properties and regarding the extent or degree of
details of information & data required to be collected
in respect of such aspects according to the purpose
of valuation.
7.2 Residential Properties
7.2.1 Residential properties are expected to provide
utility or satisfaction for the occupants seeking to
maximize utility for them. The important aspect
therefore is the type & quality of residential
accommodation itself which include (i) type & quality
of construction, structural safety & specifications for
material & workmanship (ii) convenient arrangement
of rooms, rooms sizes, light & ventilation etc. (iii)
56
type of quality of utility services & (iv) amenities &
facilities provided within the property & (v) the state
of maintenance & repairs.
7.2.2 The next important aspect is the locality, its
type & quality of environment in general i.e. type of
residents, their social & economic status, habits
especially regarding cleanliness, type & quality of
access road and general surroundings.
7.2.3 The situation with reference to social facilities
& amenities is also important but secondary to the
first two aspects.
7.2.4 The importance given to these aspects will
vary in respect of residential bungalows & flats.
7.3 Commercial Properties
The main consideration in commercial or business
accommodation is maximization of profits.
Maximisation of profits depend on accessibility and
location which are therefore most important aspects
in valuation of commercial properties. It is therefore
essential to describe, in detail, the situation with
regard to central business district (C.B.D.) & other
commercial areas, other shops & their types, focal
points, main road on which the property has frontage
with vehicular & pedestrian traffic on such road etc.
The area of accommodation (size), shape, frontage
to depth ratio, arrangement of space, parking
facilities, provision for window shopping etc. in case
of shops, are also important aspects. The type &
quality of construction, utility services especially
electric supply are also important but secondary to
location & accommodation itself.
7.4 Properties in Single Ownership with
Several Occupants
In case of residential & commercial properties in
single ownership with flats, shops and / or offices let
Seminar on Valuation of Properties - 2011
out and occupied by several occupants, in addition
to usual aspects, the schedule of accommodation
showing (i) areas let out with terms & conditions of
lettings, (ii) existing rents (iii) unexpired period of
lease (iv) time of renewal & revision of rents
indicating potential for increase in net income etc. is
very important.
7.5 Special Properties
Special properties like residential hotels, Cinemas
& Theatres, Petrol Pumps etc. also require profit
maximizing locations and the important aspects to
be considered in valuation report are almost the same
as those in case of commercial properties with
additional aspect of various other sources of income
in addition to the main source of income.
7.6 Industrial Properties
7.6.1 Locational aspects have strong effect on
profitability i.e. profit earning capacity of industrial
concerns. In a report on valuation of industrial
properties the following seven locational aspects
acquire importance.
1. Nearness to the sources of raw materials and
nearness to market for finished products -
reducing cost of production including transport
costs.
2. Type & quality of transport facilities for raw
materials and finished products, loading &
unloading facilities etc.
3. Accessibility by road and / or rail.
4. Availability & dependability of infrastructure
services i.e. electric supply, water supply,
facilities for disposal of effluents & waste
materials, facilities for prevention of air & water
pollution etc.
5. Availability of labour, especially skilled & semi
skilled labour, tendancies & behavior of labour
& possibilities of labour trouble.
Seminar on Valuation of Properties - 2011
6. Availability of complementary services like fire
fighting, banking, communication facilities etc.
7. Surplus assets like vacant land, not utilized in
production at present.
7.6.2 Reports of Specialists
In practice one valuer is not sufficiently an expert in
various aspects of valuation of industrial buildings to
make a complete report. This is especially true in
respect of large or uncommon industries with
electricity generating plant or powerhouse or
industries with elaborate water supply system, a boiler
house with large number of boilers etc. In such cases,
the special parts of valuation work are given to the
specialist in the respective fields as sub contracts.
The task of a valuer in such cases is to incorporate
reports of these specialists in his own general report
on valuation of such industrial buildings. He should
however never attempt to paraphrase such reports
or make precise thereof and absorb them in his
report. He should however help the client by
including, in simple words, the general conclusions
& recommendations given by the specialists which
may be given in technical language. The reports of
specialists must invariably be appended to the
general report as they have been received from the
specialist experts, without any changes.
Same is the case of reports received from
horticulturist in respect of valuation of orchards.
7.6.3 Mortgage of Industrial Building
Industrial buildings are generally considered as poor
security for mortgage mainly for the following
reasons.
1. Obsolescence : A product as also production
technique & process may become obsolete &
outdated in the era of fast developing technology.
The machinery may also become outdated with
almost no resale value or may have scrap value.
57
2. A factory building built for a particular process
of production is hardly suitable for other
processes & products unless suitable changes
are made, which may be rare & costly.
3. It is difficult to find a purchaser who may use
the factory buildings as they are, with minor
alterations. Considerable time is lapsed in finding
such a purchaser, if any, and in the mean time
factory buildings become an encumbrance on
land.
8.0 CONSEQUENCES OF A REPORT
8.1. General
8.1.1 The role of a valuer, many a time, does not
end with sending to the client, his report on valuation
of a property. On receipt of a valuation report the
client proceeds to take further action regarding
management of his property. A valuer may then be
called upon to participate in meetings with concerned
parties or authorities & present his report. He may
be required to negotiate with other parties alongwith
his client or representing his client. A valuer may also
be required to lead evidence in the Court or Tribunal
as expert. Sometimes if the client is dissatisfied with
a valuation report and / or suffers loss due to actions
taken on the basis of his report, a valuer may have
to face charges of professional negligence with
liabilities for damages. It is therefore necessary for a
valuer to know & bear in mind the possible
consequences of his report while writing a report.
This will, enable him to take all the necessary care
(i) in collecting detail information & data in respect
of all the aspects relevant for valuation of a particular
type of property for a particular purpose (ii) in
analyzing the same (iii) in drawing logical conclusio
ns and (iv) in giving his opinion & recommendations.
It is necessary for a valuer to equip himself for dealing
with any of the consequences of his report.
58
8.2 Meetings
A meeting can be termed as multi-party negotiations
attended by more than two parties and their advisors
etc. A valuer may be required to present his valuation
report in such a meeting and participate in
discussions. The participants & valuers attending a
meeting are expected to have carefully studied the
notes on the agenda circulated earlier as also all the
relevant aspects related to the subjects on the agenda
before expressing their views. Presentation of views
and discussions should be to the point and brief. It is
also necessary to express views with due courtesy
and at the same time, with firmness. Interests should
be advocated in all fairness.
8.3 Negotiations
8.3.1 Negotiations is a meeting usually between two
or more individuals in respect of a particular issue.
Negotiations means to communicate or to meet for
the purpose of resolving some matter by mutual
agreement and to clear and mutually settle some
differences. A valuer may be called upon to represent
his client. In such a case his implied authority is limited
to making statements about the property and to
prepare the stage for agreement & contract. Unless
expressly authorized a valuer cannot make binding
contract or any transaction in respect of his clients
property.
8.3.2 Prior to starting of negotiations a valuer must
be fully briefed in all aspects about the property, the
client & his intentions. Thereafter some tactics have
to be decided by the client & his valuer. This sets
the background and the framework for negotiations.
8.3.3 An important rule in negotiations is that a valuer
should be fully aware of the strengths and weaknesses
in his own case and use them to achieve maximum
benefit. It is also advantageous to find out and know
the strengths and weaknesses in the opponents case
and use them to the advantages of his client.
Seminar on Valuation of Properties - 2011
8.3.4 One of the skillful and shrewd tactics employed
by the opponents is to create confusion. When there
is confusion in the mind of a valuer he becomes less
certain about his facts & data making his case weak.
It is therefore necessary for a valuer to clearly know
the strengths & weaknesses of his case and that he
should be absolutely certain about his facts for which
the information & data should be first hand and
personally verified by him.
8.3.5 Care should be taken to ensure that the
discussions are calculated, measured and well
reasoned. The style of conducting discussions should
be polite, firm and confident. Professional differences
of opinion, if any, should not be allowed to reach the
level of arguments and nothing should be done which
may result in losing opponent's goodwill and his
interest in the mutual purpose. A valuer may put
forward and indicate disagreement but should always
avoid confrontation.
8.4 Expert Evidence
8.4.1 General
A valuer may be required to give evidence as expert
i.e. to lead expert evidence in the Court or Tribunal
etc in several cases of valuation such as those in
respect of claims for compensation in acquisition of
land, claims in cases of insurance, estimation of fair
rent or fair market value for municipal or Govt.
taxation and other purposes. Generalisation about a
valuer's report or his conduct in the Court of law or
Tribunal etc is therefore difficult.
8.4.2 Basic Rules for Leading Expert Evidence
In leading expert evidence it is most important to
observe three basic rules.
1. The foremost important rule is that "Honesty is
the best Policy", especially in examination in chief
and in cross - examination. If some thing is not
Seminar on Valuation of Properties - 2011
done, be honest and say so, invariably giving
reason why it has not been done, otherwise it
may amount to negligence losing value of expert
evidence.
2. Evidence by an expert is evidence of opinion &
is distinctly different from the evidence of facts.
In giving evidence of facts a witness is required
or rather compelled to give answers in 'yes' or
'no'. An expert deposing his 'opinion' evidence
has privilege of giving answers with reasoning
and cannot be compelled to answer questions
only in 'yes' or 'no' without explaining the
reasoning since any opinion without reasoning
will have no value. It is advisible that the expert
should scrupulously insist on exercising this
privilege while leading expert evidence.
3. It is the duty of a valuer leading expert evidence
to assist the Court or Tribunal in properly
interpreting the evidence regarding value
produced in the Court or Tribunal proceedings
and thereby in arriving at the just and fair value.
As an expert his duty is not to defend his client
or anybody and though his fees may be paid by
client, his duty is to assist the Court or Tribunal
in arriving at the just & fair value. Once a valuer
enters the witness box and is giving his opinion
to the Court he must give his honest opinion.
The valuer will deceive himself and also the Court
if he fails to give his honest professional opinion.
He therefore needs to distinguish between his
report in leading expert evidence and his normal
valuation report given to his client when he
legitimately took a view for achieving best results
for his client.
8.4.3 Normal Valuation Report & Report for
leading Expert Evidence
A valuation report for leading expert evidence differs
from normal valuation report in the following respects.
59
1. No forwarding letter is required in the case of
valuation report for leading expert evidence since
it is directly submitted to the Court during the
proceedings.
2. The report for leading expert evidence begins
with professional qualifications and experience
of a valuer. It is broken down into numbered
paragraphs with the intention to indicate those
being answers to questions put to him in the
examination in chief through which a valuer is
led. Such informative paragraphs are not
required in a normal valuation report.
3. The main & most important difference in the two
reports is that the normal valuation report given
to the client can be based on the information,
data and instances of rentals & sale collected &
verified by the valuer and considered to be true,
correct & genuine while report submitted by the
valuer while leading expert evidence is required
to be based only on the information, data and
transactions of sale duly proved in the Court.
The expert valuer is therefore usually leads his
evidence after factual evidence is over.
8.4.4 Instances of sale can be proved in the
Court in three ways viz.
1. By producing original registered document or
certified true copies thereof & by examining the
vendors or purchasers or a persons having direct
& personal knowledge of the transaction. Mere
production of registered document or certified
true copy therof is not considered as enough
proof of execution of the transaction.
2. By agreement by the parties to the litigation,
accepting the sale transaction to be true &
correct.
3. By personal and direct involvement or
60
experience of expert valuer acting for one of the
parties to transaction when such expert valuer
can be examined in the Court.
8.5 Professional Negligence
8.5.1 The action or inaction on the part of a valuer
in the valuation work or in the management of
individual interests in properties / estate can be
subject to criticism by clients and / or third parties
on account of several types of misconduct.
Intentional or deliberate mistake done causing harm
to interest in a property is fraud, which would be a
criminal matter. The client who may be dissatisfied
with the services provided by a professional valuer
will be able to sue the valuer for damages on the
basis of contract or under statute law. A valuer may
have been negligent in common law when the client
as well as third party will have remedy in damages.
8.5.2 Basic Principle
Valuation is a matter of opinion. A valuer is certainly
not guilty of negligence only because his valuation
figure does not tally with reality in the real estate
market. The basic and the first principle in
professional negligence is that 'negligence is not
judged by the figure or the result alone but is judged
by the way or route by which the figure or the
conclusions have been reached.
A valuer cannot be compelled to adopt a particular
method of valuation. The important factor in deciding
professional negligence is that whether a valuer has
correctly followed the method of valuation he has
adopted and whether he has taken or not taken all
the necessary care that is required to be taken
according to the method adopted, in collecting the
information & data, in analyzing it & in reaching at
the conclusion.
Seminar on Valuation of Properties - 2011
8.5.3 Legal Action
Legal action for negligence can be taken under the
Law of Contract or under the Law of Tort. An action
in tort can have two advantages. Firstly tort permits
greater extent of damages to be considered.
Secondly the Limitation period which is normally six
years, starts in contract from the moment of breach
whereas in tort it starts from the moment when
damage could reasonably have been discovered and
known.
8.5.4 The Standard of Care
The rule about the standard of care is that "the test
is the standard of the ordinary skilled person
exercising and not that of a professional expert
claiming to have specialized skill". A professional
valuer need not possess the highest expert skill; it is
sufficient if he exercises the ordinary skill of an
ordinary competent valuer. His knowledge must
however extend to a reasonable and up to date grasp
of the principles of valuation including law. If however
a valuer claims himself to be a specialist and is
consulted as such then the standard of care of
specialist is expected.
Further irrespective of whether the work is
undertaken charging no fees or reduced fees, the
standard of care remains the same as that of a
competent professional irrespective of the amount
of fees.
8.5.5 Measure of Damages
In considering the correct approach to damages, the
courts have concentrated on three main issues. Firstly
the relative merits of a cost approach and value or
income approach as the measure of damages.
Secondly the extent to which the plaintiff could have
or should have mitigated his loss. Thirdly the date at
Seminar on Valuation of Properties - 2011
which the damage should be estimated or calculated.
The principle objective underlying the rules for
assessment of damages or compensation is to place
the plaintiff / owner in the same financial position, as
far as possible, as he would have been, had he not
suffered the loss or deprived of his property.
9.0 CONCLUSION
Firstly it is basically necessary that a valuer writing a
valuation report has already acquired necessary
technical knowledge and experience in the field of
valuation and has developed sound analytical mind.
Secondly a valuer must have honesty, integrity to
61
profession and should be true to his own conscience
while performing & completing the task & also while
writing a valuation report. A valuation report written
by a valuer exercising & adhering to these essential
prerequisites will have duly observed the requirements
of the International Valuation Standard 105: Valuation
Reporting (2010)
In report writing it is basically presumed that a valuer
satisfies the above essential prerequisites. The thrust
is therefore given on developing good and effective
communicative skill. Once an inquisitive & analytical
mind is committed, with enthusiasm, to the task
coupled with good & effective communicative skill,
better quality report is bound to be obtained.
62
LENDERS' INDEPENDENT ENGINEER
1.0 SCOPE OF WORK
The assignment would broadly covers:
Y Verifying the project parameters vis--vis the
approval / notification from BOA / SEZ rules /
norms, sale deed and other project-related
documents, verifying approvals for building plans
and other requisite permissions / approvals
Y Comment on the debt drawal schedule and its
consistency with the project requirements
Y Monitor project implementation
Y Verification of the capital cost incurred vis--
vis estimated costs
Y Provide regular (or as and when desired by the
lenders) project review reports
2.0 INITIAL REPORT
Initial Report shall consist of following:
Y Current status of project
Y Review of scheme (Design & Construction) with
brief
Y Review of construction schedule with respect
to phasing, sequencing of construction activities
and site logistics
Y Comments / suggestion on construction
methodology
Y Review of project budget and cost incurred till
date
Seminar on Valuation of Properties - 2011
3.0 DRAWDOWN SCHEDULE
The Lenders' Independent Engineer will review the
drawdown schedule and comment on whether each
cash draw down amount is consistent with the Project
schedule and Contract requirements.
4.0 REVIEW OF PERMITS AND LICENSES
The Lenders' Independent Engineer will review the
permitting schedule and all available permits or permit
applications.
Independent Engineer will
Y Assess the capability of the Project as designed
to meet the technical requirements specified in
the Project's permits licenses
Y Establish contact with the appropriate
environmental or energy regulatory agencies for
the purpose of independently identifying and
determining the current status of the major
permits and licenses to construct and operate
the Project
Y Identify what major permits have not been
obtained and comment on the likelihood that they
may or may not be able to be obtained in a timely
manner to support the Project schedule
5.0 ENVIRONMENTAL IMPACT
ASSESSMENT
The Lenders' Independent Engineer will review the
permits and licenses required for the construction
Seminar on Valuation of Properties - 2011
and operation of the facility. The typical
environmental issue to be addressed is provisions
for disposal of wastes.
6.0 CONSTRUCTION MONITORING
The project will be monitored on a regular monthly
basis through successful construction completion,
which will include:
Y Reviewing quality control reports and field
laboratory test reports
Y Prepare and submit quarterly written reports to
lenders
Y Monitoring of the capital cost incurred and certify
drawdown request in line with budgeted capital
expenditure requirement
Y Assessment of variation in orders & contracts
and its implication on the technical aspects of
the project and capital cost estimates
Y Regular reporting of physical progress in
construction up to commencement of
commercial operation in line with the capacity
build-up plan and schedule for implementation.
Y Highlight / report deviations from field map /
approved drawings to the Company and the
corrective action need to be initiated thereat
within stipulated time frame, if any
Y Reporting and certifying physical performance
testing and acceptance provisions
Y Monitoring and certifying compliance
Y After every quarterly visit the Lenders'
Independent Engineer would prepare a progress
report outlining all activities completed and those
scheduled for the coming visit and an
independent assessment of the status. On
conclusion of the site visit the Independent
63
Engineer will issue a communication covering
their expert recommendation on the request for
draw of loan funds.
7.0 PERIODICAL REVIEW REPORT
The periodical review report shall comprise of:
Executive Summary
Overview of the status of the project
Indicating critical activities
Highlighting major variations from the business
plan, schedule, costing and cash flow
Progress photographs
Regulatory Compliance
Update on approvals and their impact, if any
Health and Safety statement of accident on site
Schedule
Summary of progress to date, Milestones, Critical
path
Comparison with base schedule
Highlighting delays and their causes as well as their
impact on overall completion
Costing / Budget
Summary of expenditure to date
Review of budget with respect to construction
practices. We shall compare the budget with the data
available with us from our various projects and any
major inconsistency shall be reported
64 Seminar on Valuation of Properties - 2011

