Arjun Nair, MRICS
Property Valuation Expert, ZenithAbode
Member of Royal Institution of Chartered Surveyors (MRICS) with 14 years in property valuation. Conducted 2,000+ commercial property valuations across Mumbai, Bengaluru, and Delhi NCR. Former Senior Valuer at CBRE India and JLL.
Property Valuation Methods for Fractional Real Estate
Expert guide to valuation methodologies ensuring fair pricing for fractional properties. Covers DCF analysis, comparable sales, income approach, and NAV calculation with real case studies from 207 ZenithAbode valuations.
Three Primary Valuation Methods
- Income Approach (DCF): Present value of future cash flows - Primary for commercial
- Comparable Sales Approach: Recent transactions of similar properties
- Cost Approach: Replacement cost minus depreciation - Rarely used for fractional
Method 1: Discounted Cash Flow (DCF) Analysis
Used For: Commercial properties with stable rental income
DCF Formula:
Real Example: Prestige Tech Park, Whitefield
- Property: 50,000 sq ft Grade-A office
- Current Rent: ₹180/sq ft/month = ₹1.08 Crore annual
- Expenses: 25% of rent = ₹27 lakh
- NOI: ₹81 lakh annually
- Rental Growth: 15% annual escalation (TCS lease)
- Discount Rate: 11.5% (commercial property risk premium)
- Terminal Cap Rate: 8% (exit in Year 7)
DCF Calculation:
| Year | NOI (₹L) | Discount Factor | PV (₹L) |
|---|---|---|---|
| 1 | 81 | 0.897 | 72.7 |
| 2 | 93.2 | 0.805 | 75.0 |
| ... | ... | ... | ... |
| Terminal (Y7) | 207 | 0.482 | 1,247 |
Total Property Value: ₹14.2 Crore
Value per sq ft: ₹28,400
Implied Cap Rate: 5.7% (₹81L NOI / ₹14.2Cr value)
Method 2: Comparable Sales Approach
Used For: All property types, especially residential
Adjustment Factors:
- Location: ±15-25% (micro-market premium/discount)
- Property Grade: Grade A vs B = 20-30% difference
- Age & Condition: 2-5% annual depreciation
- Tenant Quality: Blue-chip tenants = 10-15% premium
- Lease Term Remaining: Each year = 3-5% value impact
Example: One BKC Valuation Using Comps
Subject Property: 30,000 sq ft, Grade A+, HDFC Bank tenant (8 years remaining)
| Comparable | Sale Price/sq ft | Adjustments | Adjusted Value |
|---|---|---|---|
| BKC Tower A (2024) | ₹42,000 | +7% (better tenant), +3% (time) | ₹46,200 |
| BKC G Block (2024) | ₹45,000 | -2% (inferior location) | ₹44,100 |
| Nariman Point A+ (2023) | ₹40,500 | +10% (BKC premium), +5% (time) | ₹46,575 |
Average Adjusted Value: ₹45,625/sq ft
Total Property Value: ₹30,000 × ₹45,625 = ₹13.69 Crore
NAV Calculation for AIF Units
NAV (Net Asset Value) = (Total Property Value + Cash - Liabilities) / Total Units
Example: Fractional AIF with 1,000 Units
- Property Value (DCF): ₹14.2 Crore
- Property Value (Comps): ₹13.69 Crore
- Weighted Average (60% DCF / 40% Comps): ₹14.01 Crore
- Cash & Receivables: ₹42 lakh (rental escrow)
- Liabilities: ₹28 lakh (property tax, management fees)
- Net Assets: ₹14.15 Crore
- Total Units: 1,000
- NAV per Unit: ₹1,41,500
SEBI Requirement:
AIFs must calculate NAV quarterly using SEBI-registered valuers. ZenithAbode uses Knight Frank + CBRE (independent dual valuation) with average reported as NAV. Prevents overvaluation fraud.
Key Valuation Principles
- Conservative Assumptions: Use 80th percentile rental growth, not 95th percentile
- Independent Verification: SEBI-registered valuer mandatory
- Market-Based Discount Rates: 11-12% commercial, 9-10% residential
- Liquidity Discount: 10-15% for fractional units vs direct ownership
- Annual Revaluation: Track NAV changes, adjust for market movements
Disclaimer: Valuation involves professional judgment. Past valuations don't guarantee future performance. Consult SEBI-registered valuers for formal appraisals.
Valuation Standards: Based on SEBI Valuation Regulations 2003, RICS Valuation Standards 2022, International Valuation Standards Council (IVSC) Framework