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Path Finder India (P) Ltd.

Posted on: 18/04/2013

Need Of Consideration of Environmental Factors In Valuation

VALUATION:
Valuation as it is a Simple art but to Make real valuation – requires a Great deal of imagination,experience & Consideration of Various Factors apart from Already prescribed in various books,manual on valuation,Govt.rules regulation, acts And standard trade practice etc.Some time a Valuation,Prepared on realistic & true Rates of land, Structure,shape,life,location,proximity etc.but can be meaning-less,if No attention is Given to Surrounding & environment of property under valuation.

We as values,have normally confined ourselves to valuation of property only without Putting yourself in to trouble to evaluate the surrounding environment of property under Valuation,if we put real efforts to go into depth of factors effecting the valuation,may Be less or more.As a value no compromise should be done to get fair valuation of Property.

GENERAL FACTORS OF LAND VALUATION:
The value of land depends on the various factors such as-size,location,shape,Nature,tenure,utility,demand and Supply in the class,Surroundings,political Stability,Govt.Policies,FAR,land use,Master plan,Connectivity of land etc.As observed by the Hon ble Supreme Court of India in the case of Chaturbhuj pande Vs.Collector (AIR 1969 SC 255),the characteristics of comparables,Comparable,Comparable sales instances on the basis of which,the market rate is determined would Be Such as under:-
(a) Similar in character as far as it can be
(b) Reasonable proximus to the land under valuation.
(c) There should have been similar amenities and advantages.
(d) The sale should be true reasonable proximal to the date of valuation.

On the basis of the guidelines as suggested by Honble Supreme Court of India,the Working of the land,rate should be relied upon the basis of sale instances of the same Area and near to the date of valuation,to be collected from the Govt.Department,Valuer and developers of adjoining areas.

Therefore,as per Guidelines Suggested by the Honble Supreme Court of India,the Rate of subject land based/derived from the information the following factors of price Adjustment are to be applied in order to make the comparable & most reasonable for The subject land.

COMPARABLE CHARACTERISTICS OF PROPERTY UNDER VALUATION
For adjustment of rates necessary co-efficient for increasing of rates by padding the Additional factors or by comparing the short fall in rates of land under valuation,like:-

A valuer s who provides his judgment in valuation,they are service providers To the Society. The profession of a service provider implies high standards of ethics And morality.A generalistcan carry on administration only with the help of pecialists.The specialist who is called upon to provide technical service should be loyal and Devoted to his profession on the one hand,and to the organization/individual on The other hand.So,the registered valuers have the enormous responsibility of Providing true and unbiased service,so that tax administration can take a fair and Correct view.

‘’A LITTLE KNOWLEDGE IS A DANGEROUS THING’’. The first and Foremost requirement in any professional field is thoroughness and perfection.The Role of the valuer cannot be taken casually or lightly.It is not only sufficient that one Should have a brilliant academic backing but it is essential to have sound practical Wisdom.Though a valuer is determining the market value of a property or the cost Of construction of a property,ultimately he is concened with the economics of an Assessee. He is also concerned with the economics of the country. When viewed From this angle, it would be evident that the valuer should have sound peactical Knowledge not only of engineering but of various other material aspects of Construction and valuation. He is also expected to be thorough in Governmrnt circulars And periodicals instructions regarding valuation. The thoroughness with which Valuation is done would earn you merit and respect in the profession.

In simple terms ‘Valuation’ means assessment of value. The valuer have a Place both in the income Tax and Wealth Tax statutes. In the wealth Tax Act, a Whole Chapter (Chapter- VII-B) is devoted to registered valuers. This highlights the Role of a registered valuer in the scheme of Tax Laws. Our registration certificate Issued by Income Tax Authority, which contains a declaration to the effect that the Applicant will Make an IMPARTIAL and TRUE valuation of any asset which he May be required to value. I would like to lay emphasis on the two words ‘Impartial’And ‘True’.

It is not necessary for me to give a long lecture on the implication of two Terms ‘Impartial’ and ‘True’ contained in the above declaration. I started with the Basic premise that a valuer is a service provider and he has to observe noble ethical Standards conforming to the requirements of both the society and the Government.When viewed from that background, the two terms ‘Impartial’ and ‘true’ would Assume added significance.The valuer is expected to take into account all material Facts related to the valuation and project an impartial picture so that the Tax Administration can collect taxes, just and proper. As a professional, the valuer is Almost like an officer before the judicial and Quasi-judicial Authority and his role is That of a true advocate who would place correct, complete and fair facts before the Authority who is expected to pass judgment.

The above would show that valuation is not only an empty academic exercise.It is a fact- finding mission backed by academic brilliance, practical knowledge & Past experience.