Comparison with Benchmark Cost Performance Testing

Statement on extension of times / claims / disputes,
etc. 8.0 COMPLETION REPORT

Quality Completion Report to include:

Y Facility design versus actual installation
Comments / suggestion on quality of work Y Compliance with regulatory requirements

General Y Confirmation that required governmental permits

and licenses have been obtained for construction
Review of change order records and operation

Random review of daily site records Y Certification of Performance Test Results

Review of Site Safety/HSE Status report

Seminar on Valuation of Properties - 2011
PROBLEMS FACED IN VALUATION BY PRACTITIONERS
DOCUMENTATION
Property related DOCUMENTs play a major
role in the valuation of a property.
 Asking for related documents for valuation of
Y Residential Flat
Y Open Land
Y Land and Building
Y Industrial Properties
Y Commercials offices / Retail Shops
Y Owner occupied/rented / tenanted/
leased / licensee
 Unfortunately this part is mostly neglected by
bankers saying that please provide us with the
value of the property and documents will be seen
by our legal cell .
 Implications of providing partial documents are
very serious. A few examples are given in the
next slide to show how the valuation and the
security being mortgage gets affected in case of
inadequate documents.
1. Flat Valuations / Commercial Offices / Shops
Y For the above valuations if agreement copies are
not provided, the valuer is not able to understand
the rights of the interested parties in the said
property.
Kirit P. Budhbhatti, Practising Valuer RE and PM - Mumbai, Founder Chairman (Retd.) International Plant
and Machinery Valuation Conference Committee, Founder Secretary, Centre For Valuation Studies, Research
and Training
65
Mr. Kirit Budhbhatti
Y If plans / approvals are not provided then it is
difficult to comment on the legality of the
structure.
Y At times the drawings which are shown in the
agreement do not tally with the approved plans
and there are may be major deviations between
the two.
If the said property is occupied by person other
than the owner, it is difficult to ascertain if he is
a licensee or a tenant protected under Rent
Control Act or is there any dispute in the said
property or he is an illegal occupier.
2. Land / Industrial Properties
Y For the above valuations if agreement copies are
not provided, the valuer is not able to understand
the rights of the owners in the said property.
Y It is observed that the most of the times industrial
land is leased or may be acquired under Land
Acquisition Act, documents related to the same
if not available can have a major impact on the
valuation.
Y If plans / approvals are not provided then it is
difficult to comment on the legality of the
structure.
Y At times the drawings which are shown in the
agreement do not tally with the approved plans
and there are may be major deviations between
the two.
66 Seminar on Valuation of Properties - 2011

Y If the said property is occupied by person other 3) If conditions of N.A. are not fulfilled by the
than the owner, it is difficult to ascertain if he is owner, it becomes very difficult to identify the
a licensee or a tenant protected under Rent plot.
Control Act or is there any dispute in the said
4) In case of under construction properties where
property or he is an illegal occupier.
the building is partially complete and valuation
Y At times it observed that the land is agricultural is asked for flats which are yet to be constructed,
and industrial activities are still functioning on the valuer has to inadvertently believe that the
the same, in the absence of N.A. Order / PR flat will be constructed as per agreement details
Card latest / Collector Order on change of land or brochure/ plan.
use if not available will have a huge impact on
At times Plans are approved only to limited floors
the value of land.
and flats are sold beyond the same and it is informed
that the plans will be amended by loading TDR
Observation (Transfer of Development Rights). So practically the
property under valuation doesnt even exist.
This will just give you a glimpse of the problems faced
by the valuer in absence of the sufficient documents
 Carrying out the site visit
and when reports are prepared by valuer based on
partial documents provided by the bank, it is
1. Many a times bank insists on valuations of
needless to say that the implications of the same are
properties which the owners or the occupiers
seen by the banks when the accounts becomes NPA.
are unwilling to co-operate.
Hence, it is very essential to provide all the required
documents as asked by the valuer to give a correct
 Collection of data at site
opinion.

