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Work out the standard rent per month assuming the following outgoings.

Total cost of construction of a newly constructed building with three floors is Rs. 12,00,000,00. The building is constructed on a plot measuring 600 sq m purchased for Rs. 1,80,000.00 in 1979. The prevailing rate of plots in the locality is Rs. 450.00 per sq.m. Work out the standard rent per month assuming the following outgoings.

Work out the standard rent per month assuming the following outgoings.

 (i) Municipal taxes @ 35% of rate-able value, 
(ii) Collection and management charges @ 3% of the gross rent, 
(iii) Repairs at 1% in 9/10th cost of construction.
(iv) Sinking fund @ 5% for 65 years on 90% cost of construction 
(v) Miscellaneous expenses @ Rs. 600.00 per month. 

Solution:- Standard rent = Net rent +Outgoings 

(A) Net rent :- 

(i) Construction cost @ 6% =12,00,000.00 x 6 / 100 = 72,000.00 Rs.
(ii) Land value = 600 x 450 = Rs. 2,70,000.00 Total  = 3,42,000.00 Rs. 

(b) Outgoings :-  

(i) Repairs @ 1% in 9/10th cost of construction = (12,00,000 x 9 / 100) x (1/100) 
= 10,800.00 Rs.
(i) Sinking fund @ 5% for 65 years on 90% cost of construction = 0.0022 x 12, 00,000 x (9/10) = Rs. 2,376.00 
(i) Miscellaneous expenses per year = 600 x 12 = 7,200.00 Rs. 
Total = 3,42,000.00 + 20376.00 = 3,62,376.00 Rs. 

Municipal taxes @ 32% of the gross rent + 3% for collection and management charges, i.e., 35% on gross rent.

Suppose gross rent                                               = 100.00 Rs.
Old outgoings for municipal tax etc.                      = 35.00 Rs. 
Net rent                                                                 =  65.00 Rs.
Now if net rent is 65 than gross rent                     = 100 
Now if net rent is 65 than 3,62,376.00                  = 100 x 3,62,376.00 / 65 = 5,57,501.50 Rs. 
Gross rent = 5,57,501.50 Rs.
Standard rent per floor per month                         = 5,57,501.50 / (12 x 3)  = 15,486.10 Rs.  

Say                                                                        = 15,486.00 Rs. 

value is calculated by assuming a suitable rate of interest prevailing in the market. For example, consider a rate of interest as 5%, the Year's Purchase = 100/5 = 20 years. The net income multiplied by the year's purchase gives the capitalized value or the valuation of the property.

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