COST IS THE THING OF THE PAST WHILE VALUE IS A THING OF THE FUTURE.
So it requires a lot of skill and practical knowledge to determine the Above factors. The basic duty of a valuer is to avoid both over- valuation and under- Valuation. This would apply with equal force to registered valuers. It is commonly Found that value is inflated when furnished before financial institutions like banks Whereas value is understated before the income Tax and Wealth Tax authorities. Both are unholy practices. It Goes against the basic concept of fair and true valuation. A reasonable margin of error is permissible in any case of estimate, but when this Margin assumes alarming proportion, there may be something more than that Meets the eye. The reason behind wide variation between the reports of the Registered valuers is on account of the tendency to deviate from the realistic norms For valuation. Such valuations not only distort the correct picture but erode the Value of the profession also. The best way to avoid under valuation/over valuation Would be to observe the properties closely and provide detailed analysis of the Items with proper reasoning for estimate of each value. In other words, a valuation Report should be a comprehensive and well reasoned- out document. There is no Place for aphorism in a valuation report.

The registered valuer has a challenging role to play in determination of fair Market value in the case of pre- emptive purchase of properties under the Income Tax Act. The Registered Valuers with their technical Skill, can present the case in Such a way that the apparent consideration is not unreasonably low, compared to The fair market value. The technical competence of the valuer would help him in Analyzing the distinguishing features of the properties and putting forth realistic View before the Appropriate Authorities. The valuer is expected not only to give an Estimate of the construction, as it appears but also of the interior decoration, and Fine finishes which go into the making of a posh construction. Though determination Of cost of construction is advisory in nature, a proper valuation with reference to The real nature of construction would Go a long way in identifying the actual Investment. It is said that nations are made when taxes are paid properly. The Valuer has a role to play in the proper payment of taxes, though indirectly,and this Would enhance the image of the valuer community.

EXPERTISE EXPECTED OF A VALUER
Valuation is not an exact science but it is an exacting one. Any valuation Which does not accord with any accepted principles of valuation or which distorts The normal concept of what is considered to be a fair and reasonable value is bound To be discredited. It is for this reason that it has become an expert’s job. The Techniques of valuation differ from asset to asset. The purpose of the valuation Would also determine its character as to whether it has to be conservative or liberal Or whether, it has to be historical or based on current value or whether, it has to be Statutory or otherwise. In matters of statutory valuation, knowledge of statutes as Well as legal precedents becomes important.

Valuation is an inter- disciplinary science, requiring ability to recognize legal Title, a familiarity with engineering and architectural aspects, knowledge of accounting And auditing principles as in matters of cost of construction, where the tax-payer Relies on accounts and expertise as to what is most suitable method of valuation.WHERE EXPERTS DIFFER, EXPERTISE IS ON TRIAL. It is the non-expert Who often becomes adjudicator between the experts. It Then becomes necessary For experts to defend their respective valuation and to discredit the valuation by the Competitors in the profession. At this stage, what is not required is merely ability to Withstand cross- examination but also ability to cross-examine the opposite party And establish one’s own valuation.

ALL EXPERTS ARE SUSPECT- All expert is often a suspect in the eye of not only The opposite party or the tax collector but even to his own client, where it does not Suit his interest. It is for this reason that valuation is not a simple matter of giving An estimated value but supporting it in a manner that is convincing. It can be so Convincing only when it is based upon verified factual materials and unquestionable Principles so that the valuation is capable of being defended and not lightiy faulted.
Society is in a state of constant flux. Nothing is static so that in order to Survive in this fast moving and ever changing dynamic world, one should constantly Renew and replenish his fund of knowledge.

IMPACT OF ENVIRONMENT ON VALUATION:
It is a universal truth that pleasure can only be achieved within the Environment. Therefore we can not rule out the important & value of surroundings.Feeling of surrounding start when we talk about the direction & location of property To be evaluated. We keep our nose tight if we get an assignment of East Delhi(Jamuna Par ) and start avoiding to visit the area under valuation due to various Reason may be traffic, locality, densily & populated ares, crowded bazaars, dirty Roads conditions & over flowing drains which prevent us to fix up ameeting, on the Other hand if we get assignment from South Delhi, we prefer to visit ‘just Now’Why?

The valid answer is environment only,because in this, world ease & comforts Of a person who is enjoying the property plays very important role which again Comes from surrounding environment. Being a human being we also want Good Neighbourhood, posh and clean locality, having proper connectivity of transport.The location of property under valuation is also plays very important role if adjoining Or opposite to property under valuation has cremation ground, colony’s dust bin,Slaughter house, school, temple, bank, institution, shopping centre, shopping mall,Public dealing offices,open shops like atta chakki, coal shop, scooter- rickshaw Stand, bus terminal, metro station, railway station, airport, hotel,restaurant, housing Society, slum cluster, subzi mandi fish market, hospitals, topography, unauthorized Or approved colony, river- nallah, Gas plant, power plant, low lyiong areas, highway,Flyover, etc. All above factors are nuisance creator in term of DUST, SMOKE & NOICE and these factor should not be neglected, avoided or unlooked while Preparing a valuation report and each and every point should be Given proper Weightage to Give justified & fair value of property.You can’t imagine the magnitude of pleasure and satisfaction you would get When a visitor to your house gives good compliments about the design and location Of your house for environment friendly surroundings asd it would be unfair if the Services of the individual/ agency who contributed to enhance the value of your House are not appreciated.

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