BUILDING MANAGEMENT

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BUILDING MANAGEMENT1. FUNDAMENTAL ECONOMIC CONCEPTS AND ANALYSIS2. BUILDING ECONOMICS3. LCC & LCCA4. FEASIBILITY5. REALESTATE FINANCING, INVESTMENT AND RETURNS6. VALUATION7. COST PROJECTIONS, CASH FLOW ANLAYSIS, COST CONTROL8. LAW RELATING TO PROPERTIES, BUILDINGS AND EASEMENT

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BUILDING MANAGEMENT-4
1. 2. 3. 4. 5. 6. 7. 8. FUNDAMENTAL ECONOMIC CONCEPTS AND ANALYSIS BUILDING ECONOMICS LCC & LCCA FEASIBILITY REALESTATE FINANCING, INVESTMENT AND RETURNS VALUATION COST PROJECTIONS, CASH FLOW ANLAYSIS, COST CONTROL LAW RELATING TO PROPERTIES, BUILDINGS AND EASEMENT

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1. FUNDAMENTAL ECONOMIC CONCEPTS AND ANALYSIS 1.1 Economics Derived from Greek word oikonomia, "management of a household, administration". It is the social science that analyses the production, distribution and consumption of goods and services. 1.2 Basic Terms of Economics 1.2.1 Elements of Economics People, Government, Markets and different sectors. 1.2.2 Asset Anything of monetary value that is owned by a person. Assets include real property, personal property, and enforceable claims against others (including bank accounts, stocks, mutual funds, and so on). 1.2.3 Balance Sheet (financial accounting term) Balance sheet or statement of financial position is a summary of the financial balances of a sole proprietorship, a business partnership or a company. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year. A balance sheet is often described as a "snapshot of a company's financial condition". A standard company balance sheet has three parts: assets, liabilities and ownership equity. The main categories of assets are usually listed first, and typically in order of liquidity. Assets are followed by the liabilities. The difference between the assets and the liabilities is known as equity or the net assets or the net worth or capital of the company and according to the accounting equation, net worth must equal assets minus liabilities. 1.2.4 Bid Price The highest price an investor is willing to pay for a stock. 1.2.5 Break Even A term used to describe a point at which revenues equal costs (fixed and variable). 1.2.6 Budget A summary of intended expenditures along with proposals for how to meet them. A budget can provide guidelines for managing future investments and expenses. 1.2.7 Fiscal Policy It is the use of government expenditure and taxation to try to influence the level of economic activity. An expansionary (or reflationary) fiscal policy could mean: cutting levels of direct or indirect tax increasing government expenditure The effect of these policies would be to encourage more spending and boost the
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economy. A contractionary (or deflationary) fiscal policy could be: increasing taxation - either direct or indirect cutting government expenditure These policies would reduce the level of demand in the economy and help to reduce inflation. 1.2.8 Monetary Policy The regulation of the money supply and interest rates by a central bank in order to control inflation and stabilize currency. If the economy is heating up, the central bank (such as RBI in India) can withdraw money from the banking system, raise the reserve requirement or raise the discount rate to make it cool down. If growth is slowing, it can reverse the process - increase the money supply, lower the reserve requirement and decrease the discount rate. The monetary policy influences interest rates and money supply. 1.2.9 Fixed Cost A cost incurred in the general operations of the business that is not directly attributable to the costs of producing goods and services. These "Fixed" or "Indirect" costs of doing business will be incurred whether or not any sales are made during the period, thus the designation "Fixed", as opposed to "Variable". 1.2.10 Inflation It is the percentage increase in the prices of goods and services. 1.2.11 Opportunity Cost It is the implied cost of not doing something that could have led to higher returns. 1.2.12 Micro Economics & Macro Economics- Dimensions of economics The branch of economics concerned with individual decision units--firms and households--and the way in which their decisions interact to determine relative prices of goods and factors of production and how much of these will be bought and sold. The market is the central concept in microeconomics. The branch of economics that considers the relationships among broad economic aggregates such as national income, total volumes of saving, investment, consumption expenditure, employment, and money supply. It is also concerned with determinants of the magnitudes of these aggregates and their rates of change over time.

1.3 Economic Analysis Systematic approach to determining the optimum use of scarce resources, involving comparison of two or more alternatives in achieving a specific objective under the given assumptions and constraints. It takes into account the opportunity costs of resources employed and attempts to measure in monetary terms the private and social costs and benefits of a project to the community or economy.

