We had very briefly covered what we felt was the right way to value a property in a recent write-up. Surprisingly we got no comments questioning the approach that was suggested. We did think the measure was a wee bit unconventional, given the prevailing trends in the housing market. So in case you missed the thrust of the earlier argument, we are reiterating it once more in this post. Persistence pays, hopefully.

The popular way to convey the cost of an apartment is by using the measure ‘Rupees per square feet’. However we would like to argue that the ‘cost per sq. ft.’ only indicates the ‘price’ of an apartment, not its ‘value’. Now you will of course ask, what do you mean by ‘value’?

Like someone once said, ‘Price is what you pay and value is what you get’. In case you think value is always in the eyes of the beholder, we would like to disagree with due respect here. It is possible to evaluate on an objective basis, the monetary term associated with the value and once you do that, the measure is not so subjective anymore.

An example might make the case a bit more clear. Say you have rented an apartment with a sea view, you will get a lot of peace-of-mind from the view (and arguably we cannot measure the exact relaxation you derive) and the value you place on that peace-of-mind will reflect in the rent you pay for that place. Thus, no matter what the type of house, what its location, and how it was built; we can still estimate an objective value for the house independent of its occupants.

So next time someone quotes you a price for a house, try to dig out the value of the house; represented by the income it can generate over its lifetime. And buy it only if the value exceeds the price. Simple enough to say, tough to implement. Will see if we can run you through couple of example cases in the coming days.