1. At times the owners are unwilling to handover

HALF KNOWLEDGE IS DANGEROUS
documents in case of any observations.
FIELD / SITE PROBLEMS
 Cooperation at site
Site inspection plays a major role in valuing a
1. Many a times during the site inspection, the
property
owners or the occupier of the property do not
part with any information if asked.
 Verification of site address:
2. Co-operation at site is very essential specially
1) At times it becomes practically impossible to in case of valuation of movable assets as
verify a site mostly lands when only Survey Nos. identification of movable assets is difficult in the
and CTS Nos. are mentioned in the documents. absence of proper serial no. and linkage with
the invoices.
2) Many a times there are no boundaries or even
markings or any sign board at site.
Seminar on Valuation of Properties - 2011
3. At times it is observed that the movable assets
are shifted from one location to another location
without informing the Bank and linking the
correct asset with the invoice, this becomes a
tedious task in the absence of co-operation from
site personnel.
OTHER PRACTICAL ISSUES
 At times when the valuer comments or puts his
observations or any adverse comments after site
inspection, it is treated as if the said comments
are outside the scope of assignments and valuer
should limit only to their role as decided by the
banks.
67
 Most of the empanelment letter that bank have
a conditions of fee limitations and removal from
panel without giving any reasons, valuers are well
wishers of the banks and work to provide an
independent opinion to the bank in the interest
of the bank. Hence, they deserve a proper
hearing and should be treated as a professional.
 So to conclude Bankers and Valuers should
mutually co-operate on the above issues so that
they can
WALK TOGETHER, TALK TOGETHER
AND ROCK TOGETHER.
68
RECOVERY OF DEBTS DUE TO THE BANKS &
FINANCIAL INSTITUTIONS
VALUATION REPORT OF PROPERTY
UNDER SRFAESI ACT 2002
(A case Study)
It is well known that any entrepreneur whether an
Industrialist, Business magnate, or even Aam Admi
require loan or financial aid in one form or the other
from the Banks or Financial Institutions. The present
system is such that even though one may have
sufficient money in his possession, still opts for loan
since he does not have the amount in books.
Sometimes need are genuine e.g loan for housing,
business & trade, vehicle, education, visa, social
purposes et el.
In foreign countries every need of life, whether
essentials or luxuries are on loan basis and that is
why most of them are under debt.
One of the major causes of recent economical crunch
and collapses of the banks has been due to non return
of the loan by the borrowers and failure to abide by
the terms of agreement in payment of EMIs at
specified intervals. The Developing countries have
still not recovered from the Melting down resulting
in under employment or even retrenchment adversely
affecting the workers majority of who are immigrants.
This epidemics has affected our country also but not
to the scale of Western countries. Our controlling
authorities like Ministry of Finance, Reserve Bank
of India and the Prime Minister who himself is an
Er. S.S.K. BHAGAT, F.I.E (India), F.I.V.,M.I.C.A., Chartered Engineer, Approved Govt. Valuer & Surveyor
Vice President, Institution of Valuers, (India), Retd. Chief Engineer, N.D.M.C.
Seminar on Valuation of Properties - 2011
Er. S.S.K. Bhagat
Economics Wizard had been vigilant and taking
precautionary measures to kerb this menace to the
minimum. But since it is global phenomenon, this
infection has crept in our society.
Coming to Indian Scenario, application for loan and
sanctioning by the Banks or Financial Institution is a
regular practice. The Sanctioning Authorities after
verifying the reputation, antecedents & Paying back
capacity etc of the borrowers take the risk defray
the loan after carrying out the Pre-Sanction Loan
procedure well known to all of us. Main criteria are
TRUST & FAITH. The amount thus released is of
course is returnable on the basis of proper agreement
executed by both the parties.
At times, borrower may fail due to any reason fail to
follow the mode of paying back, the loan becomes
NPA (Non Productive Account).The banks or
Financial institutions have to take all measures to get
the due (principal & interest accrued) recovered by
adopting various methods say of Persuasion,
Reconciliation, One Time Settlement before going
to the Court. As you know litigation through the Court
is not lengthy, cumbersome but costly also .Looking
at the gravity of the situation and enormous un-
realised loan amount, the Govt. setup special courts
known as Debt Recovery Tribunals .But these too
did not prove to be that effective with respect to
promptitude as was expected. Thus Govt. taking
into accounts the magnitude of the problem and the
interest of the Public involved promulgated SRFAESI
ACT 2002 (perhaps the longest name
Seminar on Valuation of Properties - 2011
The Securitisation and Reconstruction of Financial
Assets and Enforcement of Security Interest Act)-
2002)
SECURITIZATION AND
RECONSTRUCTION OF FINANCIAL
ASSETS AND ENFORCEMENT OF
SECURITY ACT (in short SRFAESI Act)-2002
SRFAESI Act, it is evident that the said Act was
enacted to enable the banks and other financial
institutions to realise the long-term assets, manage
problems of liquidity, asset liability mis-matches and
improve recovery by exercising powers to take
possession of securities, sell them and reduce non-
performing assets by adopting measures for recovery
or reconstruction. The object of the Act is to improve
the recovery process by vesting the powers with the
banks and financial institution powers to take
possession of secured assets and sell them in case
the borrowers commit default in repayment of the
loan.
Some of you must have been assigned such job &
must have carried out the exercise by actually visiting
the site again, taking the photographs and other
relevant data for undoubted identification of property,
so that there should be no confusion in conducting
any of the modes.
I take this opportunity of sharing my experience in
one case, which after having become NPA and fallen
in the grip of SRFAESI underwent certain anomalies
thereby affecting the character of the property as
would be evident from the summary given below:-
Basis of valuation
Annexure 1
Pursuant to the request from the Chief Manager,
Stressed Assets Management Branch, State Bank
of India, the above property been inspected on
69
30.04.2011 in presence of MR.XYZ, Banks
Enforcement Officer & ABC, Banks Guard to assess
its present valuations (Fair Market Value, Distress
Sale Value, Value as per Guideline under the
Securitization and Reconstruction of Financial Assets
and Enforcement of Security Interest Act., In this
regard, the information made available by the Bank
and that collected during inspection has been taken
as true and correct. Besides, the following documents
have also been examined:
1. Photo copy of Sale Deed dated 19.02.2002
by M/s. MN Pvt Ltd in favour of M/s. XYZ
(P) Ltd in respect ot the subject property
for Rs. One Crore plus Stamp Duty of
Rs.12, 50,000/-.
2. Photocopy of Deed of Rectification Dt.
23.05.2003 by M/s. MN Pvt.Ltd in favour of
M/s. XYZ (P) Ltd ratifying th actual area of 1
Bigha, 19, Biswa & 6 Biswansi = 5944 sq.yds
as delineated in Col. 9 of the proforma
3. Photo copy of Memo No. 4417 DTP(G)
dt. 25.10.1996 from Distt. Town Planner,
Chairman Building Plans Committee for
Controlled Area ,Gurgaon to Original Owners
conveying approval of Building Plans in respect
of CLU case Khasra No. xxx/949/2/1 (part),
9xxx/2/2 (Part), Village ABC Controlled Area,
Gurgaon subject to terms & conditions
enumerated therein including inter-alia obtaining
Occupation Certificate from the competent
authority before occupying the above Building.
No such report has been produced.
4. Photo copy of Letter No. 975 Ginyo(E0) dt.
24.03.2011 by the Distt Planner Enforcement
addressed to State Bank of India, Stressed
Assets Management Branch endorsing Letter
No. 148 dt.13.01.2011of RTI stating that
validity of CLU of this property has expired.
70
5. Photocopy of letter dated 14-01-2011 by the
owner Company addressed to Deputy General
Manager SBI SAM Branch mention therein the
outstanding bill of Electricity for Rs.15,20,783/-.
As explained above, the property comprised of land
bounded by compound wall & two big gates having
Industrial building designed for baking of Breads for
which necessary plant & machinery was stated to
have been installed. Enquiry from the site revealed
that the factory has been since closed, most of the
machinery removed by the owner. At present, the
building and all its ancillaries are in utterly ill
maintained condition, electric supply disconnected
tube well out of working order, vegetation grown in
the compound and main building & rooms are sealed
by the Bank on taking over the property under
SRFAESI.
P Plant & machinery At Site
The following item of machinery could be found at
site in neglected condition without operating
connections as such their performance, usefulness
and efficacy cannot be checked. In their present
condition, these cannot be more than scrap for
disposal and shall be valued as such:-
1. Swing tray Oven of 30 tray
2. Bread Proving Chamber of 61 swing tray
3. One Mixer with 3 SS bowls
4. Dough Hoist
5. Blenders-2No
6. Misc. Lot of worn out parts like motors,
switches,V.Belts, Bearings etc. stacked in sealed
store
7. Old furniture, fixtures in Office (Sealed)
The value of these items per my opinion, may be
taken as Rs. 4, 50,000/-P
Seminar on Valuation of Properties - 2011
In view of the above facts and circumstances, the
instant property suffers from some technical
infirmities & legal implications. The latter to be
examined by the Legal Counsel.
Technical infirmities as evident are
a) Obtaining Occupation/Completion Certificate
b) No objection Certificate from Fire Safety
Department after providing fire safety system
appliances
c) Providing rain harvesting system
d) Construction of Effluent Treatment Plant
e) Revocation of CLU by payment of dues
intimated by the Department for
Rs.1,86,67,680/- plus overheads.
f) Restoration of power connection after clearance
of arrears along with restoration charges known
to the owner
g) Clearance from Pollution Control Department
h) Commissioning of abandoned tube well &
internal services apart from general clearance,
removal of jungle growth & maintenance etc
i) Procurement of water Softening Plant
In view of the above, Valuation has been
assessed under different options after taking
clues from current Circle rates of Gurgaon
Administration w.e.f. 01-04-2011 and
replacement value of the existing Structures
as under:
OPTION I
Treating the property as Agricultural
The land use as per original sale Deed is Zarai
meaning agricultural. In that case, value shall be land
bounded by compound wall, gates, tube well, guard
Seminar on Valuation of Properties - 2011 71

room and at the most small temple built inside. Main
factory structure would become un-authorized &
shall have no value. The Value shall be as under:-
OPTION-II
Rate proposed in view of non
availability of peripheral services
@ 80%of Rs. 10000/sq.yd
= 0.80x5944x10000 = Rs. 4,75,52,000/-

