Valuation of Immovable Properties

Mr.S. M. Wandare
Assistant Professor
Department Of Civil Engineering
Walchand College Of Engineering, Sangli
E Mail: sagar.wandare@walchandsangli.Ac.In
 Leasehold Ownership of a Property
2

 Leasehold ownership refers to ownership of the home/flat by

way of lease rights. There are no ownership rights on land by
the leaseholder.
 e.g. Owning a flat in an apartment/society on a leasehold basis.
 Ownership after lease expiry depends upon the renewal of the
lease which largely remains uncertain.
 The lease period in the case of leasehold ownership is mostly 99
Years.
 In the case of leasehold ownership, the leaseholder may be
required to pay certain rent towards land as he does not own
land.
 In a leasehold arrangement, the freeholder has the
responsibility to maintain the society’s common infrastructure.
However,
Walchand the home
College of Engineering, Sangli owner’s may be required to pay for that.
 Leasehold Ownership of a Property
3

In the leasehold ownership, the flat owner may not be

able to carry out major work in the society premises.
However, he may do some changes in his own flat with
certain restrictions.
In the case of leasehold ownership, transfer of property
from one to another is relatively difficult, and transfer of
leasehold rights is done through attorney power.
Getting mortgage loan isn’t easy.
Leasehold properties are relatively cheaper because of
land being arranged on a lease.
Leasehold properties are better suited for potential house
owners with a relatively lesser budget.
Walchand College of Engineering, Sangli
 Freehold Ownership of a Property
4

 Freehold ownership refers to ownership of the home/standalone

building/property and land both by the owner.
 e.g. Owning a standalone building on a freehold ownership
basis.
 In the freehold case, ownership remains with the owner having
freehold rights on the property/land.
 In the case of freehold ownership, the owner does not need to
pay any rent to anyone as he owns the land and house both on a
freehold basis.
 In freehold ownership, the owner needs to maintain the
property or related common infrastructure on its own and also
bear the expenses for that.
 The owner is free to do any major or minor work in case of
freehold
Walchand College ofownership.
Engineering, Sangli
 Freehold Ownership of a Property
5

In freehold ownership, the owner has full legal rights to

either transfer or sell the property, and it is relatively
hassle-free.
Banks or Financial Institutions take greater comfort
because of freehold ownership in granting loans to
freehold properties.
Freehold properties are relatively costlier than
leasehold properties due to significantly higher land
prices as land is purchased on a freehold sale basis.
If there are no budget constraints, freehold ownership is
most desirable because of clarity of ownership and
flexibility because of freehold ownership.
Walchand College of Engineering, Sangli
 Types of Leases
6

Financial/Capital lease:
 A lease in which all risks and rewards related to asset ownership are
transferred to the Lessee for the leased asset is called finance lease. It
is one of the long-term leases and cannot be cancelled before the
expiry of the agreement.
 If any one of the following conditions is satisfied then it is a finance
lease:
 Lease transfers ownership to lessee at end of lease term whether in
main or by separate agreement
 Lessee has the option to purchase leased asset at a price sufficiently
lower than the fair value of the asset at the date when the option
become exercisable.
 Lease term covers a major part of the life of the asset leased.
 Lease term covers the major part of the life of the asset.
 Leased asset is special in nature which only lessee can use.
Walchand College of Engineering, Sangli
 Types of Leases
7

Operating lease:
 In this owner, called the Lessor, permits the user, called the Lesse,
to use of an asset for a particular period generally shorter than the
economic life of the asset without any transfer of ownership rights.
 In this lease, there is a use of an asset or property for a specific
period of time usually for a short duration.
 In this lease, all the expenses are borne by the lessor and he will not
be able to realize the full cost of the property.
 The lessor bears the incident-related risk & of non-use risk of the
asset.
 This type of lease is preferred when the asset, property or
equipment is likely to be remain unused for a longer period of time.
 From both the parties, either party has the option to terminate the
lease after giving notice.
Walchand College of Engineering, Sangli
 Types of Leases
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Conveyance Type Lease

 This lease is generally for a longer period of time with an
intention of transferring the title of the ownership to the lessee.

