All you need to know before buying property

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Q: The premise of owning every asset is always based on valuations. How does one go about valuing a property, a piece of property, where it is located, etc? What would you rank out as the couple of thumb rules to apply while working with the concept of valuation?

Vakil: There are two ways of looking at it. One is that you do a straight forward valuation, the way it is nobly understood by which you compare it with a similar property in the same area and get its valuation done. The other thing what I would like to call evaluation is what the asset is capable of doing. If you take agriculture land for example which is capable of being converted into say NA plot on which you can build up an office and that office could be an IT office for example. Then all of that has to be built to the evaluation.

Q: There is couple of other concepts one talks about during valuation, investment value, liquidation value, insurable value of that property. How important are these concepts while picking a property?

Jogani: The most primary factor while getting into a property is your comparable valuation. I presume I am sitting in a programme which talks about classrooms and most of the investors would be interested in investing in end-user and not looking at large properties and developing it. So I would address to people who are looking at investing into built-up properties or under construction properties.

For that, the basic evaluation model is a comparable model and at the same time you need to take into account how many years it would take into construction to which you add your interest factor and you will arrive to the valuation.

Insurable valuation, I don't think that's a terminology or that's a tool which is used in India yet and the basic way about is you use a comparable valuation and the kind of develop you are going to invest with, the location and the other hidden costs which you need to take into account before investing. That's more important while looking at an investment.

Q: This one is the tricky one, price versus value. We have heard so often these comments made about areas in South Mumbai or South Delhi in terms of the fact that the prices just way above what the value of that property should be. How do you make that balancing at?

Vakil: I think it's a difficult one and it would depend from property to property and from individual to individual. If it is the first purchase which you are doing to buy a house for yourself, obviously you have to look at what kind of value you are going to get out of it. You will look at everything, at every possible aspect because you are going to move into the particular house. So the value of that, it's going to be very different from an investor who just has one motive-to make money.

Also let's look at a situation where you are booking something under construction. As an investor you are little bit indifferent as to how it comes up-you are satisfied as long as it comes up the way it was promised. But if you are an actual user, your view is very different-you will visit that place something like 20 times during under construction, you will possibly walk up to the floor which you have booked. Now that is where the value comes out from. That is where the importance of buying that asset which is close to your heart is kind of embedded.