ASSUMING THE LAND USE REVOKED AS Deduct

INDUSTRIAL
Revalidation of CLU = Rs.1,86,67,680/-
Circle rates for Industrial plots having
Arrears Of Electricity = Rs. 15,20,783/-
peripheral civic services like public
Total = Rs.2,01,88,463/-
sewers, water supply net, drainage etc.
Net = Rs. 2,73,63,537/-
= Rs. 10,000/- per sq.yd
Say Rs.2,73,64,000/- D
Though the plot in question does not
have these services and the owners have E. Value of Factory Building
to provide their own arrangements for
Built up area = 37480 sft
Water supply through tube well, sewer
@ Rs. 500/- per sft = Rs. 1,87,40,000/-
disposal through septic tank etc. this
rate may not be fully applicable. and
Less
may be taken yet by applying as
Depreciation @ 2.25 % p.a
80% of it and assuming that the
taking life as 40 years & Age 6 years
CLU has been obtained and other technical
=13.5 % = Rs. 25,29,900/-
infirmities (as highlighted above ) settled,
Net = Rs. 1,62,10,100/-E
the valuation would work out as under:-

D. Land Add
Ancillary Structures as Per B
Area of Plot
= Rs. 4,96,000/- B
1 Bigha, 19 Biswa & 6 Biswansi Plant & Machinery as per P
= 5944 sq.yd. = 1.228 Acre = 4953 sq.mt. = Rs. 4,50,000/- P
Circle rate for Indutrial CLU plots Thus total value = D + E + B + P
with Peripheral civic services In = Rs. 4,45,20,100/-
accordance with Circle Rates Say Rs. 4,45,20,000/-
notified by Deputy Commissioner (Rupees Four crores forty five lacs and twenty
Gurgaon = Rs. 10,000/- per sq.yd thousand only)
72 Seminar on Valuation of Properties - 2011

OPTION III
Thus total value = F + E + B + P
As is Where is Basis = Rs. 3,79,60,100/-

Considering the property in its present position Say Rs. 3,79,60,000/

without the Legal Implications & Technical Infirmities (Rupees Three crores seventy nine lacs and
sixty thousand only.)
F. LAND
Certificates
Area of Plot = 1 Bigha, 19 Biswa & 6 Biswansi
= 5944 sq.yd = 1.228 Acre = 4953 sqm 1) The information furnished in part-I is true and
correct to the best of my knowledge and belief.
Circle rate for Gair Mumkin
2) I have no direct or indirect interest in the
Plots e.g. plots without CLU property valued.
@ Rs.3,500/-per sq yd 3) I have inspected the property on 30.04.2011in
Thus Value = 5944x3500 presence of Mr. ABC, Banks Enforcement
= Rs.2,08,04,000/- F Officer.
4) If this property is offered as collateral security,
E. Value of Factory Building. the concerned financial institution is requested
to verify the extent of land shown in this valuation
Built up area = 37480 sft report with respect to the latest legal opinion.
@ Rs. 500/- per sft = Rs. 1,87,40,000/- 5) Value varies with the purpose and date. This
report is not to be referred if the purpose is
Less different other than mentioned in the report.
Depreciation @ 2.25 % p.a Taking 6) This valuation work is undertaken by this valuer
life as 40 years & Age 6 years based upon the request from the Chief
= 13.5 % Manager, SAMB, State Bank of India

= Rs. 25,29,900/- 7) The report is based on Valuers opinion as on

the date of valuation. The Bank is free to accept
Net = Rs. 1,62,10,100/-E it fully or partially or completely ignore.

