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How to calculate Cost Inflation Index Factor of Residential House property purchased in 1975

Awni Ranjan (Freelance Consultant) (77 Points)

08 July 2021

Can the Fair Market Value of a residential property that was purchased at a cost of Rs 80,000/- ( land inclusive ) in the year 1975 be calculated as per the OLD Index List ( 1981 - 2000 ) and thereafter arrive at the current value by using the NEW List ( 2001 - 2021 ).

The question has arise because the 2017 FinMin circular says that the old property purchased earlier ( in this case 1975 ) has to be valued at Fair Market Rate for further application of the NEW list ( 2001 - 2021 )

PLEASE favor with expert guidance

Thanks

Awni Ranjan

8th July , 2021

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12 Replies

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 08 July 2021

How do w know it is 80,000₹? Because the historic cost was recorded. From that you can change it to the current value through index factor. This is normally accounting principle of fairvalue measurement. Asset is initially recognised at cost, then afterwards either at cost or revaluation.

Awni Ranjan (Freelance Consultant) (77 Points)
Replied 08 July 2021

Thanks for your quick reply ,

The Buyer had paid Rs 80,000 on purchase in the year 1975 in Civil Lines Kota , Rajasthan , land area 2700 sq ft

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 08 July 2021

Ok fine, 2021 is 301 points, so convert it by 80000*301= Two crores, forty lakhs, eighty thousand, and depreciate it on this amount,

now the fair value offered a buy is three crores= profit is at taxed at lower level.

On the old price, if you sell it at three crores, humongous profits and higher taxes.

Awni Ranjan (Freelance Consultant) (77 Points)
Replied 11 July 2021

This method is giving astronomically high and unrealistic valuation , I had attempted it and found not useful

ANY-OTHER realistic method , please ?

Meanwhile, thanks for your interest

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 11 July 2021

your correct. The house is fully depreciated in 20 years, 80000*5%*20 years.

The house has no value but the land has. This is how negotiations happen.

Even if we consider cii for 2021 @ 301₹

2,40,80,000

- 2,40,80,000 accumulated depreciation @ 5% for 20 years)

so this woks if there is useful remaining life to assess the building value.

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 11 July 2021

Note: I used slm depreciation rather than wdv as an example. Txs

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Awni Ranjan (Freelance Consultant) (77 Points)
Replied 11 July 2021

I agree that now the real cost is that of land and depreciated value of building

Thanks for your interest in resolving my query

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 11 July 2021

I have some interesting facts here,

some of the property dealers are selling based on land valuation: https://www.99acres.com/price-estimator

other efficient ma keys have house price index or using % change eg: 2236.46% change is giving approximate value of house along with land value: https://www.nationwide.co.uk/about/house-price-index/house-price-calculator

someone in the business probably knows it more. Txs.

Rajesh (Former Director DRDO) (114 Points)
Replied 16 July 2021

You need a valuation of property in year 2001 from a registered valuer. Rest of the process will be standard as per Table from 2001 onwards.
This is what we did in our case.

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 16 July 2021

Dear Mr. Ashwin Ranjan, I believe the independent Valuers use hedonic pricing and it’s easy to calculate, By the way, CII indexing= New cii value/old cii value = result*house price.

So you now can understand cost method which I advisd

Hedonic pricing- Sales value approach

Market method

NOI approach

Normal method = no rules for pricing homes.

Awni Ranjan (Freelance Consultant) (77 Points)
Replied 20 July 2021

Valuation in a long past year looks bizarre to me .

And Past Valuation of building or property depends (1) cost of a building, (2) Depends on type of building, (3) Structure, (4) Durability, (5) Location, (6) Size, (7) Width of roads, (8) Types and quality of building materials used and the cost of these materials.

AND all this to get in past year is a herculean task

Ideas of Ms Yasasvi Gomes look more realistic

Thanks for Interest

1 Like

yasaswi gomes (My grammar is 💯 good I) (7290 Points)
Replied 21 July 2021

Lol Mr. Avni Ranjan, there are some countries which charge public for providing stats till 1950’s data. Maybe Bloomberg or should mother business software might have that data. If we could contact them, they will charge exuberant prices. Banks could have that data as well. Or all media real estate association. It’s hard to tell.