Ten points to be remembered by Rent Capitalization method

KNOWLEDGE BANK FROM B KANAGA SABAPATHY

LET KNOWLEDGE SPREAD

Message from B K Aruna 29.08.2023

Ten points to be remembered while doing valuation by Rent Capitalisation method :

1. While capitalising, only the net rent is to be considered.

2. Rent capitalisation is to be done in the hands of the owner.

3. The maintenance charge is an expense for the tenant and this should not be considered while capitalising.

4. The rent collected is to be reasonable to get an accurate capital value.

5. If the flat is let out to a close relative or a friend for a lower rent, then this method may not be realistic.

6. If the rent is not revised for years together, then this method will not be realistic. Similarly, if the flat is too old, this method will not be realistic.

7. If the flat is let out to an adamant tenant who pays a less rent intentionally and if he doesn’t want to vacate, this method will not be realistic.

8. When the FSI is much less, this method may not give a realistic market value.

9. This method may be realistic in the case of flats with FSI, say 2 and may not give a realistic value in the case of individual houses with FSI, say 1.

10. Only a prudent valuer who has thorough knowledge of local conditions can assume suitable yield rate.