How to calculate building rent

Building rent calculation is a must know for a civil engineer. The rent of building is fixed on the basis of certain percentage of annual interest on the capital cost and all possible annual expenditures on outgoings. The capital cost includes the cost of construction of the building. The cost of sanitary and water supply works. Cost of electric installations and subsequent additions and alterations if any. The cost of construction also includes expenditures on the following

  1. Raising, leveling and dressing sites.
  2. Construction of compound walls, offences and gates.
  3. Storm water drains.
  4. Approach roads and other roads within the compound.

Therefore allowing a certain percentage of interest on the capital, the return maybe worked out. Therefore the capital cost divided by the years purchase will give the return. If the capital cost is not known, this may be worked out by any method of valuation. the owner expects about 2% higher interest than the prevalent interest to cover up the risk of his investment.

How to calculate the building rent in India
How to calculate the rent of a building

To this net return, all possible expenditures on outgoings are added to get gross annual rent.

calculation of building rent

Gross rent = Net rent + outgoings.

Dividing the gross rent by 12, rent per month can be calculated. different word out by this procedure is known as standard rent, while the actual rent of the property may be higher or lower than this current depending upon the situation of the property, type of construction, demand and supply etc.

In present day and interest of 12% may be reasonable one for investment on building but government allows only 6% interest.

For example

Building costing Rs. 7,00,000 has been constructed on a freehold land measuring hundred square meter recently in a big city and the prevailing rate of land in the neighborhood is Rs. 150 per sq.m. So determine the net rent of the property and the expenditure on an outgoing including sinking fund is Rs. 24,000 per annum. Work out also the gross rent of the property per month.

Calculation of building rent

Cost of construction = Rs. 7,00,000.00

Cost of land at Rs. 150.00 per sq.m = 100 x 150 = 1,50,000.00

Net return

On building at 6% on the cost of construction = 7,00,000.00 x (6/100) = Rs. 42,000.00

On the land at 4% on the cost of land = 1,50,000.00 x (4/100) = Rs. 6000.00

Total net rent per year = Rs. 48,000.00

Gross rent = Net rent + outgoings

= 48,000 + 24,000.00 = 72,000.00 per annum

Gross rent per month

(72,000/12) = 6000.00

The building rent is calculated as Rs. 6000.00

For further reading about building valuation and estimation

Subscribe to

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.