Add
Ancillary Structures as Per B Signature of the Approved Valuer
= Rs. 4,96,000/- B
Place : New Delhi
Dated :02.05.2011
Plant & Machinery as per P
= Rs. 4,50,000/- P
Seminar on Valuation of Properties - 2011
LEGAL ASPECTS OF VALUERs INTEREST :
ON VALUE, VALUATION AND VALUERS
Sir, as a man advances in life, he gets what is
better than admiration judgement to estimate
things at their true value Johnson in Life of
Samuel Johnson, 1775
The ultimate acumen is knowing the exact value
of things The maxims of La- Rochefoucauld,
1959
Everyman by common sense has an assessment,
estimation and judgement of the worth of things,
goods and assets he deals with and this basic
knowledge which a person acquires by experience
in dealing with people and properties, profits him in
his day to day affairs. Valuers are experts who
have mastered the art of valuation. The concept
value is a word of different meanings when
employed in different situations. A man is known
by his values (virtues and vices). A man who knows
to arrive at nearly the exact value of things is a
valuer. It has always been a subject of debate as
to whether the valuation is an art or science and our
Honble Apex Court had in its famous Bank
Nationalisation case had coined the word
valuation science. Valuation is a scientific analysis
of available data and information gathered from
market source and it is an art of judgment and
forecast. As mathematical certainity is not possible
to be attained and as two valuers arriving at the
value of one and same thing would come out with
different value despite the availability of same datas,
valuation is more an art based on logical reasoning
and cannot be an exact science.
Practising Advocate, Thirupur
73
N. Somasundaar
Valuers are persons who have mastered the technical
know how of valuing things fairly and justly. It
would be illogical to expect from the said experts
an exact value of things since value of things would
differ based on its utility, need, demand and supply.
There are periods of boom, fall in prices and periods
where there would be no demand at all. The value
arrived at the period of boom will pale into
insignificance and would look irrelevant at a period
when there is no demand at all. Valuers are
possessed of that expertise to value a thing by
forecasting of a price that the said thing could fetch
on a later relevant date, for the purpose of which a
valuation has been sought from him by his clientele.
Valuers are today, much sought after experts by
individuals, corporates, government authorities and
courts. Since their opinion by way of valuation
precedes the decision of parties to enter into a
contract either of small nature or high magnitude,
they have a great role to play, with responsibility,
integrity and accountability. With rapid
industrialization and economic development, the
arenas requiring valuers participation in the guidance
of commercial ventures and economic activities have
vastly expanded.
A valuation is sought for creation of security interest
in favour of banks, sale and purchase of land and
buildings, estimation of value of leasehold rights, life
estate and reversionary interest, to a tourist for visa
purposes, in a court of law for arriving at court fee
payable on determination of market value, in a rent
control proceedings for arriving at fair rent based on
74
market value, for obtaining succession certificates,
probating of will, partition of properties, settlement
of properties, for arriving at residual value of the
assets of properties at the time of constitution /
dissolution of firms, winding up, merger and
amalgamation of companies, for arriving at or
assailing upset price in a court auction sale, for fixing
of reserve price of saleable assets before DRT or by
Authorized Officer under SRFAESI Act, in the mater
of auction sales by revenue / statutory authorities
under Income Tax Act, Revenue Recovery Act and
the like Acts, for ascertaining the value of goodwill,
shares, stocks and rental value, by Insurance
Companies for assessing of loss suffered by fixed
assets, incidences of fire, theft, damage to goods and
vehicles, for assessment of value of properties
purchased and constructed to facilitate an assessee
to file his IT returns and for substantiating its true
value and for assessment of the value of intellectual
property rights, copy rights and patent rights.
The aforesaid challenges and opportunities puts the
valuer in pivotal, indispensable position and to cope
up with the demands of the present day world, the
valuer has to equip himself with up - to date
knowledge, proficiency in his field of practice and
advanced methodology and tools. Knowledge on
various legal aspects is a should and must for every
valuer not only for arriving at fair and just valuation
but for protecting himself from having to face any
legal consequences due to his wrong acts,
commission or omission.
FEW LEGAL ASPECTS THAT ARE WORTH
DELIBERATING :
1. Qualification for valuation has not been
legislated so far and there is no separate law to
regulate the conduct of the valuers as of now, in
the lines of The Architects Act 1972 which
specifically prohibits use of said title of architect
by any person other than an architect registered
Seminar on Valuation of Properties - 2011
under the said Act. As per Sec.35 (2) of The
Architects Act, the architects registered under
the Act is to gain preference in the matter of
appointment as architect under the Central or
State Government or in any other local body or
institutions which is supported or aided from
the public or local funds or in any institutions
recognized by Central or State Government.
The Architects Act had provided the qualification
for registering as an architect. For a valuer, there
is no regulatory statute unlike The Advocates
Act for lawyers, the Chartered Accountants Act
for Auditors and the like. The Institution of
Valuers, Delhi confers the title of approved
valuers and the Central Board of Direct Taxes
of Income Tax Department confers the title
registered valuer. It also appears that the
Universities in India are yet to have a separate,
specialized degrees on valuation. Professional
private organizations like RICS is learnt to have
introduced a professional qualification viz. Assoc
RICS, MRICS and FRICS for professionals in
land, property and construction valuation.
2. With the passing of SRFAESI Act, the valuers
had come to be statutorily recognized as
approved valuers under Rule 2 (d) of The
Security Interest (Enforcement) Rules 2002. As
per the said Rule, approved valuer means a
person registered as a valuer under Sec.34
AB of The Wealth Tax Act 1957 and approved
by the board of directors or board of trustees
of the secured creditor as the case may be.
Under Rule 8 (5) of the said Rules it has been
provided . Before effecting sale of
immovable property referred to in Sub Rule
1 of Rule 9, the Authorised Officer shall
obtain valuation of the property from an
approved valuer and in consultation with the
secured creditor, fix the reserve price of the
property and may sell the whole or any part
of such secured asset by any of the four
Seminar on Valuation of Properties - 2011
methods prescribed thereunder. It is
therefore obvious that in fixation of reserve price
of the secured asset to be sold, obtaining
valuation from an approved valuer is a sine qua
non a mandatory legal requirement. While a
valuation is required to be obtained from
approved valuer to facilitate the Authorised
Officer to fix the reserve price in consultation
with secured creditor, if the auction do not
fructify for want of buyers, the banks are
unilaterally reducing the reserve price in respect
of subsequent auctions without obtaining further
valuation report and this matter was a matter of
challenge in M. Chokkalingam Vs. The
Authorised Officer, Indian Bank and another
before Division Bench of Honble Madras High
Court reported in CDJ 2009 MHC 3087.
Although the said Judgement is sub silentio as
to whether a fresh valuation need to be taken
before reducing reserve price every time, there
seems to be some force in the argument put forth
by the petitioners counsel in the light of well
settled legal proposition that the property cannot
be sold for less than reserve price and not even
at the reserve price without the consent of the
borrower. The approved valuers valuation
being pivotal in fixing the reserve price, why a
fresh valuation should not be insisted before
deciding on reducing the reserve price is a
debatable position.
3. Under the Wealth Tax Act, registration is granted
under Sec.34 AB after a valuer satisfies the
rules made under the Act. As per the said Act,
the value of any asset, other than the cash shall
be estimated either by the assessing officer
himself or by the valuation officer if reference is
made to him under Sec.16 A of that Act. In
either case, the value shall be estimated to be
the price which the asset would fetch if sold in
the open market on the valuation date. For the
purpose of determining the market value under
75
schedule III to the said Act, the price or other
consideration for which the property may be
acquired by or transferred to any person under
the terms of a deed or trust or through or under
any restrictive covenant in any instrument of
transfer shall be ignored. If the assessee is
carrying on a business for which accounts are
maintained by regularly, the net value of the assets
of the business as a whole, having regard to the
balance sheet of such business on the valuation
date is to be taken as value of such assets.
4. The Full Bench of Honble Supreme Court of
India in its land mark judgement while dealing
with medical negligence under the Consumer
Protection Act in Indian Medical Association
Vs. V.P.Shantha and others (Civil Appeal
No.688 of 1993) had in para 22 of the said
judgment observed as follows : In devising
a rational approach to professional liability which
must provide proper protection to the consumer
while allowing for the factors mentioned above,
the approach of the Courts is to require that
professional men should possess a certain
minimum degree of competence and that they
should exercise reasonable care in the discharge
of their duties. In general, a professional man
owes to his client a duty in tort as well as in
contract to exercise reasonable care in giving
advice or performing services. [See: Jackson &
Powell (supra), paras 1-04, 1-05 and 1-56].
Immunity from suit was enjoyed by certain
professions on the grounds of public interest.
The trend is towards narrowing of such
immunity and it is no longer available to
architects in respect of certificates
negligently given and to mutual valuers.
5. A valuer being a professional is expected to be
an expert / specialist in his field and any wrong
opinion or advise given by him could attract
penal consequences and suit for damages in a
76
civil court or for deficiency of service under
Consumer Protection Act. After the
amendment passed to Consumer Protection Act
which is effective from 15.03.2003, hiring of
services for commercial purpose had been
excluded from the ambit of said Act and as such,
the corporates, banking companies and financial
institutions hiring the services of valuers for their
commercial purpose cannot seek legal recourse
under Consumer Protection Act. However a
suit for damages as against valuer for his
negligent act would lie before a civil court.
6. A valuers prime duty is to value a property
assigned to him for valuation and for arriving at
the correct value, he needs to physically inspect
the property. In cases where, the valuer had
identified a wrong property, given a wrong
valuation report resulting in loss to his client who
had engaged his services and is guilty of fraud
and misrepresentation in collusion with the
borrower, he may be prone to criminal
prosecution for offences of cheating under
Sec.420 I.P.C. and to other charges under
Sections 467, 471 and Sec.120 B of I.P.C. The
Honble Madras High Court had in L.N.
Rajagopalan Vs. State by Additional
Superintendent of Police, SPE/CBI/ACB/
Chennai reported in 2010 (1) MLJ (Crl) 709
held : The poor approved valuer, well qualified
in assessing the value of the property, has
been wrongly implicated having found that
no properties were in existence as though he
committed cheating punishable under Sec.420
of I.P.C. Likewise, the other charges under
Sections 419, 467, 468, 471 read with
Sec.120B of I.P.C. have also no basis. The
valuers are supposed to contact the branch
manager and not the borrowers. None of the
witnesses has spoken to the fraudulent or
dishonest role played by petitioner in
fabrication of the documents. In view of the
Seminar on Valuation of Properties - 2011
above, the court finds that no prima facie
case has been made out as against the
petitioner. The allegation made against the
petitioner, who is only an approved valuer are
found to be baseless. Absolutely no materials
are available for charging him for the
offences alleged against him. The Honble
High Court had further held that it is
definitely not the duty of the valuer to look
into the authenticity of the documents. For
assessing the value of the property which is
the prime job of the valuer, he is not supposed
to identify and meet the owner of the
property. However in para 7 of the judgement,
the Honble High Court had observed
Even if the branch manager
locates the property for the purpose of
inspection by the approved valuer, the
valuer is supposed to identify the property
with the schedule found in the copy of the
document furnished to him for valuing the
property. In the light of T.N. Ravis case
(Calender Case No. 63 / 2004, Inspector of
Police, SPE/CBI/ACB, Chennai Vs.
J.S.Prabhu and others) handled by CBI
which has ended in conviction on 19.05.2009
and also in view of the aforesaid observations
of the Honble Madras High Court it could be
safely concluded, it is the duty of the valuer to
identify the property although he has no duty to
look into the authenticity of documents and is
not supposed to identify and meet the owner of
the property.
7. A valuers evidence in a court of law is
recognized as expert evidence in the matter of
valuation. The Division Bench of Madras High
Court in Mehrunnissa Begum and another Vs.
Begum Nathu Bibi and others reported in 1989
(1) MLJ 461 held . if the parties seek
to place evidence through an expert, such
as an Engineer with regard to value of Item
Seminar on Valuation of Properties - 2011
4 and as well as other items whose value
may require assessment through an expert,
certainly that should be permitted and we
are giving directions to that effect in the
present judgement.
8. A valuer who may have to assess the value of
an agricultural land shall be conversant with the
ceiling limits of permissible land holdings as
envisaged under Tamilnadu Land Reforms
(Fixation on Ceiling) Act 1961.
After the date of commencement of the Act
namely The Tamilnadu Land Reforms (Fixation
of Ceiling on land) Act 1961 i.e. 15-02-1970
as well as its notified date i.e. 02.10.1970,
holding of lands in excess of Ceiling Area by
any person is hit by the provisions of the said
Act.
Under the said Act, a person includes any
company, family, firm, society or association of
individual whether incorporated or not and under
Sec.5, ceiling has been fixed for holding of lands
on and from the date of commencement of the
said Act.
Under Sec.5(1), the ceiling area in case of every
person (which definition includes a company)
other than the educational institutions, students
hostel, agricultural school, orphanage and public
trust of charitable nature, shall be 15 standard
acres. The extent of one standard Acre vary
from Ac.0.80 cents in case of wet lands to Ac
4.00 in case of dry land in proportion with the
land assessment value.
Under Sec.5(2) of the Act of 1961, all the lands
held individually by the members of a family or
jointly by some or all of the members of such
family shall be deemed to be held by the family.
A family comprises of husband, wife, minor son,
77
unmarried daughter and minor grandsons and
unmarried grand daughters in the male line if their
parents are dead. A family comprising of 5
persons is entitled to hold 15 standard acres and
together with an additional 5 standard acres for
every member of the family in excess of 5 and in
any case it shall not exceed 30 standard acres.
Under Sec.5(3)(b), in calculating the extent of land
held by a family or by an individual person, the
share of the family or of the individual person in
the land held by a firm, society or association of
individuals (whether incorporated or not) or by
a company (other than a non-agricultural
company) shall be taken into account.
Sec.7 of said Act provides that on and from date
of commencement of the said Act, no person
shall, except as otherwise provided in the said
Act, be entitled to hold land in excess of the
ceiling area.
It is to be pointed out here that as per Sec.10(4)
of the said Act if any person has specified the
particulars of the land which he desires to retain
within his ceiling limits, the authorized officer shall
as far as practicable declare the same land as
comprised within his ceiling area.
Sec.20(1) of the Act provides that if as a result
of any transfer of land either by sale, gift or
otherwise effected on or after the notified date,
the extent of land held by transferee exceeds
the ceiling area, then the right, title or interest
accrued in his favour by virtue of such transfer
in the land in excess of the ceiling area, shall as
a penalty for contravention of Sec.7, be deemed
to have been transferred to the Government
with effect from the date of such transfer, on a
declaration made by the authorized officer with
in whose jurisdiction such excess land or the
major part thereof is situated. The authorized
78
officer shall record in writing the reasons for such
declaration and the declaration shall be made
after giving reasonable opportunity to the
transferor as well as transferee. No suit or other
proceeding by the transferee shall lie in any court
for refund of the consideration for any such
transaction. However the said vesting of land
with Government would not be automatic but
after declaration as aforesaid.
If any industrial or commercial undertaking
desires to hold or acquire any land in excess of
the ceiling area, it shall make an application under
Sec.37A of the Act seeking prior permission for
holding or acquiring such land.
Under Sec.37 B of the Act a public trust of
charitable nature created before 01.03.1972
was to hold only 5 standard acres and if the said
trust was desirous of holding or acquiring more
than 5 standard acres, it was to be done only
with prior permission of the Government by
making an application to it. The public trusts
created after 01.03.1972 could not hold any
land without prior permission of the Government
and the word land would mean agricultural
land. Ignoring the said provisions of the Act,
several public trusts created before and after
01.03.1972 had acquired lands in excess of the
ceiling area without obtaining prior permission
of the Government and when they had
approached the Government for post facto
permission, the Honble Madras High Court had
held obtention of such permission to be illegal.
The Tamilnadu Government had with a view to
validate such holdings or acquisitions had passed
Tamilnadu Land Reforms (Fixation of Ceiling on
Land) Amendment Act 2008 which received the
assent of the President on 06.06.2010 and the
said amendment was published in Tamilnadu
Government Gazette on 10.06.2010. Further to
that, amendment to the Tamilnadu Land Reforms
Seminar on Valuation of Properties - 2011
(Fixation of Ceiling on Land) Rules 1962 had
been passed which became effective from
25.11.2010.
In view of the amendment made to Sec.37 A,
any industrial or commercial undertaking holding
any land in excess of ceiling area acquired before
25.11.2010 shall make an application to the
Government within 180 days from 25.11.2010
and such undertakings holding any land in excess
of ceiling area acquired after 25.11.2010 shall
make an application to the Government within
180 days from the date on which such lands
were acquired through registered documents.
Similarly pursuant to the amendment passed to
Sec.37 B of the Act, the public trust created
before and after 01.03.1972 can now make an
application to the Government to hold the lands
acquired by it within 180 days from 25.11.2010
if the acquisition was made prior to 25.11.2010
and within 180 days from the date on which the
said land had been acquired through registered
documents if the said acquisitions were made
after 25.11.2010. The Government in revenue
department have also been empowered to admit
an application presented after expiration of the
prescribed period, if they were satisfied that the
applicant concerned had sufficient cause for not
presenting it with the said period.
9. It is indispensable for a valuer assessing school
or college property to be conversant with the
provisions of Tamilnadu Recognised Private
Schools (Regulation) Act 1973 and Tamilnadu
Private Colleges (Regulation) Act, 1976.
In respect of a private school property there is
a restriction for alienation or mortgaging the same
under Sec.31 of Tamilnadu Recognized Private
Schools (Regulation) Act, 1973 unless prior
permission is obtained from competent authority.
Seminar on Valuation of Properties - 2011
Otherwise the transfer of property would be held
null and void. The competent authority to grant
permission for pre-primary, primary and middle
schools is District Educational Officer and the
appellate authority is Chief Educational Officer.
The competent authority to grant permission for
high schools is Chief Educational Officer and the
appellate authority is Joint Director of School
Education (Secondary Education). The
Competent authority to grant permission for
higher secondary schools is Chief Educational
Officer and the appellate authority is Joint
Director of School Education (Higher Secondary
Education).
In respect of a private college property there
is a restriction for alienation or mortgaging the
same under Sec.27 of Tamilnadu Private
Colleges (Regulation) Act, 1976 unless prior
permission is obtained from competent authority.
Otherwise the transfer of property would be held
null and void. As per the Rules, the college would
mean and include Arts & Science College,
Teachers Training College, Physical Education
College, Oriental College, School or Institute of
Social Work and Music College maintained by
Educational Agency and approved by or
affiliated to the University. The competent
authority to grant permission for Arts & Science
Colleges is Deputy Director of Collegiate
Education and the appellate authority is Director
of College Education.
If the property stands in the name of the
Trust or Educational Agency or individuals
and if the school / college property is to be
constructed therein, it shall be construed
to be the school / college property, the
school or the college as the case may be
being its beneficial owner although not real
owner and the said Acts would apply to all
such properties as was held by Honble
79
Madras High Court in Association of
University Teachers, National College
Unit, Trichy Vs. AICTE, New Delhi and
others reported in AIR 1999 Mad. 164. It is
also held by our Honble High Court that
the TN Private School Act shall not apply
to Matriculation Schools and the TN
Private Colleges Act shall not apply to
Engineering Colleges.
10. A valuer having to assess the value of assigned
lands by grant of Government shall take care to
read the entire conditions governing the
assignment since the assignment deeds normally
provide clauses prohibiting the assignees from
alienating or encumbering the assigned lands
within 10, 15 or 20 years as the case may be
from the date of assignment and till such time
the entire value of the land is fully paid to the
assignor. In certain assignment deeds which are
exclusively given to landless poor or certain class
or community people, there are specific clauses
requiring the assignee to dispose of the lands to
such class or community people alone. Hence
the property setout under assignment deeds are
acceptable as security only if he mortgagor is
able to produce no due and no objection
certificates from competent authority i.e.
Assistant Commissioner of Land Reforms or
such authority as prescribed and only if the time
stipulated in the assignment deed has expired.
11. It would be advantageous to a valuer having to
assess the value of the building to be abreast of
the following land mark decisions of Honble
Supreme Court and Honble Madras High
Court rendered under Tamilnadu Town and
Country Planning Act, 1971:
Planning permission was obtained under Section
49 of the Act. Section 49 of the Act deals with
control, development and use of the land and it
has nothing to do with the building regulation.
80
Building permission and planning permission
should be obtained. [A.M. Kandasamy &
others vs. Corporation of Madras & others,
AIR 2002 (Mad) 318 : (2002) 1 MLJ 599]
@ In a primary residential use zones, building
carrying on commercial activities in violation to
Rule 7 of the Development Control rules for
Madras Metropolitan Area appended to the Act
of 1971 are prohibited. [Suriya Sweets V. State
of T.N. by its Secretary, Housing & Urban
Development Dept. (2008) 5 MLJ 547].
@ When, subsequent to approval of the sanctioned
layout no further steps have been taken and the
approved plan was not given effect to. In view
of Section 50 of the Act of 1971, after 3 years
from the date of permission, the existence of
sanctioned plan itself would come to an end and
the question of allocation of portion for public
purposes does not arise. As such, without even
giving notice to the owner, the municipality could
not come to any conclusion that the ear marked
portions are encroached upon and that no notice
is required for removal of such encroachments.
[Raja Baskara Shanmugam @ N. Kumaran
Sethupathy V. Director of Town & Country
Planning & another, (2008) 2 MLJ 824].
@ The object of the Act is not to permit
unauthorized and illegal development activities
in contravention of the planning permission
issued by the appropriate authority. The offence
has to be treated as continuing one till the
offending construction is either demolished or
altered. The planning Authority is perfectly
right in issuing a notice to proceed against
unauthorized development even after the
expiry of 3 years and taking appropriate
steps for demolition of the unauthorized
construction. [Chairman CMDA, Chennai V.
S.Radhakrishnan & another, (2006) 1 MLJ
181 (Mad).
Seminar on Valuation of Properties - 2011
@ The appropriate planning authority de hors the
power under Section 56 of the Act has also got
powers to order demolition of unauthorized
development under Section 85 (1) (a) of the Act.
[Chairman, CMDA, Chennai
S.Radhakrishnan & another, (2006) 1 MLJ
181 (Mad).
@ When notice under Section 56 (4) of the Act, is
issued with regard to the demolition of an illegal
construction, the aggrieved person may submit
a revised plan to the Authorities concerned.
Notice under said section shall not take effect
pending final order on the revised plan.
[M.Senniappan V. Director of Town &
Country Planning, Chennai & Others (2007)
1 MLJ 228.
@ The period prescribed under Section 50 of the
Act is only for the compliance of the conditions
imposed for the sanctioned of the layout and also
for the owner to make the layout within the
prescribed period. In case if the land owner is
unable to make the layout within the prescribed
period of 3 years, the proviso comes into play
which empowers the planning authority to extent
such period for such times as it thinks proper
but not exceeding a period of 3 years on an
application made on that behalf before the expiry
of the prescribed period of 3 years. The
provision is only an enabling provision for the
land owner to strictly comply with the sanction
of the layout. Hence, it cannot be construed
that by expiry of the period of 3 years, the
sanction itself is lapsed and consequentially the
conditions imposed under the sanctions layout
also lapsed and cannot be enforced.
[Vilupuram Municipality by its Commissioner
V. M. Subramanian and others,(2002) 3 MLJ
375].
Seminar on Valuation of Properties - 2011
@ Section 49 of the Act is confined to minor
violation only. Unauthorised constructions which
are illegal have to be demolished and they cannot
be regularized under Section 49 of the Act.
[Madras Race Club V. CMDA & others
(2006) 4 MLJ 1 (Mad].
@ Reserving a site for street, open space, parks,
schools, temples etc., near layout or plan is only
for public purposes. The reservation should be
used by the public in general. The legal owner
would cease to have any right over it.
@ The object of the Act is to enable the residents
of the area to have a common land for public
purpose. An alternative site is given and handed
over, the purpose has not been defaulted.
[Maharani Avenue Kudiyiruppor
Nalasangam, Coimbatore V. The
Commissioner Town Planning Authority,
Chennai and others (2006) 3 LW 963).
@ The requirement contained in various statutes
with regard to provision of open spaces and
other basic necessities for the community are all
made in the interest and welfare of the
community at large taking the spirit of Article
21 of the Constitution of India. [President,
Thanjavur Dioces Society V. Nirmala Hagar
and others, (2008) 3 MLJ 723].
@ The planning Authorities should keep in mind the
zonal classification before considering the
application and granting permission [ P.T.
Prabakar V. Member Secretary, CMDA,
Chennai, (2006) 5 CTC 449].
@ Unauthorised building can be demolished even
without notice. A building put up in an area less
than 80 sqm. no notice under Section 56 of the
Act is issuable. [CMDA by Member Secretary
V. P. Muthukrishnan and Others, (2005) 1
81
MLJ 666 : (2005) 1 CTC 573 (Mad) : (2005)
2 LW 285].
@ A building constructed in deviation of building
rules regulations etc., should result in the order
of demolition. [Salahudin Babu Vs. P.T.
Prabakar and another, (2005) 1 LW 643:
(2005) 1 CTC 385].
@ The plot in question was allotted for the purpose
of community hall. If it is used for the purpose
of constructing a kalyana mandapam, the same
cannot be questioned, in view of the settled
proposition that Kalyana mandapam can be used
for community purposes [Co-operative Nagar
Welfare Association by its President
V.Director ofTown & Country Planning,
Chennai and others (2008) 1 MLJ 1285].
@ The petitioner was directed by the court to put
up construction as per the sanctioned plan dated
03.04.2000 on furnishing undertaking to the
effect that construction will be according to the
sanctioned plan and if there is any deviation, the
applicant will demolish the construction made
with deviation. However contrary to the
sanctioned plan and undertaking, building was
constructed with deviation. Revised plan was
filed and refused on 19.07.2001. In the mean
time the Government brought in a scheme to
regularize unauthorized constructions. The bench
of the high court made it clear that no
regularization or ratification was permissible.
The construction was contrary to the orders of
the High Court and undertaking of the petitioner.
The non compliance of the court order amounts
to willful disobedience. [Kumaran Silk Trade
Ltd. by its Director T.K.Chandran, Chennai
V. Dro Devandra and others (2002) 4 CTC
525].
82
@ The person not having a house and owning a
plot with his hard earned money, sought for
equitable remedy from court for condoning some
deviation in the constructions. The construction
was in his own land without encroaching
anybodys right. Therefore it could be condoned
without affecting public interest. [Dilip
Bhandari & others V. The Commissioner
Corporation of Chennai & another (2004) 5
CTC 481].
@ Petitioner having got a plan sanctioned for
construction of a basement, parking, ground
floor and three floors,had not only flouted the
permission and the plan in respect of construction
of those floors including not providing of any
parking space, but even while the litigation was
pending be carried on the construction, disregard
of the approved plan and constructed additional
floors 4, 5 and 6 without any regard to building
by laws and other relevant enactments and
showing scant respect to the order of court.
Such conduct does not entitle the petitioner to
any order by way of indulgence or discretion
[Kumaran Silk Trade V. Devendra & others
(2007) LW 747 (SC)]
@ In Pratibha Co. Operative Housing Society
Ltd. Vs. State of Maharashtra AIR 1991 SC
1453 : (1991) 3 SCC 341, the Honble Supreme
Court came down heavily on the Housing Society
which made construction in violation of the Floor
Space Index. The Court said that such unlawful
Seminar on Valuation of Properties - 2011
construction was made by the Housing Board
in clear and flagrant violation and disregard of
FSI and upheld the order of demolition of
all the eight floors as ordered by the Bombay
Municipal Corporation. While dismissing the
special leave petitioner, the court observed as
Before parting with the case, we would like to
observe that this case should be a pointer to all
the builders that making of unauthorized
constructions never pays and is against the
interest of the society at large. The rules,
regulations and bye-laws are made by the
Corporations or development authorities taking
in view the larger public interest of the society
and it is the bounden duty of the citizens to obey
and follow such rules which are made for their
own benefits.
I have placed before the esteemed Valuers, few
Judicial Verdicts and Wisdom of the Honble
Apex Court of India and the Madras High Court,
profoundly believing that the knowledge of said
verdicts will be beneficial to the valuer fraternity
to conduct themselves in the most appreciable
manner in their field of knowledge and expertise,
without having to invite Judicial Interdict. I wish
the workshop of valuers a tremendous success
and place on record my heart - felt appreciation
to the Institution of Valuers of Chennai Chapter
for having given me the privilege of attempting
at this maiden effort. IOV is doing a wonderful
job. To impart knowledge is a greatest act of
charity. Best Wishes always.
Seminar on Valuation of Properties - 2011 83

