Introduction
- A real estate developer had developed multiple projects out of which one project turned out to be NPA.
Situation
- The project was developed by developers by acquiring development rights of a few blocks from a township project which includes few residential buildings and one commercial building.
- The developer had completed development of residential units and possession of the same was handed over; however the commercial units were left incomplete.
- The commercial tower had partially sold units with some outstanding receivables.
- The tentative total saleable area of the commercial tower was mortgaged to the bank.
- The project was un registered under RERA as it was too old.
Q&A
Question Arise –
- How to arrive at the partially constructed commercial building Value for the recovery purpose of the bank?
- How to arrive at the value of the area mortgaged to the bank for the recovery purpose of the bank?
Answers written down –
After having several discussions with the client, observations during physical inspection and detailed analysis, we managed to conduct the exercise and provide the value that it is neither overvalued or undervalued. We broadly worked as follows:
- We had valued the under construction building by using discounted cash flow method under income approach where inflows include receivables in phasing from sold and unsold units. Outflows include the balance completion cost required and marketing expenses.