INTERESTING ARTICLE USEFUL FOR ALL VALUERS & ENGINEERS
Sachin Sandhir
Property transactions in under-construction apartment projects in India are often carried on the basis of the super built-up area or gross floor area concept. Due to the lack of regulation over the floor space calculation, it is a general practice in the country that property buyers are required to pay for construction that falls in FSI-free areas such as spaces for the congregation, passage, and common conveniences such as pavements, staircases, lobby, lifts, and terrace.
In a typical project, these constitute around 15 to 20 percent of the overall construction. Super area also includes spaces that you do not use but is a part of your complex. It is the carpet area or the built-up area that you actually live in.
Other countries too have such irregularities in floor space measurement. In parts of the Middle East, floor areas can include the hypothetical maximum number of floors that could be built on the existing foundations. In Australia, measurements have included outdoor parking spaces, even when they are not physically adjoined to the property itself.
Currently, the property is measured using different standards around the world, which leads to inconsistencies in the market. Like many other countries, in India too, the inconsistency has been a concern for buyers.
A buyer would wish to pay for the exact amount of space available for personal use in the property in other words the carpet area. In fact, the measurement of super built-up area differs from one developer to another.
In the case of commercial property, building ownership changes over time. And the subsequent occupier or owner makes certain additions and subtractions to the original plan. In some cases, facilities have never been re-measured since the first architectural draft. All these aspects can misrepresent the total floor area causing a variation in the total rentable area and the rental value thus charged.
Continuance of such irregularities suggests that there are no standardized means of measuring the value of common spaces, and the justifiable extra cost is charged to the end-user. There is no mechanism in place to determine how much cost the developer has incurred for these spaces in terms of construction materials and manpower.
The likely fallout of the absence of any measuring standards is that property prices will continue to rise. In most cases, the reported or quoted values are higher than the actual market value. The buyer would then be inclined towards putting a higher price tag when he decides to sell the same property in the future.
Moreover,in the long term, investors would prefer to stay away from a market that does not have a standard measurement technique for a property. It is, therefore, necessary to create a universal method of measuring property assets not only in the country but across the world.
Realizing the need for uniform standards,15 leading professional and non-governmental organizations from around the world have come together to develop and promote international standards in asset valuation, property measurement, and ethical behavior. RICS is a part of this initiative.
In the first phase, an International Property Measurement Standards Coalition has been formed in May, to bring uniform measuring practices that would be adopted by all nations. The World Bank is supporting the initiative. In addition, RICS has created a set of guidelines called the Codes of Measuring Practice or CMP. These are internationally accepted guidelines for accurate measurement of buildings and land, calculation of sizes.
The groundbreaking initiative has the potential to deliver huge benefits both to real estate markets and to the economies and the populations they support around the world, by creating a level playing field for the way property is measured, valued, and ultimately reported in financial statements.
Wary investors, who are now cautious about putting their money in property markets, will be willing to invest without inhibitions. Countries witnessing slumps due to global economic uncertainties will get a fresh start with renewed investments. This would also help in rationalizing sky-high property rates.
However, the solution lies in adopting these standards that would lead to fair transactions. This would instill greater trust and confidence in the property market. Adapting to these standards would mean greater involvement of the public and the industry. The task is huge but not impossible.
