--- title: "Capitalized value of three-storied RCC building" subject: "Construction Management" chapter: 13 key: "semester_8/construction_management:value-three-storey-rcc-2079" source: https://www.bctengineer.com/q/semester_8/construction_management/value-three-storey-rcc-2079 site: BCT Engineering --- # Capitalized value of three-storied RCC building Construction Management · Chapter 13: Valuation - Asked in: 2079 Shrawan, 7 marks - Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14 - Page: https://www.bctengineer.com/q/semester_8/construction_management/value-three-storey-rcc-2079 - Whole chapter: https://www.bctengineer.com/md/semester_8/construction_management/chapter-13 ## Question A three storied RCC building with expected 65 years of useful life is built on a plot of land measuring 550 $m^2$. The plinth area of each story is 325 $m^2$ and it fetches a gross rent of 12,000 per month. Calculate the capitalized value of property based on 7.5% net yield. The sinking fund is assumed to be computed in 3% interest rate. The cost of land is Rs. 415 per $m^2$. The plinth area rate of similar building in the vicinity was found to be Rs. 22,500 per $m^2$. ## Short answer Assume outgoings 30% of gross rent. Annual net income Rs1,00,800; land interest at 7.5% Rs17,119 leaves building income Rs83,681. Dual-rate YP 12.477 (7.5%, 3%, 65 years) gives building Rs10,44,109; adding land Rs2,28,250 gives capitalized value Rs12,72,359. ## Answer **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).** ## Check yourself The answer's key points as multiple-choice questions, with the correct option and why. 1. Why is interest on land (7.5% of Rs 2,28,250) deducted from the net income before applying the year's purchase? A. Land does not wear out, so it is not redeemed and is valued separately B. Land is taxed at a higher rate than the building C. Land has a shorter life than the building D. The sinking fund already covers the land Answer: A. Land has no depreciation, so its share of income is removed; the rest is capitalised for the building and land is added back at its market value. (Key point: Interest on land deducted) 2. Gross rent is Rs 12,000 per month and outgoings are taken as 30%. What is the annual net income before deducting interest on land? A. Rs 1,44,000 B. Rs 1,00,800 C. Rs 83,681 D. Rs 43,200 Answer: B. Gross rent = 1,44,000 per year; less outgoings 43,200 gives 1,00,800. (Key point: Net income calculation) 3. Which expression gives the year's purchase for 7.5% net yield, 3% sinking fund and 65 years? A. 1 / 0.075 B. 1 / (0.075 + 0.03) C. 1 / (0.075 + 0.03/((1.03)^65 - 1)) D. 0.075 + 0.03/((1.03)^65 - 1) Answer: C. Dual-rate YP = 1/(i + sinking fund factor), where the sinking fund factor is 0.03/((1.03)^65 - 1) = 0.005146. (Key point: Year's purchase with sinking fund) 4. How is the total capitalised value of the property obtained? A. Net income from building x YP only B. Net income from building x YP plus the land value C. Plinth area x plinth area rate plus land value D. Gross rent x YP plus land value Answer: B. Building value = 83,681 x 12.477 = Rs 10,44,113; adding land Rs 2,28,250 gives Rs 12,72,363. (Key point: Final capitalised value) ## Related in Construction Management - [Capitalized value of 80-year building](https://www.bctengineer.com/question.md?key=semester_8%2Fconstruction_management%3Avalue-building-80-years-2078) — Construction Management, chapter 13 - [Capitalised value from Rs 20,000 monthly rent](https://www.bctengineer.com/question.md?key=semester_8%2Fconstruction_management%3Avalue-building-20000-rent-2078) — Construction Management, chapter 13 - [Loan value against mortgage of a building](https://www.bctengineer.com/question.md?key=semester_8%2Fconstruction_management%3Avalue-building-mortgage-loan-2073) — Construction Management, chapter 13 - [Value of a 20-year-old building](https://www.bctengineer.com/question.md?key=semester_8%2Fconstruction_management%3Avalue-building-20-years-2075) — Construction Management, chapter 13, asked 2× - [Value of a 10-year-old building](https://www.bctengineer.com/question.md?key=semester_8%2Fconstruction_management%3Avalue-building-10-years-2071) — Construction Management, chapter 13, asked 2× - [When cost, plinth area, development methods apply](https://www.bctengineer.com/question.md?key=semester_8%2Fconstruction_management%3Avaluation-methods-situations) — Construction Management, chapter 13 ## Related in other subjects - [Two-room building: brick plinth, door shutters, plaster](https://www.bctengineer.com/question.md?key=semester_7%2Festimating_and_costing%3Abuilding-m-two-room-three-items) — Estimating and Costing, chapter 6 - [Building: excavation, soling, PCC, brick to plinth](https://www.bctengineer.com/question.md?key=semester_7%2Festimating_and_costing%3Abuilding-o-framed-4-items) — Estimating and Costing, chapter 6 - [Gumbel design flood, 21 years data, 40-year life](https://www.bctengineer.com/question.md?key=semester_5%2Fengineering_hydrology%3Agumbel-21yr-life40-rel85-b) — Engineering Hydrology, chapter 6, asked 3× - [Preliminary estimate: 4-storied office, 2000 m²](https://www.bctengineer.com/question.md?key=semester_7%2Festimating_and_costing%3Aprelim-est-office-2000-d) — Estimating and Costing, chapter 3, asked 2×