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POSTED BY ON November 21, 2011 1:43 pm COMMENTS (5)
it is coming to my notice that the per sq. ft .(super built) prices of newly constructed/under construction flats in my developed area or nearby new developing area is being quoted more than 1.5 times than 10-15 yrs. old flats in my developed area. some 1.5 -2 yrs. back, they were quoting almost same. i understand that there could not be perfect logic behind it , but only demand supply relation. however how can one determine fair values of a newly constructed flat and a 15 yr. old flat in the same area, say, stood side by side?
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Dear Bharat Shah, You are calculating the land cost & the construction cost but my dear friend what about the profit margin of the developer of the new building. The extra amount in that 50% is the profit margin.
Thanks
Ashal
One more aspect (other than demand supply and the land cost) is the depreciation of the structure itself. How can one pay same amount for the flat which was constructed 10-15 years ago and which is more likely to cause maintenance headache?
Another consideration is the current trends about the architecture/plan/style/amenities/security etc which may not be all the same with the old flats.
@pvivekm@yahoo.com
your both points are valid. for first , i have already taken care by considering cost of construction reduced @ 40% for 15 yr old building considering total life of building 40 yrs. for maint. headache, some old buildings are very well constructed and maintained. and new building will also pass through the same phase!
for your second point how much premium could be afforded, i think, may @5% , but not @30-40% as they are asking.
@ashav
for both, old and new flats, profit margin of developer could be considered integral part of construction. and , as such, for buyer, relative cost is important. but, i think, such anomaly
could be explained on demand supply equation, and partly due to most buyers have no idea to grasp of fair value of the property.
thank you both for giving views.
@ashav
yes it will depend on the land and i think, discounted price of the construction of the flat. now for simplicity we work out for 1000 sq, ft super-built flat as under:
as i observed ,the land part for the flat, which is generally mentioned in the DASTAVEJ (STAMPED AGREEMENT) , is used to be @25%age of super-built up area of the flat, so in this case, it is @250 sq.ft . and the cost of construction is running , as told by people, rs . 1000/- per sq.ft. super-built in this area. price of land in this area is @rs. 7000/-.
1. value for new 1000sq.ft super-built flat= cost of land rs. 250*7000 + cost of construction rs.1000*1000= rs.2750000/- i.e.rs. 2750/- per sq.ft.
2. value for old 1000sq.ft super-built flat= cost of land rs. 250*7000 + cost of construction rs.1000*1000*60%= rs.2350000/- i.e.rs. 2350/- per sq.ft. (construction cost is discounted by 40%, considering flat life 40 yrs.)
thus the premium of new flat over 15 yr. old flat could be some 18-20% and not 50% as now quoted.
ashav, am i wrong in my understanding?
Dear Bharat Shah, please do note the major part in the price hike comes from the price of the land where the flats are built up or already standing.
So for your query, you should have a fair idea of the land price & accordingly, you may decide a discounted price for the 15Y old flat.
Thanks
Ashal