Walchand College of Engineering, Sangli

 Types of Leases
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Non-Payout and Full Lease

 In case of non-payout lease, the same asset is leased over and over
again by the lessor due to non-payment.
 While in case of full lease, the full value of the leased asset is
recovered by the lessor by the way of leasing.

Walchand College of Engineering, Sangli

 Types of Leases
10

Specialized Service Lease

 Here the asset which is being leased out, the lessor or the asset
owner is the specialist of the asset.
 Along with provision of the lease there is also provision of
specialized personal service to the user of the asset or property
i.e. the lessee.
 This is quite common in case of automobiles, electronic goods,
air- conditioners, etc.
Cross-Border Lease
 Lease across the national frontiers are known as cross-border
lease.
 Shipping, air services, etc. falls under this category of lease.

Walchand College of Engineering, Sangli

 Types of Leases
11
International Lease
 In this lease, the parties involved in the transactions of the lease may
belong to the different countries.
 This is quite similar to the cross-border lease.

Walchand College of Engineering, Sangli

 Types of Leases
12

Import Lease
 In this type of lease, the equipment which is provided on lease by
the company may be located in the foreign country, while the
lessor and the lessee may belong to the same nation or country.
 The equipment in this case is more or less imported.
 Imported leasing encourages the business in conquering the
problem of cash flow by not paying at a time for acquiring the
asset.
 For purchasing the asset from abroad, the services of the
specialist asset finance company is required for regular rental
payments.

Walchand College of Engineering, Sangli

 Types of Leases
13

Commercial Lease
 The commercial lease is an agreement between the landlord and
the business for the rental of the property.
 Usually, the businesses prefer renting than to purchasing as it
requires least capital.
 So, it’s always better, before signing the commercial lease, to
understand their terms, which normally includes rent amount,
rent increases, security deposit, improvements, description of the
property and signature etc.

Walchand College of Engineering, Sangli

 Rent
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 “Rent is that portion of the produce of earth which is paid

to landlord for the use of original and indestructible powers
of the soil.” –Ricardo

 “Rent is the income derived from the ownership of land and

other free gifts of Nature.” – Marshall
 ‘Quasi Rent’ arises on the manmade equipment and
machines in the short period and tend to disappear in the
long run. – Marshall

 “Rent is the price paid for the use of land.” –Prof. Carver

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 Types of Rent
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Economic Rent
Economic rent refers to the payment made for the use
of land alone.
Gross Rent:
Gross rent is the rent which is paid for the services of
land and the capital invested on it.
Gross rent consists of:
 Economic rent: It refers to payment made for the use of
land.
 Interest on capital invested for improvement of land.
 Reward for risk taken by landlord in investing his capital.

Walchand College of Engineering, Sangli

 Types of Rent
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Scarcity Rent
 Scarcity rent refers to the price paid for the use of the
homogeneous land when its supply is limited in relation to
demand.
 If all land is homogeneous but demand for land exceeds its
supply, the entire land will earn economic rent by virtue of
its scarcity.
 In this way, rent will arise when supply of land is inelastic.
 Scarcity rent is essentially the result of the fact that, in the
real world, land is in inflexible supply.

Walchand College of Engineering, Sangli

 Types of Rent
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Differential Rent
 Differential rent refers to the rent which arises due to the
differences in the fertility of land.
 There exists a variety of land. Some lands are more fertile
and some are less fertile. When the farmer’s are compelled
to cultivate less fertile land the owners of more fertile land
get relatively more production.
 This differences between the fertilities of different types of
lands will cause differences in their rents.
 Rent will be lower on the less fertile land and higher on the
more fertile land. However, rent is caused solely by the fact
that land is scarce.
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 Types of Rent
18

Contractual Rent
 Contract rent refers to that rent which is agreed upon
between the landowner and the user of the land.
 On the basis of some contract, which may be verbal or
written, contract rent may be more or less than the
economic rent.
 The amount directly depends upon demand and supply of
land in the market.
Situational Rent
 It refers to the rent arising out of difference in situation of
land i.e. lands situated near market will fetch more rent
than the land far from the markets due to situation of land.
Walchand College of Engineering, Sangli