There are also other ways to value a resale flat. I am going to discuss one of them. This valuation is inspired by an article which appeared in the Property Plus section of The Hindu newspaper.
The formula for valuing a resale flat is as follows:
Value of a resale flat= Value of undivided share of land (UDS)+ Depreciated value of building and amenities + Value of overheads, expenses and promoter’s profit.
- Value of undivided share of land: Cost per square feet multiplied by UDS. You can take the guideline value for the cost per square feet. In reality, the guideline value in the Indian context is usually too low and the market value is usually around 1.5-2 times the guideline value. You can visit some property websites like Sulekha or Magicbricks and research about the market prices quoted and get a feel for the market price of the land in the area that you are looking for.
- Depreciated value of building and amenities: To calculate this you need to know the cost of construction per square feet. This is again variable depending on the quality of construction. You can search in google for “cost of construction per square feet in India”. As of today, the values you get are in the region of 1200-1500 per square foot. The value is the area(super built up area) multiplied by the cost of construction per square foot.The next step is to calculate the depreciated value. To do this we assume that the property lasts for 60 years and at the end of it is worth around 10% of the initial value. So the value of the building and the amenities depreciate by 90% over a period of 60 years, which is around 1.5% per year. In reality, the depreciation is less than this during the first 15 years and then later depreciates faster. But having an equal depreciation rate makes calculations easier. We can adjust things around later.
- Value of overheads, incidental expenses and promoter’s profit: The above article suggests that this is around 40% of the construction cost.
So the value of the property is the sum of these three.
Another way is as follows:
If you know the exact cost of construction for a resale flat from the building agreement or other document where it is explicitly stated you can calculate the reproduction cost in this way.
Reproduction cost= Initial cost of construction multiplied by cost inflation index today divided by cost inflation index when the flat was bought( for values of cost inflation index see attached excel sheet)
The value of the property in this case= Value of undivided share of land plus Reproduction cost
I have created an excel sheet for calculating the value of resale flats by these methods.
You should remember that this will only be a crude approximation so that you know you are not selling cheap or buying very high. A lot of other factors are important like proximity to transport, shops, good schools, crime, etc. As they say property valuation is very local.
I hope this post helps you to value resale flats in India.