Capitalized value of three-storied RCC building

Assumptions: the gross rent of Rs 12,000 per month is for the whole building; outgoings (municipal tax, repairs, management) are taken as 30% of gross rent (not given in the data). Interest on land is deducted because land does not wear out. The sinking fund (3%) is used to redeem the building cost over 65 years, with a net yield of 7.5%.

Data: Land = 550 m² × 415 = Rs 2,28,250. Total plinth area = 3 × 325 = 975 m².

Net income

$$\begin{aligned} \text{Gross rent} &= 12{,}000 \times 12 = Rs\ 1{,}44{,}000 \\ \text{Outgoings (30\%)} &= 43{,}200 \\ \text{Net income} &= 1{,}00{,}800 \\ \text{Interest on land at 7.5\%} &= 0.075 \times 2{,}28{,}250 = 17{,}119 \\ \text{Net income from building} &= 1{,}00{,}800 - 17{,}119 = 83{,}681 \end{aligned}$$

Year's purchase (7.5% net yield, 3% sinking fund, 65 years)

$$YP = \frac{1}{0.075 + \dfrac{0.03}{(1.03)^{65}-1}} = \frac{1}{0.075 + 0.005146} = 12.477$$

Capitalised value

$$\begin{aligned} \text{Building} &= 83{,}681 \times 12.477 = Rs\ 10{,}44{,}109 \\ \text{Land} &= Rs\ 2{,}28{,}250 \\ \text{Total} &= Rs\ 12{,}72{,}359 \end{aligned}$$

Check: the replacement cost of the building by the plinth area rate is 975 × 22,500 = Rs 2,19,37,500. This is the upper limit for the construction cost; the value found by the income method is controlled by the (low) rent.

Answer: Capitalised value of the property is about Rs 12.72 lakh (Rs 12,72,359).