Everyone wants to get a good deal—this is especially true when purchasing a property. Real estate purchases are high-ticket items. A small error or lack of research while buying real estate is likely to haunt you for a long time to come.
How do you know if you’ve got a good deal? In the absence of standardised valuation metrics, it is often difficult to tell whether you have been short-changed.
Lack of valuation metrics in India
Not only do prices vary across the vast Indian real estate market, but they also tend to be different within a particular micro-market. For instance, within the confines of a locality in Delhi, rates could differ based on the project you have chosen, the builder, the view and elevation, and urgency on the buyer or seller’s part. As long as valuation is based on demand and supply, determining the financial value of any property investment is guesswork, at best.
The absence of standardised valuation metrics affects investors' decisions to a large extent. With no standardized valuation metrics, investors can get confused regarding their property investment choices. It can also affect the investor’s understanding of which segment will reap higher returns in the long term. It influences their decision to invest in a newly-built property, i.e., the primary real market, or existing/already-built properties, i.e., the secondary market.
Advantages of standardised property valuation
So, can standardised valuation metrics make selling and buying property easier? Yes, standardised valuation metrics make the whole experience of buying and selling smooth and hassle-free. In India, the property is purchased both for use and investment purposes. However, the buyer measures the expected returns or benefits to be received from the property against the investment made in both cases.
If standardized valuation metrics are used, they can help customers make sound decisions about their return on investment. Similarly, these metrics help sell the property to the customer as it creates a more significant impact on their buying decision. Sellers can utilise metrics to rationalize the property rates they quote.
Investors calculate their profit through two factors—equity cost and financing cost. To profit, investors must know how to evaluate real estate property and make informed decisions about how much profit they stand to earn through property appreciation, rental income, or both.
Every investor wishes to get maximum returns from their invested money. The metrics guide supports this wish. With every ratio and metric telling a different story about the property, buyers can evaluate a potential purchase within a few minutes and keep an eye on the value of their existing properties.
An independent valuer could use economic tools to gauge the value of a property against the current price index. Such a valuation would give both parties in-depth insights on the competitive aspects of the property today and the rental and resale value of the property in the future. In the absence of proper valuation metrics, the buyer’s decision is hampered, affecting the real estate market inventory at large.
- By, Aditya Kushwaha, CEO & Director, Axis Ecorp