29 November, 2023
Unlock the doors to real estate success
Read time: 5 minutes

In today's edition:

  • In the news: Healthcare real estate, Noida’s infamy, Operation Creek
  • My thoughts on: Core Valuation Methods
  • Q&A: Model Tenancy Act

Handpicked stories from my weekly digest

Here are the 5 stories that you need to be aware of from this past week:

  • Short on beds: India is currently experiencing a significant shortfall in healthcare real estate, estimated at around 2 billion square feet, to adequately serve its population of 1.42 billion people. This report by Knight Frank and Berkadia highlights a critical gap in healthcare infrastructure, with the current bed-to-population ratio at 1.3 per 1,000 people, significantly below the World Health Organization's recommendation of 3 per 1,000. Read more
  • Affordability FTW: The Indian affordable housing market, valued at $300 billion, is increasingly capturing attention in the real estate sector, particularly for low to middle-income groups. Atul Monga, Founder of Basic Home Loan, highlights that this segment is growing due to factors like urbanisation, population growth, and government initiatives like the Pradhan Mantri Awas Yojana (PMAY). Read more
  • Noida’s infamy: In Noida and Greater Noida, 35% of India's stalled residential projects, comprising 1.65 lakh flats valued ₹1.18 lakh crore, are facing delays, as highlighted in a white paper by Noida Dialogue and Namo Seva Kendra. This region, marked as the worst in India for stalled projects by Anarock, has seen over 850 residential projects since 2011, with most under the purview of local authorities. The situation has left one lakh individuals waiting to register their flats and nearly 60,000 awaiting possession. Read more
  • Looking up: India's space economy is expected to reach a remarkable $40 billion by 2040, as stated by Union Minister Jitendra Singh. This growth is in part due to the significant contributions from the non-government sector, which is projected to contribute over 70% of the space resources. Currently valued at around $8 million, India's space economy has seen substantial revenue from launching foreign satellites, earning approximately EUR 230-240 million for European satellite launches and about USD 170-180 million for American satellites. Read more
  • A spy drama: During World War II, Goa, then a Portuguese colony, became an unexpected focal point of conflict when three German ships sought refuge there, inadvertently involving the region in the war. The British, concerned about Nazi propaganda and espionage, monitored the German crews and local societal divisions closely. Suspecting key individuals like Robert Koch of spying, and despite Portuguese neutrality, the British executed Operation Creek in 1942, sinking the German ships off Goa's coast. This covert operation, which resulted in the internment of the crews and dragged Goa into the war, later inspired the 1980 film "The Sea Wolves." Read more

Behind the price tag


Image credits: Freepik

In the dynamic world of Indian real estate, accurately determining the value of property is crucial. The core valuation methods used in India are not just about assigning a price tag; they involve a complex interplay of market trends, property features, and economic principles. Let's explore these foundational methods in detail.

Comparative Method: Also known as the Market Data Approach, the Comparative Method is the most straightforward yet effective way to value a property. It's based on the premise that the value of a property can be determined by comparing it with similar properties that have recently been sold in the same area. This method is particularly popular for residential properties.

  • Process: Appraisers look at recent sales of comparable properties, known as "comps." These comps are then adjusted for differences to arrive at an estimated value. For example, if a comparable property has an additional bedroom, the appraiser might adjust the value of the property being appraised accordingly.
  • Challenges: Finding truly comparable properties can be difficult, especially in diverse markets like India where each property has unique characteristics. Additionally, in areas with few recent sales, reliable comps may be hard to find.

Income Method: Also called the Income Capitalization Approach, the Income Method is predominantly used for commercial properties or residential properties that generate rental income. This method focuses on the potential income that the property can produce.

  • Process: The value is determined by the net income the property is expected to generate over time. This involves estimating the future income streams and then discounting them to their present value using a rate that reflects the investment's risk. For instance, a property with a higher rental income potential will be valued more.
  • Challenges: Accurately predicting future income can be tricky. It involves making assumptions about rental market trends, vacancy rates, and maintenance costs. Moreover, choosing the right discount rate requires a deep understanding of the market.

Cost Method: The Cost Method is used particularly for unique properties where finding comparables is challenging, such as specialized commercial buildings or historical properties. This method estimates what it would cost to replace the property with a similar one.

  • Process: The appraiser calculates the current cost of constructing a building with the same utility as the appraised property. This includes the cost of materials, labour, and other expenses, plus the land value. Then, depreciation is subtracted to account for physical wear and tear, age, and obsolescence.
  • Challenges: Determining the replacement cost can be complex, as it requires up-to-date construction cost data and an understanding of depreciation methods. Moreover, for unique properties, estimating an accurate depreciation amount can be particularly challenging.

Each of these methods has its own strengths and fits different types of properties and market conditions. In practice, appraisers may use a combination of these methods to cross-verify the value or to suit the specific nature of the property being evaluated.

Evolving with Technology: The integration of AI and big data is revolutionising these traditional methods. AI algorithms can analyse vast amounts of market data, trends, and transactions to provide more accurate and faster property valuations.

These technological advancements are making real estate appraisals more data-driven, reducing reliance on manual processes and subjective judgement. However, the human element remains crucial in interpreting data, especially in a market as nuanced as India's. Appraisers now need to blend their expertise with these technological tools to provide a more comprehensive valuation.

Understanding these valuation methods is essential for anyone looking to navigate the complex terrain of Indian real estate, be it buyers, sellers, investors, or industry professionals.


Is the Model Tenancy Act applicable across India?
- Javed

Hi Javed,

The Model Tenancy Act, 2021, was introduced by the Indian government to provide a model framework for states and union territories to consider and adopt. It serves as a template, and states and union territories have the autonomy to adopt, modify, or enact their own tenancy laws based on their specific requirements. The Act, so far, has been adopted only by Uttar Pradesh, Assam, Andhra Pradesh, and Tamil Nadu.

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By Ashwinder R. Singh
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