WHETHER GUIDELINES ARE PRESCRIBED BY THE BANKERS

FOR VALUATION OF PROPERTY?
Pala. Ramasamy

Bank before advancing money on secured interest 6) Individual FMB Sketch

want to ascertain the valid marketable title of the 7) Subdivision Statement
secured interest offered. Bank, if it is satisfied with
the secured asset offered for the loan to be granted 8) Chitta, Adangal for latest fasalie
and other terms being accepted by the borrower then 9) Patta
a contract is concluded. For the loan to be availed
10) Kist Receipt
the security interest is charged. Hence on the date
of contract, the banker, on default can fall back on 11) Certificate from VAO
the security offered and similarly, the mortgagor is
aware that on default his secured interest will be sold b) In respect of Plot in Revenue Survey
and money will be realized thereby. 1) Survey Land Register Extract
2) Settlement Register Extract
Thus the term of contract is that, on default of
repayment the security interest will be enforced. 3) Copy of Updated Registry
Hence to ascertain title, marketability and value of 4) Village Map
the secured interest the bank is depending on
5) Combined FMB Sketch
experienced professionals guidance for marketability
and value. It gets the assistance of the advocate 6) Individual FMB Sketch
regarding marketability and the valuer for ascertaining 7) Approved Layout
the value of the property.
8) Sub-division Statement
The advocate, on perusal of the records made 9) Chitta, Adangal for latest fasalie
available to him gives his opinion. It is preferable, 10) Patta
that the lending institution gives instructions to all the
persons who are involved in the process about its 11) Kist Receipt
requirement and the documents which are to be 12) Certificate from VAO
produced and verified inter alia the following viz.
c) In respect of Plot in Town Survey
a) In respect of Agricultural Land 1) Survey Land Register Extract
1) Survey Land Register Extract 2) Settlement Register Extract
2) Settlement Register Extract 3) Town Survey Register Extract
3) Copy of Updated Registry 4) Topo Sketch
4) Village Map 5) Town Survey Sketch
5) Combined FMB Sketch