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2. BUILDING ECONOMICS Intent of course To provide an understanding of economic aspects of the building process. So that they may be taken into consideration during the design process. So that it may not be considered as a necessary evil, but as one more of the many concerns that make architecture an encompassing and fascinating subject. Just as adding a ball makes juggling more, not less impressive, an additional challenge to the designer’s creativity and imagination make designing an even greater art. Introduction • There is a perception that economic concerns and architecture are somehow incompatible or even at odds with each other. • Most professionals agree that economic factors are quite important; in fact that they often influence design decisions more than any single factor. • Buildings are expensive, decisions about investments in buildings usually involve the largest single-item expenditure most people deal with during their lifetime. The similar is the case with renting an apartment vs monthly salary of an individual. • But initial cost of a building, appears quite insignificant when compared with the costs incurred to operate and maintain a building over its lifetime. For a 20 year period, these costs can amount to three or four times the initial cost of construction. Definition of Building economics: • There are a few related and overlapping fields: - Engineering economics - Realestate economics - Urban economics - Energy economics - Environmental economics These seem to act individually actors in the economic realm and form what may be called as microeconomic fields in general economic theory. Out of the above Urban and Energy/Environmental economics are most concerned with macroeconomic issues (the study of laws governing the economy as a whole). LEVEL 1: importance of building industry in any national economy. These are studied in fields of political economy, sociology, urban policy, transportation, regional planning etc., LEVEL 2: Concerns of practitioners with actual & specific building projects. The fields under consideration are: construction estimating, construction management, project management, construction financing, real estate financing.

GENERIC ISSUES RELATED TO A PROJECT
PREVIOUS DECISIONS Go-Ahead Decision To Next Stage Overall Project Solution Features SOLUTION PROPSAL (S) Concept
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Program Size Type Architectural Design Schematic Design Design Development DELIVERY PROCESS FINANCING ARRANGEMENTS Budget Financing conditions SCHEDULING/ PHASING LOCATION/SITE EXPECTED / REQUIRED PERFORMANCE Owner Objectives Regulatory provisions/ standards- Feasibility study Market Study/expectations- Feasibility/market analysis study Comparative (among solutions) PERFORMANCE MEASURE Cost Benefit/Value Period Cost/Value or Cost/Benefit relationship

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3. LCC AND LCCA “ Buildings today are... life support systems, communication terminals, data manufacturing centers, and much more, They are incredibly expensive tools that must be constantly adjusted to function efficiently. The economics of building has become as complex as its design “ Some of the interpretations of cost effective building (Owner’s view point): • Is it the lowest first-cost structure that meets the program? • Is it the design with the lowest operating and maintenance costs? • Is it the building with the longest life span? • Is it the facility in which users are most productive? • Is it the building that offers the greatest return on investment? Determining true cost-effectiveness requires a life-cycle perspective where all costs and benefits of a given project are evaluated and compared over its economic life. In economic terms, a building design is deemed to be cost-effective if it results in benefits equal to those of alternative designs and has lower life-cycle costs. . For example, the HVAC system alternative that satisfies the heating and cooling requirements of a building at the minimum life-cycle cost, is the cost-effective HVAC system of choice. Life cycle Cost/ Whole-Life Cost/ Cradle to Womb Cost/ Womb to Tomb Cost It is the total cost of the ownership of a project across its life period. It is sum of nonrecurring (one time cost) and all recurring costs. Therefore some of these costs are: • Initial Costs—Purchase, Acquisition, Construction Costs • Energy and Water Costs/ Fuel Costs • Operation, Maintenance, and Repair Costs • Replacement Costs • Residual Values—Resale or Salvage Values or Disposal Costs • Finance Charges—Loan Interest Payments • Non-Monetary Benefits or Costs Initial Costs Initial costs may include capital investment costs for land acquisition, construction, or renovation and for the equipment needed to operate a facility. Energy and Water Costs Operational expenses for energy, water, and other utilities are based on consumption, current rates, and price projections. Because energy, and to some extent water consumption, and building configuration and building envelope are interdependent, energy and water costs are usually assessed for the building as a whole rather than for individual building systems or components. Operation, Maintenance, and Repair Costs Non-fuel operating costs, and maintenance and repair (OM&R) costs are often more difficult to estimate than other building expenditures. As it varies from building to building there is great variation in these costs even for buildings of the same type and age. It is therefore especially important to use engineering judgment when estimating these costs. Replacement Costs The cost (non-recurring) incurred due to replacement of building systems/equipment’s across the life cycle of the project.
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Residual Values The residual value of a system (or component) is its remaining value at the end of the study period, or at the time it is replaced during the study period. Residual values can be based on value in place, resale value, salvage value, or scrap value, net of any selling, conversion, or disposal costs. As a rule of thumb, the residual value of a system with remaining useful life in place can be calculated by linearly prorating its initial costs. Non-Monetary Benefits or Costs These costs are project related effects for which there is no objective way of assigning a dollar value. Examples of non-monetary effects may be the benefit derived from a particularly quiet HVAC system or from an expected, but hard-to-quantify productivity gain due to improved lighting.

