Valuation Examinations: Asset Class - Land & Building

Valuation Examinations: Asset Class - Land & Building

[Theory + MCQs Overview]

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I. THEORY SECTION

Valuation of Land and Building (L&B) involves assessing the value of real estate properties for purposes like taxation, sale, acquisition, mortgage, or investment. Here's a summary of the core theory relevant to valuation exams:

1. Asset Classification

Land: Includes the surface of the earth, materials beneath, and airspace above, subject to legal rights.

Building: Structures constructed on land, used for residential, commercial, industrial, or institutional purposes.

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2. Types of Land & Building Assets

Vacant Land (undeveloped)

Developed Land (subdivided plots with infrastructure)

Residential Buildings

Commercial Buildings

Industrial Buildings

Mixed-Use Properties

Specialized Buildings (e.g., hospitals, schools)

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3. Approaches to Valuation

a. Market Approach / Sales Comparison

Compares property to recent sales of similar properties.

Best for land or standard residential/commercial buildings.

b. Cost Approach

Value = Land Value + Cost of Construction – Depreciation

Suitable for specialized buildings and new constructions.

c. Income Approach

Used for income-generating properties.

Capitalization Method: Value = Net Operating Income / Capitalization Rate

DCF Method (Discounted Cash Flow): Future cash flows are discounted to present value.

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4. Factors Affecting Valuation

Location and connectivity

Zoning and land use regulations

Physical attributes (size, shape, topography)

Infrastructure and amenities

Market trends and demand

Legal encumbrances

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5. Depreciation Types (for Buildings)

Physical (wear and tear)

Functional (design obsolescence)

Economic (external factors)

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6. Legal and Regulatory Framework

Transfer of Property Act, 1882

Registration Act, 1908

Real Estate (Regulation and Development) Act, 2016 (RERA)

Urban Land Ceiling Acts (where applicable)

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II. MCQs SECTION

Here are sample multiple-choice questions with answers:

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1. Which valuation approach is most suitable for income-generating commercial buildings?

a) Market Approach

b) Cost Approach

c) Income Approach

d) Replacement Cost Approach

Answer: c) Income Approach

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2. Depreciation due to outdated design is termed as:

a) Physical Depreciation

b) Functional Obsolescence

c) Economic Obsolescence

d) Residual Depreciation

Answer: b) Functional Obsolescence

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3. In the cost approach, how is building value calculated?

a) Sale price of similar buildings

b) Rent capitalisation

c) Cost of new construction less depreciation

d) Past purchase price adjusted for inflation

Answer: c) Cost of new construction less depreciation

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4. Which of the following is not a factor affecting land valuation?

a) Soil fertility

b) Proximity to city centers

c) Age of the building

d) Zoning regulations

Answer: c) Age of the building

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5. RERA applies to which type of property?

a) Agricultural land only

b) Industrial buildings only

c) Real estate projects for residential/commercial use

d) Government buildings

Answer: c) Real estate projects for residential/commercial use

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