Practising Advocate, Madurai

84 Seminar on Valuation of Properties - 2011

6) Approved Layout f) In respect of Flat

7) Subdivision Statement
8) Vacant Site Tax Receipt
d) In respect of Site and Superstructure in
Revenue Survey
1) Survey Land Register Extract
2) Settlement Register Extract
3) Copy of Updated Registry
4) Village Map
5) Combined FMB Sketch
6) Individual FMB Sketch
7) Approved Building Plan
8) Sub-division Statement
9) Chitta, Adangal for latest fasalie
10) Patta
11) House Tax Receipt
12) Certificate from VAO
e) In respect of Site and Superstructure in Town
Survey
1) Survey Land Register Extract
2) Settlement Register Extract
3) Town Survey Register Extract
4) Topo Sketch
5) Town Survey Sketch
6) Sub-division Statement
7) Approved Building Plan
8) Property Tax Receipt
9) Water Tax receipt
10) Drainage Maintenance Charges Receipt
11) EB Receipt
1) Survey Land Register Extract
2) Settlement Register Extract
3) Town Survey Register Extract
4) Topo Sketch
5) Town Survey sketch
6) Approved Layout
7) Subdivision Statement
8) Property Tax Receipt
9) Approved Building Plan
10) Allotment Letter
11) Joint Venture Agreement
12) Construction Agreement
13) Sale Agreement/Sale Deed
14) List of Plots allotted
The availability of the revenue records is to be made
mandatory. These requirements have to be informed
by the institutions to the customer at the earliest point
of time so that it will be made available to the
advocate by the customer as turnaround time (TAT)
is important. These records maintained by the
authorities will throw much light to verify and
compare the property offered as security as stated
in the registered documents in respect of
1) Location
2) Extent
3) Measurement
4) Four boundaries
5) Subdivision of Survey Number
The perusal of the revenue records will reveal,
whether the property offered is a patta land or
government land? The comparison of subdivision
statement and survey sketch with layout and
Seminar on Valuation of Properties - 2011
registered documents will enable for proper
identification of property and its extent. There are
several instances where survey number is wrongly
quoted as 412 instead of 421 and sometime North
South measures inadvertently stated as East
West.
If the revenue records were not made available, then
the professional is left with no other option except
to scrutinize the records made available and to give
his opinion. There are instances where housing loan
was given for construction of new building after
demolishing the old structure in Government
Porombokke. In Madurai Town abutting Vaigai River
there were many constructions erected and the
owners of the said buildings were possessed with
the following viz.
1) Electricity Service Connection
2) Water Tap Connection
3) Property Tax Assessment
4) Approval of Building Plan
5) Family Card issued by Civil Supply
Corporation
6) PAN Card by Income Tax Department
Such an owner of the building will be able to provide
following documents
a) Registered Sale Deed
b) Encumbrance Certificates for a period of
50 years
c) Electricity Receipts
d) Property Tax Receipt
e) Water Tax Receipt
f) Underground Drainage Receipt
g) Building Plan
h) PAN Card
85
i) Bank Pass Book
j) EB Card
and an opinion is obtained by the customer. The
valuer takes the opinion and value the property
identified by the customer or his representative or
some times on his own identification. The degree of
co-operation of the customer for valuation before
lending will not be similar at the time of revaluation
during sale. Any clarification sought by the
professional will be replied with readymade answer,
we are ignorant and we have placed the property on
as is where basis is. There are instances where
credit officer compares the legal scrutiny report and
valuation report and finds that, discrepancy in extent
of secured interest. Advocate furnishes the report
gathering the data available from the documents and
gives the measurement. But the valuer measures the
property and prepares his report. The discrepancy
is subsequently rectified.
In a case handled by me where the property is not
identified properly and its valuation has induced the
bank to give substantial loan amount. The list of the
case is as follows:
Property offered by Mrs.Umadevi wife of
Mr.Sadasivam. The description of property is
as follows:
Madurai District, Madurai North Taluk,
Andarkottam, in S.No.38/3A1 measuring 9 cents.
The party identified the property, as it is lying on the
outskirts of Madurai Corporation abutting four way
lane. It is valued at Rs.16 lakhs. On classification as
NPA it was revalued as Rs.1,60,000/-. The report
of the second valuer along with the site map reveals
different location in same Taluk. The property is
interior village in a different direction.
The first valuer valued the property as identified by
the borrower. He has not verified and compared the
86
property on ground as that found in the instrument.
He must have stood along with the mortgagor or his
representative and measured the property. By using
the commonsense along with reasonable prudence
by local enquiry he could have confirmed the village
without the assistance of V.A.O. A glimpse of village
map, top sketch and survey sketch would have
helped him for verifying and comparing the property
identified by the mortgagor and as found in the
instrument. In the absence of the same, it is
convenient for the customer to show a different
property other than that what is found in the
instrument. Here comes the issue what is the role of
the valuer? or what is the contract between the valuer
and the bank for availing the service of valuation?
The bank hires the service of the valuer for getting
fair valuation of the property, so that they can take a
prudent decision before lending the public money. It
is the requirement of the bank that the secured
interest to be assessed properly on identified by the
mortgagor. Once it is identified by the mortgagor,
the valuer has to use his expertise and confirm before
valuing the property identified by the mortgagor is
as that found in the instrument by which he acquires
title and it tallies with that on found on the ground.
The task of the valuer will be easy if the aforesaid
documents are made available by the customer at
the instruction of the institution to the advocate for
getting legal opinion itself. It is the financial institution
who hires the services of the advocate and the valuer
for expertise and it has to give necessary instructions
to the customers to place necessary documents
before the professionals. A proper guidance is
required for getting opinion from the experts and it
has to be made available to the customers at the first
instance to keep up turnaround time (TAT). In the
absence of such guidance, blaming each other will
not get satisfied result.
In criminal R.C.No.1063 of 2008 Lordship Justice
M.Jeyapaul has dealt with the identification of the
Seminar on Valuation of Properties - 2011
property and also identification of owner of the
property. In paragraph 7 of the order of the Honble
High court it is found as follows:
The guidelines prescribed by the bank had not
been produced by the investigating agency. The
petitioner takes a stand that there was no
guideline prescribed for valuation of the
property by the approved Valuers. A Valuer is
supposed to estimate the marketability of the
property referred for valuation by the bank based
on the documents provided by it. Of course, the
Valuer is bound to inspect the property referred
by the bank for valuation purpose. The Valuer
cannot simply go to a location of a property on
his own. For the purpose of identification, he
takes the Branch Manager or some authorised
agent to the location at the time of inspection
for the purpose of identifying the property. The
Valuers take this precaution just to avoid any
mistake in the identification of the property.
Even if the Branch Manager locates the
property for the purpose of inspection by the
approved Valuer, the Valuer is supposed to
identify the property with the schedule found
in the copy of the document furnished to him
for valuing the property.
Thus the judgment speaks about identification of the
owner of the property and not identification of the
property to be assessed. But it is important to note
that, no guidelines were prescribed by the
nationalized banks handling public money in crores,
for valuation of the property by the approved valuers.
To have a guideline for valuation will lead to better
understanding and to draw limitation by the banker
and professional. The guideline will ensure the
professionals in determining the value of the secured
interest and mitigate the risk.
Seminar on Valuation of Properties - 2011
APPLICATION OF GPS (GLOBAL POSITIONING SYSTEM) IN THE
PROFESSION OF VALUATION
What is GPS?
The Global Positioning System (GPS) is a satellite-
based navigation system made up of a network of 24
satellites placed into orbit by the U.S. Department of
Defense. GPS was originally intended for military
applications, but in the 1980s, they made the system
available for civilian use. GPS works in any weather
conditions, anywhere in the world, 24 hours a day.
There are no subscription fees or setup charges to use
GPS.
The GPS satellite system
There are 24 satellites that make up the GPS space
segment that are orbiting the earth about 20,000
kilometers above us. They are constantly moving,
making two complete orbits in less than 24 hours. These
satellites are travelling at speeds of roughly 11,500
kilometers an hour.
GPS satellites are powered by solar energy. They have
backup batteries onboard to keep them running in the
event of a solar eclipse, when theres no solar power.
Small rocket boosters on each satellite keep them flying
in the correct path.
Practising Valuer, Chennai
87
S.K. Ramesh Mani
How the GPS Works and what it does?
GPS satellites circle the earth twice a day in a very
precise orbit and transmit signal information to earth.
GPS receivers take this information and use triangulation
to calculate the users exact location. Essentially, the
GPS receiver compares the time a signal was
transmitted by a satellite with the time it was received.
The time difference tells the GPS receiver how far away
the satellite is. Now, with distance measurements from
a few more satellites, the receiver can determine the
users position and display it on the units electronic
map.
GPS satellites transmit two low power radio signals,
designated L1 and L2. Civilian GPS uses the L1
frequency of 1575.42 MHz in the UHF band. The
signals travel by line of sight, meaning they will pass
through clouds, glass and plastic but will not go through
most solid objects such as buildings and mountains.
A GPS receiver must be locked on to the signal of at
least three satellites to calculate a 2D position (latitude
and longitude) and track movement. With four or more
satellites in view, the receiver can determine the users
3D position (latitude, longitude and altitude). Once the
users position has been determined, the GPS unit can
calculate other information, such as speed, bearing,
track, trip distance, distance to destination, sunrise and
sunset time and more.
What is Latitude and Longitude?
` Latitude
` It is used to express how far north or south,
relative to the equator.
` If we are on the equator our latitude is zero.
88
` If we are near the North Pole our latitude is
nearly 90 degrees north.
` If we are near the South Pole our latitude is
almost 90 degrees south.
` To remember, the imaginary lines parallel to X
axis are latitude
` Longitude
` It shows the location in an east-west direction,
relative to the Greenwich meridian.
` Places to the east of Greenwich (such as Middle
East, India and Japan) have longitude angles
up to 180 degrees east.
` Places to the west of Greenwich (such
as the Atlantic and North and South
America) have angles up to 180 deg
west.
` To remember, the imaginary lines
parallel to Y axis are longitude
Graphical representation of Latitude and
Longitude (Latlong)
How accurate is GPS?
` Certain atmospheric factors and other sources of
error can affect the accuracy of GPS receivers.
GPS receivers are accurate to within 15 meters
on average.
` GPS receivers with WAAS (Wide Area
Augmentation System) capability can improve
accuracy to less than three meters on average.
No additional equipment or fees are required to
Seminar on Valuation of Properties - 2011
take advantage of WAAS. Users can also get
better accuracy with Differential GPS (DGPS),
which corrects GPS signals to within an average
of one to 2 meters. More expensive systems are
available that can provide accuracies to within a
centimeter.
Applications of GPS in General
` In air - navigation by general aviation and
commercial aircraft
` At sea - navigation by recreational boaters,
commercial fishermen, and professional mariners
` For Surveyors - cost savings by drastically reducing
setup time at the survey site and providing
incredible accuracy
How it is useful for Valuers in Valuation Profession
Now, we come to know that, the Central Registry is
requesting the bankers, to enter the latitude and
longitude of the property, under mortgage for their
records. We, the valuers, are visiting and inspecting the
property physically so we can get the latitude and
longitude from the location, by using GPS, and it can
be entered in our report. These coordinates may be
used by the bankers for the records.
` 1. Get the current position (Latlong) of the
inspected site at its location
` 2. To calculate the approximate area of the larger
extent of site, if all the turn points of the land are
accessible
` 3. Compare the shape of the land with the FMB
` 4. To calculate the distance from the property to
the seashore / river, where the Coastal regulation
zones are applicable
` 5. Make a track to access the land from the known
point or from a landmark
` 6. To reach the property, in future, by using Mobile
navigator (Google maps, Mapmyindia and
Seminar on Valuation of Properties - 2011 89