Life Cycle Cost Analysis (LCCA) It is a technique to compare project alternatives that fulfil the same performance requirements, but differs in term of its life cycle costing. Resulting in selection of the alternative with the maximum net saving, consistent with its quality and function. The LCCA should be performed early in the design process while there is still a chance to refine the design to ensure a reduction in life-cycle costs (LCC).

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4. FEASIBILITY A feasibility study is an evaluation of a proposal designed to determine the worthiness in carrying out a task. Generally, a feasibility study precedes technical development and project implementation. A Feasibility Study report is a business plan for a specific real estate project. It provides the rationale and the support for that rationale to pursue a specific real estate project from the feasibility phase, pre-construction, construction and occupancy through investment management. A Feasibility Study for some common types of real estate projects are: • New Development • Redevelopment or Renovation of an existing property • Reuse of underutilized or abandoned facilities A Feasibility study is an extension of the initial project appraisal process and serves as a preliminary assessment of the viability of the project and degree of risk attached. The term “Viability” refers to the ability of a project to meet its predetermined objectives which may be technical, economic, social and financial or a combination of these. GENERIC COMPONENTS OF FEASIBILITY STUDY 4.1 DEMAND ANALYSIS This analysis makes an attempt to determine the need for particular project. This need vary from project to project. The critical factor in demand analysis is an estimate of the demand, for a specific project, during the life span of a proposed project, during the life span of a proposed project, keeping in mind that the project is dependent among other things, on the project sales or income. 4.2 LOCATION ANALYSIS Some of the aspects taken into consideration are: • Cost, Size and Availability of Land • Suitability of Land for the project/building purpose • The seismic zone in which site is located • Availability of infrastructure and its utilization • Accessibility to other amenities • The state of labor relations locally • Proximity to competitive/ similar projects • Geographic area to be served by the project

4.3 TECHNICAL ANALYSIS Some of aspects may be taken into consideration are: • Type of Structural System- adopted/proposed for the project • Type of Construction Techniques-to complete in minimum time and achieve desired quality • Type of Building material used • Cost Estimate • Consultants- requirements of consultants for designing of various components, services of building. • Contractors- Broad understanding of PQ
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• •

Specifications Design Analysis- to study and analyse the various design options and adopting the best and sound scheme among the alternatives

Some of the commonly used methods/tools used are: • Site Investigation-soil, hydrological, contamination • Strength, Weakness, opportunities and Threats (SWOT) Analysis • Analytical Hierarchy Process (AHP) 4.4 MARKET ANALYSIS It includes the preparation of provisional assessment of demand for the products or services which the project would provide, and the competitive environment. Some of the aspects dealt are: • Understanding of the Product vs price study-benefits, services, • Promotional plan- to analyse media message, timing, promotional effectiveness, sales promotion plan • Clientele Profile 4.5 LABOR & MANAGEMENT ANALYSIS Plays important role in infrastructural and Industrial projects. Some aspects dealt are: • Requirement of Personnel • Labor Availability • Training of Personnel • Organizational Structure • Arrangement for continuity- other factors essential for completion of work within estimated cost and time. 4.6 SOCIO ECONOMIC ANALYSIS To understand the indirect benefits, which are not fully reflected in the valued inputs and outputs. Such analysis is normally done for infrastructural and industrial projects and upto some extent for hospital projects: Some of the aspects dealt are: • The indirect benefit that will encourage the growth of ancillary trade/industry/services. • The indirect benefit of the labor training effect. • Environmental aspects • Damage costs- to society Some of the commonly used methods/tools used are: • Market Survey • Demand-Supply dynamics • Participatory Appraisals

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4.7 FINANCIAL ANALYSIS It determines the financial viability of a project over a period of time. It assists in determining the estimated profit/loss related to project. Some of the aspects dealt are: • Recurring and Non-recurring Cost related to project • Profitability Analysis- involves breakeven point in the project wrt investment, ROI over a period of time.

