Is there any way to delve into the mind of those who are selling a property? Or for that matter, someone who buys? What do they actually expect? Is there any standardization to their line of thinking?

For a seller, what he wants is investment plus profit.

For a buyer, what he wants is depriciation factored.

For a seller, the expense heads will be –

  1. Cost of flat
  2. Maintenance Charges
  3. Stamp Duty

Trying to generate a formula for this, we see that

Selling price  = Buying Price + Bank Interest + Maintenance Charges + Stamp Duty + Profit

  1. Loan is around 70% of the deal value.
  2. Bank Interest is around 9% today, we can jack it up to 20% to cover both profit and interest component
  3. Stamp Duty is 9% of property value. Lets take it as 10

Selling Price, then becomes

Area(a)*(Cost per sq ft at buying price(c)*(70%*1.2^number of years(y) + 30%)+number of years(y)*maintenance cost per sq ft(m))*1.1

s=1.1*a*(c*(.3+.7*1.2^y))+a*m*y

s=.33ac+.77ac*1.2^y+amy

For a buyer, it’s more stratight forward. An average flat has got a shelf life of 60 years. 90% of it’s value depriciates during the time, making it an average of 1.5% per annum. Let’s have this as 3%.

Buying price, then becomes,

Buying Price = Selling price*97^number of years

b=s*.97^y

b=ac*.97^y

The window between s & b will be the window of opportunity for the deal to occur. If it is in the range of 10-15% of the deal value, the deal may happen.

Take a flat, say, of 1350 sq ft bought 3 years ago for 3000/sq ft. Now, it is 5000/sq ft.

b will be 61.6 lakhs

s will be 68.7 lakhs

Will the deal happen? It should if both the parties are ready to budge from their positions.

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