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Capitalized value of 80-year building

Short answer

Annual gross rent Rs30,000; outgoings repair, taxes/municipal and management total Rs12,400, so net income Rs17,600. Capitalize at 8% net yield using single-rate YP 12.5; capitalized value Rs2,20,000.

A building having estimated future life of 80 years, fetches a gross annual rent of Rs. 2500 per month. Work out its capitalized value on the basis of 8% net yield. The rate of above building measures 1200 m2m^2 and cost of land is taken at Rs. 100 per m2m^2. The other outgoings are: Repair and maintenance (1/12)th of gross income; Municipal tax and property tax - 25% of gross income; Management and miscellaneous charges - 8% of gross income. The plinth area of a building is 600 m2m^2 and plinth area rate of the building is Rs. 200 per m2m^2.

Given: Gross rent = 2500 × 12 = Rs 30,000 per year. Net yield = 8%.

Outgoings

  • Repair and maintenance = 1/12 × 30,000 = Rs 2,500
  • Municipal and property tax = 25% × 30,000 = Rs 7,500
  • Management and miscellaneous = 8% × 30,000 = Rs 2,400
  • Total outgoings = Rs 12,400

Net income = 30,000 − 12,400 = Rs 17,600

Year's purchase for a net yield of 8% (single rate, as net yield is given):

YP=1008=12.5YP = \frac{100}{8} = 12.5

Capitalised value

=17,600×12.5=Rs 2,20,000= 17{,}600 \times 12.5 = Rs\ 2{,}20{,}000

Check with cost: land = 1200 × 100 = Rs 1,20,000 and building = 600 × 200 = Rs 1,20,000, total new cost Rs 2,40,000; the capitalised value is below this, which is reasonable for an old building.

Answer: Capitalised value of the property is Rs 2,20,000.

✓ Answer checked by Claude Opus 5.5 (high effort)

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