Satguide) for on road sites and for off the road sites with some other mobile applications such as GPS Status,
Maverick etc.
` 7. In Google maps, view the development of the surrounding locality
` 8. To prepare a key plan using Google map, in which the property situated in a complicated road and location
and which may not have the proper access roads

How it is useful for Bankers

` In future, using this facility, any bank official can easily locate the property and will be able to reach the property,
by using their Mobile navigator
` Further by using Google maps/Google Earth, view the development of the surrounding locality of the site, by
the higher officials who may not have to visit the site, from their work place

Note:

To enjoy these applications, the internet facility must be active.

Application in Detail

` Application 1
` Get the current position (Latlong) of the inspected site at its location

a. Open Google Maps

b. Enter the above latitude and longitue ie. 13.00644, 80.25465
c. Click on Search, it will show the location of the property in Adyar, Chennai
` Application 2

` To calculate the approximate area of the larger extent of site, if all the turn points of the land are accessible
a. Get the Latlong of a point P1 to P12 in the anti-clockwise or clockwise direction.
b. Enter those values in Excel as below
90 Seminar on Valuation of Properties - 2011

Now see, how the above values are to be used in calculating the area of the land

c. Open GE Path in your Computer

d. Copy the above values (Red color only) from Excel table
e. Select the command button Paste grid from Clip board
f. Select the method in GE path as Small area
g. Give some file name and store this in a required location
h. Click on Run on the Menu bar, the picture will looks as below
Seminar on Valuation of Properties - 2011 91

The result is The perimeter is 10133.26 feet and the area is 109.00 Acres, the allotted area is 104.23
acres, by APIIC

Note:
1. To calculate the area of the larger extent approach all the turnout point of the site in clockwise direction or
anticlockwise direction and store the latlong at their respective locations and also record it in a paper by
making a proper tabulation with necessary remarks
2. Before running this application, kindly ensure that, the Google Earth / Google Earth Pro and GE path
software are installed in your system and mainly the internet facility is active.
3. For this application, the above exercise is not necessary if we have the Google Earth Pro licensed version.
In this version, we can calculate the area and perimeter by selecting polygon command, in a Show Ruler
Select Polygon Select the unit - Click on all the turn out point of the location. View the result on the
Ruler Form

Application 3
` Compare the shape of the land with the FMB / Topographical Survey Map

This the topographical survey map of a land

92 Seminar on Valuation of Properties - 2011

The same is viewed in Google earth

Application 4
` view the development of the surrounding locality
` Enter below values in Google Maps in the search bar and click on search, it will take us to the location and
view it in Satellite mode.
A. Co-ordinates
x 13 05 8.8, 79 52 55.5
This is the only house in this layout, and the other developments are at about 400 to 500 m. Zoom
in and Zoom out to view the development of the surrounding locality.
B. Co-ordinates
13.12759, 79.32421
This property is located at the foot of the hill, one side of the boundary is Andhra. There is no
development
Of course, we know physically at site, but you cannot see where is the nearest developed location in the surrounding
locality.
This Application will also help the bankers

Application 5
` Distance of a property from the Seashore / River
a. Open Google Earth
b. Enter the above co ordinates and search
c. Select Ruler
d. Select Line
e. Select the units to Metres
f. Draw a line towards the Seashore/River, in a straight line, from the property location
g. View the distance, we can see the distance simultaneously by stretching the line towards the sea or river.
Seminar on Valuation of Properties - 2011
Note:
If the distance from the seashore is above 200m or
500m, we cannot come to the conclusion that this
property is within or not in the respective CRZ. This
has to be finalized by the Ministry of Environment and
Forest
Application 5
` Location of wind mill
The windmills are located in remote locations
and there will lots of windmills. How can we
know, to which we assessed the value, even
the owner, may not know which wind mill he
owns and its location, only the AMC
contractors know the location and showing it
to us. If we know the latitude and longitude of
its location we can easily locate the wind mill.
A. Co ordinates
10.6701077, 77.33881
This is the location of the wind mill near
Udumalpet, Near Coimbatore, Tamil Nadu.
B. Co ordinates
8.26150,77.53665
This is the location of the wind mill near
Kanyakumari, Tamil Nadu
93
Other Applications
The other applications such as creating track to the
inspected property and track back to the inspected
property from the current location are practical oriented,
so these details are not explained in writing. Once you
get in the use of GPS, we learn everything, because
nothing is impossible.
Some useful software
1. Google Earth / Google Pro Trial or Licensed
Version
2. Bhuvan (Developed by ISRO)
3. GE Path
Some of the useful links
For Google Maps
http://maps.google.co.in/maps?hl=en&tab=wl
For Downloading Google Earth
http://www.google.com/earth/download/ge
For Bhuvan
http://isrobhuvan.in/
others
http://www.gpsvisualizer.com/calculators
94
LEGITIMATE ASSETS UNDER INDIAN ENVIRONMENTAL
LEGISLATIONS
Keywords: Developmental Projects
Environmental Clearance Awareness Coastal
Zone Impact Assessment Environment Age
INTRODUCTION
India, as a signatory of the United Nations
Conference on Human Environment at Stockholm
in 1972, made leaps over the Environmental issues
thereafter. The Water Act 1974, 42nd Amendment
to the Constitution in 1976 in making the state to
endeavor for protection and improvement of the
environment, the Air Act 1981 and the Environment
Act 1986 are few of the major legislation adopted
by the Parliament.
The developmental projects with certain threshold
limits or along the coastal area are being regulated
under the provisions of Environmental Impact
Assessment Notification and Coastal Regulation
Zone Notification since the early nineties. The
improper awareness of these rules among the
developers, builders and officials is creating complex
situations by means of violations which can lead to
demolition, legal proceedings, etc.
The Adarsh Building controversy opens the eyes of
the common public on these coastal provisions to
certain extent but however the oversight violations
due to non exposure of these notifications are still
continuing over almost all part of India.
Mr. P Kirupanantha Rajan, ME, District Environmental Engineer, Tamilnadu Pollution Control Board,
Nagercoil, Tamil Nadu
Seminar on Valuation of Properties - 2011
Mr. P Kirupanantha Rajan
COASTAL REGULATION ZONE
NOTIFICATION 1991 / 2011
The Coastal Regulation Zone Notification 1991 is
one such notification with almost 20 times either
corrected or amended in the span of 12 years and
finally superseded with the revised Coastal Regulation
Zone Notification 2011. The area between the HTL
and 500 metres onwards landward side is generally
known as Coastal Regulation Zone. The Coastal
Zones are classified into I, II, III as sensitive area,
developed area and undeveloped area respectively.
The developmental activities in CRZ-I are prohibited
with certain exemptions regulated towards the
landward side of the existing road in CRZ-II and
beach resorts / hotels only permitted between 200
m to 500 m from HTL with certain restrictions in
CRZ-III.
It is certain that no thumb rule is so far arrived in
ascertaining the legitimacy of the developmental
structures along the coastal stretches. The vision of
more than a kilometer from the seashore with the
naked eye may actually be lesser than 100 meters in
the CZMP maps approved by the Government of
India. To simplify the subject any developmental
projects either originally constructed or altered or
modified on or after 19.02.1991 along the coastal
stretches may be verified with the environmental
clearance obtained under Coastal Regulation Zone
Notification 1991. The notification empowers the
Seminar on Valuation of Properties - 2011
officials to accord permission only rather than
ratification.
Any structure constructed over and above 9.0 metre
from the ground level in Village Panchayats from the
date of the Notification can have no value, as the
same is considered as violation, likewise, lesser than
0.4 Hec. of plot size, floor space index exceeding
0.33, provision of bore well with 200 m from the
HTL etc. has not been permitted.
Industries except the one which requires water front
activity is strictly prohibited in all the CRZ I, II and
III.
The parks, play fields, gardens etc are permitted in
CRZ-III and any project having investment more than
Rs.5 crores must have obtained prior environmental
clearance from Ministry of Environment and Forests,
Government of India, New Delhi.
ENVIRONMENTAL IMPACT ASSESSMENT
NOTIFICATION 1994 / 2006
The industries and the other developmental projects
like mining, hydro power projects, ports and harbors,
tannery, boundaries, electroplating, certain High Way
projects etc are regulated since 27.01.1994 through
the Environmental Impact Assessment Notification.
The procedure for the clearance took a series of steps
of preparatory EIA reports, Public hearing etc. The
revised EIA Notification 2006 has also modified
certain industries and added the building /
construction projects / area development projects
and townships since 14.09.2006.
The category 8(a) of the schedule of the EIA
Notification 2006 made it mandatory for the building
and construction projects exceeding more than
95
20,000 square meters and less than 150000 square
meters of built up area must have obtained prior
environmental clearance from the Ministry of
Environment and Forests, Government of India, New
Delhi.
Likewise the category 8 (b) stipulates the Townships
and Area Developmental projects covering an area
greater than 50 Hec. and / or built up area greater
than 1,50,000 sq. meters. must have also obtained
the Environmental Clearance from the Government
of India. The developmental projects like Industrial
Estates, Parks, Complexes, EPZs, SEZs, Bio-Tech
Parks, Leather complexes with certain conditions
shall also be accorded clearance under the
Notification.
CONCLUSION
The Environment (Protection) Act 1986 which is
considered as an umbrella Act for the cause of
safeguarding the Environment ensures the regulation
of developmental activities in India with certain
degree of freedom. The violations though are very
temporary in nature, will be identified and appropriate
action will be taken against the defaulters. The
violations viz. total violations, partial violations and
the permissible violations will be dealt as per the
merits of law. The legitimacy of the assets developed
in 1991 or after could be valid only and only if the
same satisfies these provisions of these Notifications
like obtaining Environmental Clearance, compliance
of the stipulated conditions etc. In this Environment
Age, the conservative approach on the valuation of
assets from the point of the encumbrance certificate,
approval from the incompetent authority, architectural
marvel etc are all superseded with one magical word,
that is Environmental Clearance.
96
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