Post 295 – by Gautam Shah
Valuation of buildings is done on many different counts. A building stands on a land. So the absolute value of a building consists of Land and the Structure. A land nominally has a Foot-Print, an area measure in parallel to the gravity plane. As city administration assigns a Building Capacity in proportion to not only footprint area, but for submerged, eroded, or cut-offs for used in public utilities.
The ownership of land, in a modern day urban area is conditioned by several conditions. Footprint areas could be several time less (or in a rare case, more) then an area recorded in historic Land documents. Similarly the capacity to build on it does not depend on a real footprint (Satellite picture or surveyed plan), but several administrative conditions.
Valuation of Land is dependent primarily on How much, one can build on it, and for What purpose one can develop it (commercial, residential, industrial, services, etc.) It is, however, more dependent on the nature and tenure of ownership of the land. A land may be fully owned (as described in tradition land purchase documents –ownership entitlement from bottom of earth to the topmast part of sky). The tenure may be permanent (as described in tradition land purchase documents, –Tenure to last as long as sun, moon and stars remain). The land ownership may be a leased entity for a short (19-99 years) or very long term (999 years) basis. Short term lease often expires before a building perishes.
The most complicated ownership entitlement is where the Land is owned in terms of capacity to build (FSI) on it. An FSI or Floor Space Index is an assignment of specific proportion of building capacity. The FSI remotely relates to the Land Foot print, but does not represent the reality. It is made more complicated when existing owners-occupiers of the land sell the right to build further over an existing structure, or in the residual parcel of open land.
Land has a contextual value depending on its location and surroundings. The location related value may go up or down due to many extraneous circumstantial reasons. Urban lands have a value in capacity to get the possession of the land by financial enticement, alternative arrangement, force or legal means.
A Structure on land has three sets of values, ONE -relates to its utilitarian purpose (nearly matching the original concept), TWO -concerns with remaining life as a sheer built form or shell (presumably utilisable for some other occupational use -different from the original intention -salvage value), and THREE -bears on its debris value. A comprehensive judgement of all three aspects is made to define the value of a building.
In another valuation system, a land or building, or both together, are considered an asset with an absolute value. The asset value can be exploited to yield a rent. From the Rent, expenses for regular inputs, periodic repairs, and maintenance, etc., are deducted. The monetary surplus is considered an income (or loss), if its rate of return is higher when compared to an investment in other fields (equal to the absolute value).
Land + Building, are assets (real or possible), and the Valuation is carried out to assess the income potential, actual profit or loss. Valuations are carried out on year to year or occasion to occasion basis, to ascertain addition or deduction in the value. Such assessments help in computation of wealth, and other taxes, and for calculating depreciation, insurance premiums, etc.