OCCUPATION VALUE AND INVESTMENT VALUE
The main intention of every purchaser of a real estate is to invest his capital so as to obtain enough return from it. Thus, the investment value of property indicates the amount offered by a prudent purchaser by keeping in view the advantages of processing the property from investment point of view. The real property shows at steady rate of appreciation in value and as it is indestructible in character, the prudent investors prefer to purchase the real estate. With inflation occurring in an economy, there is a strong demand for investment in the selected real estate of locality.
But in some cases, the purchasers are attached to own the property for occupying for their personal use. The amount offered by such purchaser is the occupation value of property.
The general considerations as discussed above for supply and demand of real estates affect the occupation value. In addition, the following three factors tend to develop a white gap between the occupation value and the investment value of real estate:
- Government Acts: The restrictions imposed on the property by certain government Acts may considerably decreased its occupation value. For instance, as per the provisions of Rent Restrictions Act, the owner of a property can neither increase the rent of a tenant nor can evict him. Thus, the restrictions is put up on the income which the owners may drive from his property and the power of the owner to obtain possession of his property also become limited in extent. It is for the reason that the properties with the vacant possession are sold at fancy prices as compared to the property occupied by tenants.
- Intensity of demand: The occupation value of a property is determined by the intensity of demand of the prospective occupier. The stronger the demand, the higher is the occupation value. In such a case ,the purchaser is a satisfied with less return on the capital as compared to the other forms of investment. The intensive demand may be due to various factors such as status in society, availability of surplus funds etc.
Trade condition: The occupation value of units such as factories, workshops , godowns, shops, hotels, etc. will be higher as such units are bought by the purchaser to run their own business activities. Hence, if trade conditions are good the occupation value will tend to rise and if reverse is the case, it will tend to fall. It may be noted that it in bad times the occupation value of premises which are constructed to run certain special type of business activities will considerably lower as sizeable amount will have to be spent to put such promises to some other uses.