Some of the commonly used methods/tools used are: • Discounted Methods using Net Present Value (NPV) and Internal Rate of Return (IRR) • Non-Discounting Methods using Payback-period & Financial Ratios eg. ARR (Accounting Rate of Return)

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5. REAL ESTATE FINANCING, INVESTMENT & RETURNS 5.1 CHANNELS FOR FINANCING REAL ESTATE DEVELOPMENT 5.1.1 Bank Loans 5.1.1.1 Home Loan (8-10%) Home loans for individuals to purchase (fresh / resale) or construct houses. Application can be made individually or jointly. Bank finances up to Part (85% incase for HDFC Bank) maximum of the cost of the property (Agreement value + Stamp duty + Registration charges) based on the repayment capacity of the customer. 5.1.1.2 Home Improvement Loan HIL facilitates internal and external repairs and other structural improvements like painting, waterproofing, plumbing and electric works, tiling and flooring, grills and aluminium windows. Bank finances up to Part (85% in case of HDFC) of the cost of renovation (100% for existing customers) subject to market value of the property. 5.1.1.3 Home Extension Loan 5.1.1.4 Land Purchase Loan 5.1.1.5 Real estate initiative for Small & Medium scale enterprises Bank offers significant solution for commercial properties leased to various reputed corporates / banks / insurance companies / retail chains. The product offering involves discounting the future receivables every month (or depending on any other frequency) and providing an upfront loan to the landlord, thus extending good liquidity in the hands of the landlord. 5.1.2 External Commercial Borrowing (ECB) ECB allows access to foreign money via commercial bank loans, securitised instruments (such as floating rate notes and fixed-rate bonds), loans from foreign equity holders, financial leases and foreign currency convertible bonds (FCCBs). Business Houses opt for this channel of financing when the cost of domestic borrowing is higher than that of international borrowing. Because ECBs directly add to India’s external debt and foreign exchange exposure, they are highly regulated by RBI. RBI has allowed ECB proceeds for the development of integrated townships and infrastructure development in SEZ 5.1.3 Realty Funds (Domestic & International) Av return expected are in the range of 20-30%. Some of these funds are: DE Shaw, Citigroup Property Investors, Sun Apollo, IL&FS Realty Fund, Red Fort Capital. IREO – PE Fund dedicated to India and started to develop its own projects. 5.1.4 Foreign Direct Investment (FDI)
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Earlier only NRI and Persons of Indian Origin (PIO) were allowed to invest in Housing and Realestate projects. Whereas Foreign investors other than NRIs were allowed to invest only in development of integrated townships and settlements either through a wholly owned subsidiary or through a joint venture company in India along with a local partner. Post 2005, GOI allowed 100% FDI in construction business with conditions related to area, investment options and target for completion of a project. 1) Minimum area In case of development of serviced housing plots, 10 hectares (25 acres) In case of construction-development projects, built-up area of 50,000 sq m. In case of a combination project, any of the above two conditions 2) Investment Minimum capitalization for wholly owned subsidiaries - US$ 10 million for JV with Indian partners - US$ 5 million–, to be brought in within 6 months of commencement of business Original investment cannot be repatriated before a period of three years from completion of capitalization. The investor may exit earlier with prior approval from Foreign Investment Promotion Board (FIPB). 3) Time frame & rules At least 50 per cent of the project to be developed within five years from the date of obtaining all statutory clearances. Investor cannot sell undeveloped plots - where roads, water supply, street lighting, drainage, sewerage and other conveniences are not available. Channels for FDI: 1. Direct Asset Acquisition 2. Equity Investment Foreign Investors may purchase equity in an unlisted real estate company and thereby partner it in its growth plans across asset classes and cities. Advantages of this channel: • Include lower transaction cost and • Potentially easier exit via. A public listing The trend is to investment into SPV that hold asset. The investors subscribes to the shares of the SPV. (Eg. BPTP) 3. Venture Capital Funds Can invest with SEBI and FDI Guidelines. One of the routes is through invest through a pooled investment fund. What do u mean by capital markets-PRIMARY MARKETS. 5.1.5 Qualified Institutional Placements (QIP) It is a capital raising tool, whereby a listed company can issue equity shares, fully or partly convertible debentures or any securities other than warrants, which are convertible to equity shares, to a qualified Institutional buyer. SEBI introduced
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QIP to enable domestic listed companies to raise funds in a short span of time and to prevent them to excessively dependant on foreign capital. 5.1.6 Initial Public Offerings (IPOs) IPOs enable privately owned companies to issue new, publicly traded common stock or shares to the general public. Historically firms such as DLF, Unitech and many other Indian real estate developers have raised capital. 5.1.7 Non-Convertible Debentures (NCD) • a debt instrument that cannot be converted to corporate stock and which offers healthy yields of 14-18% • Usually used by mid-sized firms, which need quick capital to repay debt, buy land or complete their projects. 5.1.8 Real Estate Investment Trusts (REIT) and Real Estate Mutual Funds (REMFs) REIT and REFMs have played an important role in institutionalising realestate investment in many countries around the globe. The essential difference between REMFs and REIT is while investments made by REITs are only permitted in income- generating physical real estate assets, REMFs can take exposure in securities of real estate companies as well. Currently, both these channels still remain a future prospect. 5.2 REAL ESTATE INVESTMENT Involves the purchase, ownership, management, rental and/or sale of real estate for profit. Real estate is an asset form with limited liquidity relative to other investments , it is also capital intensive (although capital may be gained through mortgage leverage ) and is highly cash flow dependent. The primary cause of investment failure for real estate is that the investor goes into negative cash flow for a period of time that is not sustainable, often forcing them to resell the property at a loss or go into insolvency. Issues discouraging investment into Real estate • Ownership and land title issues reduces the opportunities for investing into realestate. • High Transaction Cost discourages direct investments- Its basically the stamp duty paid by purchaser on direct acquisition of realestate. Depends from state to state (Ranges from 5-12% of the asset value) as compared to 0.5 % of asset value if investing through SPV or company equity route. • Slow development process- development approval processes are slow and lack transparency. Therefore for developers, this increases the attraction of SEZ, which offers single window approval. Also as Urban Land Ceiling and Regulation Act has been repealed in most states, but contunies to constrain the development in states like- Maraharshtra, Andra Pradesh and West Bengal. • Short Tenancies: Leases in main cities are typically for a period of nine years, with tenants locked-in for only 03 years, thus increasing vacancy risk. Also Tenancy laws have not traditionally been in favour of the owners in India due to rent control acts.
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Foreclosures 5.3 REAL ESTATE RETURN 5.3.1 ROI (Return on Investment)/ ROR (Rate of Return)/ Rate of Profit A performance measure used to evaluate the efficiency of an investment or to compare the efficiency of a number of different investments. To calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; the result is expressed as a percentage or a ratio. The return on investment formula:

