How do you estimate cost of a 9 storied residential building in Bangladesh?

Answer 1

The same way you estimate the value of any building anywhere-

A: determine the gross annual rent when fully occupied,

B: determine annual expenses - management and upkeep - utilities? - others

C: determine annual vacancy rate

D: determine annual cost of a well built insurance policy which covers standard issues as well as issues which are particular to the locale, (flooding, hurricane, earthquake etc)

E: Subtract D,C,B from A, which will give you a NET annual income for the property.

F: Determine the profit margin: NET/GROSS, or A/E

1- If margin, that is to say "#F", falls beneath 20%, the building has very little value beyond speculative value (as in, if there is a potential for profit at resale of the building based on local comparative analysis, or speculation that future redevelopment in the area might raise the land value, or, one might speculate that "#A" might be increased by adding units or upgrading existing ones)

2- If "#F" is between 20%-50%, then you have a building which sustains itself as a business, and may be valued as such... there are many rules of thumb which can be used in this case. The first step is to value the building as an income earning business, it is common to see businesses which operate within this profit margin to be valued at 2x to 5x the Gross Income. If the business is well established, has been earning this margin steadily for years, is properly staffed, etc, then it will be more to the 5x as there is a premium for that stability. If it is a newer business or has had circumstances beyond its control affecting its bottom line (political, environmental, whatever) that risk will push the value down nearer to the 2x amount. Furthermore, a land value premium (or penalty?) might be considered as well, to cover the speculative value a property might have. This is all discretionary, as ultimately the building is worth what the market will bear, or what people are willing to pay. It is sometimes useful to look at it from the buyer's perspective, where the NET income is the key in the final analysis... if the Net income is for instance, 1/20 the price of a building, then it will take 20 years to gain a 100% return, in otherwords the return is 5% per year. If that is a perceived as a good rate of return for that time and place, then that price becomes attractive.

3- By doing a comparitive analysis of similar buildings in the area which HAVE SOLD, you might determine what the normal ratio is for that area. If most buildings sell for nearabouts 3x the gross revenue, then that is a good rule of thumb. if most buildings sell for 10x the gross, then that is also a good rule of thumb. These numbers themselves often reveal the type of market you are dealing with. I would imagine that the building selling for 10x the gross rent is likely a well located building in a large city experiencing a speculation driven bull market...

Hope this helps!