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Value of property and fair value numerical

Short answer

A property has value if it has utility, scarcity, demand and transferability. Using the income method: annual net income Rs45,000 after 25% outgoings; land interest Rs40,000 leaves Rs5,000 for building; dual-rate YP 9.003 gives building Rs45,016, land Rs4,00,000; total fair value Rs4,45,016.

Define value of any property and what is to be satisfied by any property to have its value. A person desire to sale his property having details as: Gross rent = Rs 5000 per month, total outgoings = 25% of gross rent, estimated future life = 35 yrs, area of land = 200 m2m^2, estimated value of Land = Rs 2000 per square meter. Determine the fare value of property. Take rate of interest on capital as 10% and rate of redemption of capital as 5%. Assume suitable data, if required.

Value

The value of a property is its present worth in money, i.e. the price a willing buyer would pay and a willing seller would accept. To have value a property must satisfy: utility (it must be useful), scarcity (limited supply), demand (people want it, backed by purchasing power) and transferability (clear legal title that can be sold or transferred).

Numerical (income method with land and building separated)

Gross rent per year = 5000 × 12 = Rs 60,000 Outgoings = 25% × 60,000 = Rs 15,000 Net income = 60,000 − 15,000 = Rs 45,000

Value of land = 200 × 2000 = Rs 4,00,000 Interest on land at 10% = Rs 40,000 (land does not depreciate, so no redemption) Net income from building = 45,000 − 40,000 = Rs 5,000

Year's purchase (dual rate), i = 10%, sinking fund rate r = 5%, n = 35 years:

YP=1i+r(1+r)n−1=10.10+0.05(1.05)35−1=9.003YP = \frac{1}{i + \dfrac{r}{(1+r)^n - 1}} = \frac{1}{0.10 + \dfrac{0.05}{(1.05)^{35}-1}} = 9.003

Value of building = 5,000 × 9.003 = Rs 45,016

Fair value of property = value of land + value of building = 4,00,000 + 45,016 = Rs 4,45,016

Answer: Fair value of the property is about Rs 4,45,000.

✓ Answer checked by Claude Opus 5.5 (high effort)

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