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6. VALUATION 6.1 Definition of Value/Cost/Price Value can be defined as- worth estimated by any standard of purchasing power, especially by the market price, or the amount of money agreed upon as an equivalent to the utility and cost of anything. It has to do with the combined factors of present and future anticipated enjoyment/profit. The value sought in the appraisal of property may be said to be the discounted present worth of all desirable things (benefits), which may accure from a skilful use of it. Cost represents a measure of past (or prospective) expenditure in terms of money, labor, material in acquiring or producing the commodity. Cost is a factor upon which value is partially based. It doesnot control the present and future value. Price is what one pays for a commodity, regardless of pressure motives or intelligence of the seller or buyer. Usually it is considered to be the amount of money involved in a transaction. Whether we receive in value more or less than what we pay for will depend on the soundness of judgement in the analysis or appraisal of value.

6.2 Value: Context Specific Property may simultaneously have different value for different purposes or under different situations. Therefore it is important to understand the context for understanding the value for a property. Some of the common type and definition of value sought by a real estate appraiser are: A) Market Value the estimated amount for which a property should exchange on the date of valuation between an educated buyer and a reasonably motivated seller in an arms-length transaction after proper marketing wherein the parties had each acted knowledgeably, prudently, and without undue influence. Market value is usually interchangeable with Open Market Value or Fair Value. B) Value-in-use
The net present value (NPV) of a cash flow that an asset generates for a specific owner under a specific use. Value-in-use is the value to one particular user, and may be above or below the market value of a property.

C) Investment Value
is the value to one particular investor, and is usually higher than the market value of a property.

