What is Property Valuation?
Property valuation is the process of determining the current market value of a property. It involves assessing various factors that can influence a property's worth, such as its market value, location, size, condition, and any unique features or improvements. Property valuation is typically carried out by a professional appraiser or a real estate expert. The purpose of property valuation can vary. It might be for the sale or purchase of property, home loan, taxation, or legal matters. During the valuation, the appraiser will consider recent sales of similar properties in the area, the property's current condition, and trends in the real estate market, among other factors. Property valuation provides an estimated market value for the property, which can be used for various financial and legal purposes.
Importance of Guideline Value in Property Valuation
To find the property value, it is essential to know the Guideline value of the property in a particular area. The state decides the guideline value, which is the minimum benchmark for property transactions. Any transactions below this value are considered illegal. Apart from property valuation, guideline value is crucial for calculating stamp duty and registration fees, ensuring fair revenue for the government, preventing property scams. Typically, the consolidated housing valuation and market value is higher than the guidance value. This helps buyers understand the real value of the land and invest smartly.
Guideline Value in Tamilnadu - What You Should Know
The Tamil Nadu government has recently implemented 3 tier methods for determining the guideline values of apartments within housing communities in the state. Under this new approach, building valuation of guideline values no longer primarily based on the area of the property. Instead, they now depend on the type of apartment complex. This change signifies a move away from location-centric valuation to a focus on the amenities offered by the property. As a result, properties are now categorized and valued as basic, premium, or ultra-premium types according to the amenities they provide which has led to a sudden increase in property values impacting residential real estate especially in Chennai and the surrounding regions. For those involved in property sales, whether it's for land or houses in Chennai, it's crucial to consider this new guideline value, as it fundamentally alters how properties are appraised and priced in the State.
Difference between Property Value and Property Market Value
Property value and market value are often used interchangeably in real estate, but they hold different meanings. The property value is a comprehensive estimate of a property's worth, considering various factors including its unique attributes, owner's personal valuation, and potential for future use or development. In contrast, the market value is the estimated amount a property would sell for under current market conditions. This figure is influenced by external factors like the economy, real estate trends, and comparable sales in the area. Essentially, value of home is assessed by property age, size, neighborhood, amenities, etc. On the other hand, decoding market value of the property helps the buyers to make smart investment in real estate.
Property Valuation Vs Market Valuation of Property
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Property Valuation |
Market valuation of property |
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Specific value of the property including unique features and potential future uses. |
Based on current market conditions and recent sales of similar properties in the locale. |
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Influenced by at what price the owner is willing to sell the property. |
Focused on what buyers are willing to pay in the current market environment. |
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Reflects a long-term perspective of the property’s worth. |
House estimate tends to be more dynamic Reflects current demand, economic conditions, and local property market trends. |
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Can be influenced by potential changes in zoning, future developments, or renovations. |
Primarily driven by external factors like location, size, and property condition. |
How to Do Home Valuation in Chennai?
To find the home value in Chennai, as in other cities, property value is calculated using various methods, each considering different aspects of the property and the market. Here are some common methods for calculating a house value in Chennai.
Comparative Market Analysis (CMA)
This involves comparing the property with similar properties that have recently sold in the same area. If a 3-bedroom apartment in Adyar sold for ₹1 crore and a similar apartment in the same area with an additional balcony sold for ₹1.05 crores, a 3-bedroom apartment will value the same.
Cost Approach
This is used particularly for new properties. It involves calculating how much it would cost to build a similar property from scratch, including land value and construction costs, etc. For instance, the land in Velachery costs ₹50 lakhs and the construction cost for a 2000 sq.ft property is ₹3000 per sq.ft., the property value estimate would be land cost (₹50 lakhs) + construction cost (2000 sq.ft. × ₹3000) = ₹1.1 crores.
Income Approach
Used for rental properties, this calculates value based on the income potential of the property. The Net Operating Income (NOI) of the property is divided by the capitalization rate. If a property in T. Nagar generates an annual rental income of ₹6 lakhs and the capitalization rate in the area is 5%, the property value would be ₹6 lakhs / 0.05 = ₹1.2 crores.
Guideline Value
Per the new guideline set by Tamilnadu government house valuation may be calculated as below. If the guideline value in Besant Nagar is ₹5000 per sq.ft., for a 1500 sq.ft. property, the base value for legal transactions would be 1500 sq.ft. × ₹5000 = ₹75 lakhs.
Online Property Valuation – How to Do?
With the tools available online, property value calculation is done easily. Basically, these tools use algorithms to estimate property values based on available data like recent sales, area trends, and property characteristics which are more or less accurate.
Key Points
Here is a quick rundown of what we discussed in this blog.
Ø Real estate valuation is an elaborate process involves in comparing different values of the same property - guideline value, property value, market value, appraisal value, etc.
Ø With three-tier system by Tamil Nadu government, the guideline value is set to be based on the category the property comes under rather than its location.
Ø While property value is derived from its inherent nature, market value is something obtained from the external factors like for example, market trends.
Ø Online tools may help in estimating property value quicker but buyers must conduct comprehensive property valuation involving the real estate professionals to make smart investments.