Understanding Property Valuations: Essential Insights for Buyers

As the real estate market bounces back after COVID-19, various factors are influencing property prices. By offering insights into market trends, desirable locations, and the economic conditions driving prices, property valuations can help effectively determine the market price of a property. Engaging a team of experienced professionals, like CBRE India, can help realise the true value of an asset. An accurate valuation is not important only to the buyer, but also the local tax authority, insurance companies and the lender financing the purchase.

There are a number of approaches that might be taken towards the valuation of a property, depending on the type of property and the purpose of valuation. The three most common approaches to determining property value are:

Sales Comparison Approach: The value of the property is determined in relation to the value of other similar properties in the vicinity.

Income Approach: For investment properties, the income and cash-flow projections play a major role in determining market value and price.

Cost Approach: The expense required to reproduce the current building on its current plot of land is calculated. The depreciation is then subtracted from this number and the value of the site is added, resulting in the valuation.

The factors that affect the valuation of a property are also numerous. While property valuation is not an exact science, the following are some of the crucial determinants of market value:

The characteristics of the property: Both internal characteristics, such as square footage and quality of construction; and external characteristics, such as facade and landscaping, are taken into account. As a buyer, it is especially important to consider the reputation of the developer and quality of construction material and finish. Many Indian buyers also place importance on Vastu compliance, and increasingly, on whether modern amenities like modular kitchens and high-end bathroom fittings are present.

The surroundings of the property can affect how it is valuated:

Proximity to key facilities, such as schools, hospitals and workplaces.

As safety is a major concern, lower crime rates for murder and burglary can mean higher valuations.

Ease of access to public transportation usually boosts property value. As real-estate is often a long term investment, the promise of upcoming infrastructure projects like new airports and highways also drive speculative investment.

Local government regulations: The value of real estate is often heavily influenced by local regulations. These might include Floor Space Index rules, which might restrict any future development, and urban planning schemes such as Smart Cities Mission. One of the most impactful factors, however, is property taxes. Property taxes depending entirely on the local tax authority can mean immense variation in rates, even within cities.

The intricacies of these rules and regulations can often stupefy buyers. CBRE India, with its extensive expertise, can help navigate complex government regulations, ensuring accurate property valuations.

Environmental Factors: As we see a rise in the occurrence of climate events such as heat waves, droughts and flooding, properties that are less prone to be adversely affected by such events are likely to have much higher valuations than others. Factors such as air quality and availability of water affect quality of life profoundly, and therefore, the valuation. As demand for sustainable practices increases across the board, properties that are LEED-certified might be valued higher.

Supply and Demand Dynamics: The demand for properties in a particular locality is a result of a number of factors like migration patterns, real-estate trends and shifting consumer preferences. In India, post COVID-19, the reverse migration to tier-2 and tier-3 cities has been accelerated. This, alongside the increased prevalence of work-from-home trends, is creating new demand centers. In general, limited supply and increased demand will result in higher valuations.

Property valuations help make sense of the complex factors that determine the market value of a given property. An accurate valuation takes into account factors including, but not limited to, crime rates, ease of access to public transportation, amenities, hospitals and schools. A comprehensive and accurate property valuation is essential to decisions made regarding the property, whether it be market price determination or calculation of property taxes.

Property valuations, therefore, are very important to a number of parties. Usage of real-time data and skilled analysts during the valuation process helps ensure accurate results. With unparalleled market intelligence and subject-matter expertise, CBRE India, with over 2400 completed projects, is able to help owners, buyers, developers, investors and lenders with comprehensive valuation and advisory services.