CTN PRESS

CTN PRESS

NEWS & BLOGS EXCLUCIVELY FOR INFORMATION TO ENGINEERS & VALUERS COMMUNITY

APPROACH TO VALUATION OF RURAL IMMOVABLE ASSETS

APPROACH TO VALUATION OF RURAL IMMOVABLE ASSETS

BY- VALUER ALHAD DESHPANDE

[A] INTRODUCTION;

Friends, many times, we valuers are asked to value immovable assets located in some rural area, where there are hardly any transactions!

You must have come across such a situation in your day-to-day professional practice. The major issue is always of non-availability of comparable sale instances nearby of similar comparable assets. We all know value is like an estimate/present worth of an asset, worked out on its cost incurred, the price quoted amount realized on sale/transfer, so comparable sale instances nearby, special features if any, etc. In our country, there has been a migration from village to city in last so many years.

 

So the village market is just like a supporting market connected to some city market like a branch, where there are limited possibilities of transactions, due to the major portion being owned and possessed by villagers themselves! Many times apart from villagers no external addition is there in the population from surrounding towns/villages.

But nowadays, due to the globalization effect, all city retail products are trying to reach small towns, and villages to expand their business in rural areas also. As small and big towns are flooded with people having large populations and competition in the market, some businessmen avoid settling there and live in their own villages with dignity and satisfaction with social acceptance. These people are already owning large agricultural lands having income from it, along with some agro-based businesses also established.

 

 

Even nationalized banks have their own policy to have a rural branch network, connected to some districts’ main branches, from where all such rural branches are monitored!

Now agriculturists, traders, and other small businessman in such villages have account and credit facility in rural bank, many times needing their mortgaged asset to be valued to have more credit facilities, for which bank appoint valuers to visit such assets and asks for valuation report.

[B] WHAT INFORMATION ONE SHOULD KNOW FOR VALUING SUCH ASSETS?

The population of the such village where the asset is located, distance from nearby developed town, road network nearby, transport facilities, types of businesses being run in said village, average income level, details of property-related transactions like sale, rent, transfer etc., basic facilities in village-like water, electricity, education, medical aids, govt. offices etc.

 

[C] METHODS ADOPTED FOR VALUATION WITH ANALYSIS;

  1. COST APPROACH [IN NO COMPARABLE DATA IS AVAILABLE]
  2. INCOME APPROACH

[IF SOME RENTAL TRANSACTIONS ARE THERE LIKE A BANK, CREDIT SOCIETY ETC.]

We will discuss in short about both methods one by one,

  1. COST APPROACH [IN CASE, NO COMPARABLE DATA IS AVAILABLE]

Many times assets located in villages far away from major towns, or highways hardly had any transactions in past, in such cases cost-approach is the only way to conduct the analysis!

Small Land/plot in GAOTHAN is being valued as per ready reckoner/circle rates and construction if any is analyzed by PWD rates with standard methods of depreciation. Suppose we have to value a rural gaothan plot having 100 sqm. Area and 1000/sqm. As ready reckoner circle rate, its value will be 1000/-[ x ] 100 = 1,00,000/-, also if same is having to say 50 sqm. New RCC construction, you can add 20000/- [PWD plinth area rate] [x] 50 = 1, 00,000/-

So adding these 2-factors, cost of the property = 2, 00,000/-

Now for certifying the value of the property one must ensure that there is a possibility of the transaction on above cost, else you can reduce it by a certain acceptable percentage say 20 %, and certify the value of the property as 2, 00,000/- [x] 0.8 = 1, 60,000/-

[Please note that this is just an imaginary illustration to clear the concept and approach to rural assets valuation and should not be used like a ready tool, AS EVERY CASE IS DIFFERENT WITH /WITHOUT SIMILARITY!]

 

  1. INCOME APPROACH

[IF SOME RENTAL TRANSACTIONS ARE THERE LIKE A BANK, CREDIT SOCIETY, RURAL GODOWN ETC.]

Another case of some villages may be some premises being rented for banks, credit societies, godowns etc., where rental income is received by the owner. Please always note that if any property receives rental income, it carries good value, even though a sale transaction is not available!

For eg. Some rural banks is occupying 300 sqm. Land area and 150 sqm. b/up [new RCC construction]  in some village, having rental annual income of 2,00,000/- , in such case we have to calculate the rental value of the property, by deducting taxes, repairs, outgoings from gross annual income and capitalizing the net income by suitable R.O.R. [rate of return] , say 5 %, in this case, data will be,

Gross income = 2, 00,000/-, net income with 10 % deductions = 1, 80,000/-,

Rate of return = 5 %

So rental value = 1, 80,000/-[x] 100/5 = 36, 00,000/-

Deduct construction cost = 200000/-[PWD const. rate] [x] 150 = 30, 00,000/-

So plot value = 36, 00,000/-[-] 30, 00,000/-=6, 00,000/-

So the plot rate comes out to be = 6, 00,000/300 sqm. = 2000/sqm.

So you can compare this asset with your asset to be valued and come out with an appropriate result!

[Please note that this is just an imaginary illustration to clear the concept and approach to rural assets valuation and should not be used like a ready tool, AS EVERY CASE IS DIFFERENT WITH /WITHOUT SIMILARITY!]

 

[D] CONCLUSION;

In this topic, we have discussed the approach to the valuation of rural assets with limited or no transactions. The overall valuer must know the potential of the village, and the chances of growth in the near future. Many times villages located on /near highways develop very fast due to their unique locational advantages, some villages come in a fringe area, influence area near some districts, and major cities, and there also, one must study the impact of their nearness to such city, chances of expansion in future, land acquisitions in and around such villages, chances of promotion like sub-district, nagar panchayat, nagar palika in near future, etc.

 

 

ABOUT THE AUTHOR

Er. ALHAD DESHPANDE

B.E. [CIVIL], M.I.E., F.I.V., M.O.V.

IBBI REGISTERED VALUER

error: Content is protected !!
Scroll to Top