KNOWLEDGE BANK FROM B KANAGA SABAPATHY
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Message from B. Kanaga sabapathy 29.05.2023
HOW TO VALUE A LEASE HOLD PROPERTY TO THE SAME FAMILY MEMBERS
Question :
It’s a big hotel property built on 247 cents which is in finishing stage is owned by a family of five people of two generation, part of this is leased through lease deed for five people of the same family, four persons are common i.e. lessor and lessee. It’s a lease for 30 years and with a lease rent of 60,000 per month.
It’s mortgaged to bank and hence the valuation is required for primary security.
We cannot value it considering a rent of 60,000 as the value will be too less.
How to value the property? As the lessor and lessee are same people except one person, can we value it by land and building method.
As the property is not fully furnished and ready to occupy, it cannot be either valued by profit method or rent capitalization.
Please do suggest how to value the property for bank purpose.
Opinion :
1. It is a primary security. For the purpose of making improvements, the lessee has prepared an estimate, got it vetted, got the loan sanctioned and proceeded with the developments. Now, the bank has directed you to estimate the cost invested by the borrower for the purpose of re-imbursement or releasing the first instalment of loan.
2. Do not worry about the other methods of valuation. Estimate the cost as per the estimate vetted already and certify the cost. If you estimated cost is more than the estimate, record it.
With best wishes,
B. KANAGA SABAPATHY
bkvaluer@gmail.com
www.bkanagasabapathy.com
About the Author:-
- Mr. B. Kanaga Sabapathy born in 1951, is a Civil Engineer who belongs to the 1972 batch of Regional Engineering College, Tiruchirappalli in Tamilnadu.
- He is a Registered valuer of the Central Board of Direct Taxes, a Professional Engineer and also a Chartered engineer. Valuation is his main profession..
- He was the National Vice-President of the Institution of Valuers (India) for 11 terms.
- He is a regular contributor of articles in the Indian Valuer Journal from the year 1985. His articles especially his regular column “Questions & Opinions” are very popular among the practising valuers in India.
- His book “Guidelines on Valuation for Banks” (2002) is used to be referred by many banks. The valuation formats designed by him were accepted and adopted as the formats by many banks in the country.
- His son K. Arun and daughter B.K. Aruna are also approved valuers and they also contribute articles to the Indian valuer journal.
- His guru: Mr. C.H. Gopinatha Rao, Chennai.
- His mentor: Mr. R.K. Gandhi, Mumbai.
- His role model: Mr. S. Rajaratnam, Chennai.
- His best students: Thousands of valuers in the country
