10 POINTS TO BE REMEMBERED FOR RENT CAPITALISATION

KNOWLEDGE BANK FROM B KANAGA SABAPATHY

LET KNOWLEDGE SPREAD

Message from B. K. sir 18/04.2023

Question :

What are the 10 points to be noted in rent capitalisation method?

My opinion :

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

5. 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.

6. The rent collected is to be reasonable to get an accurate yield rate.

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

8. If the rent is not revised for years together then, this method will not be realistic.

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

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

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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