D) Insurable Value
is the value of real property covered by an insurance policy. Generally it does not include the site value.

E) Liquidation Value

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Liquidation or forced sale value means the amount which may reasonably be expected to be obtained from the sale of a property within a time-frame too short to obtain a value under open market conditions. The seller may be an unwilling seller and the buyer may be motivated by the knowledge of the disadvantage the seller suffers from.

6.3 Valuation: Definition Valuation in a broad sense would mean assessing the worth of something, which may be a tangible asset like land or something intangible like goodwill.
Real estate appraisal, property valuation or land valuation is the practice of developing an opinion of the value of real property, usually its Market Value. The need for appraisals arises from the heterogenous nature of property as an investment class: no two properties are identical, and all properties differ from each other in their location which is one of the most important determinants of their value.

6.4 Valuation: The need Property Valuation may be needed due to various reasons: a) Taxation: To assess the tax of a property its valuation is required. Taxes may be Municipal Tax, Wealth Tax, Property Tax, etc., and all are fixed on the valuation of property. b) Buying/Selling property c) Rent Fixation: In order to determine the rent of a property, valuation is required. Rent is usually fixed on certain percentage of the amount of valuation (6% to 10% of valuation). d) Mortgagees/Security for Loans e) Compulsory Acquisition: Whenever a property is acquired by law compensation is paid to the owner. f) Insurances, Betterment charges, Speculation etc., 6.5 Principles of Valuation Over time appraisers have developed a reliable body of principles, referred to as the principles of value, that guide the appraiser in making decisions during the valuation process. 6.5.1 Principle of Highest & Best Use Highest & Best Use refers to the most profitable use of property, the use that will provide the greatest net return over a period of time. Net return usually refers to net income, but it cannot always be measured in terms of money. For residential properties for example net return might manifest itself in the form of amenitiesthe pleasure and satisfaction derived from living on the property. 6.5.2 Principle of conformity It holds that property tends to reach maximum value when the neighborhood is reasonably homogeneous in social and economic activity. Example: Under the conformity principle, a house that cost INR 30 Lacs in a neighborhood of INR 10 Lacs homes is not worth as much as if it were in a neighborhood of INR 30 Lacs homes.
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6.5.3

Principle of Change It holds that real estate value is constantly in a flux, moving up and down in response to changes in various social, economic, governmental and environmental forces that affect value. As the value is always subject to change, an estimate value must be tied to a given date, called the effective date of appraisal.

6.5.4 Principle of substitution It holds that no one will pay more for a property than they would have to pay for an equally desirable substitute property, provided there would be no unreasonable delay in acquiring that substitute. It can be explained in another way that if two properties are for sale and are equally desirable (whether in terms of use, design, construction or income generated), the least expensive will be in greater demand. 6.5.5 Principle of Supply & Demand It holds for almost every commodity including real estate. Value tend to rise as demand increases and supply decreases, and diminish when the reverse is true. It is not so much the demand for or supply of real estate in general that affects values, but the demand for or supply of particular type of property. 6.5.6 Principle of Progression States that the value of lower priced properties is likely to increase to increase due to proximity to higher priced or higher quality of properties. 6.5.7 Principle of Regression Opposite to the above principle. It states that higher priced property values may be held back or even reduced due to proximity to lower priced properties. 6.5.8 Principle of Contribution The principle acknowledges a limitation of growth in market value, notably in the case of improvements. The additional market value one may expect from improving property is not equal to cost, but to the contribution those changes make to actual market value. 6.5.9 Principle of Anticipation It is the future, not the past, that is important to appraisers. Value is created by the anticipated future benefits of owning a property. It is the future benefits and not the past benefits that arouse the desire to own. 6.5.10 Principle of Competition Its an extension of Principle of Demand and supply. It States that when demand is stable, competition (other properties in the market) dilutes the potential profits for all available properties. Scarcity may drive prices up, and by the same argument, competition holds prices steady or may even reduce the average sales levels.

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6.5.11 Principle of Plottage This principle observes that consistency in ownership of land or usage, tends to maximise value. This true especially for smaller lots remain undeveloped and are eventually by one person/company and is subsequently developed. 6.5.12 Principle of 4 phase Life cycle Related to principle of change is the concept that property has 4 phases life cycle: a) Integration Also called as the growth / development phase is an early stage, when the property is being developed. b) Equilibrium It is the period of stability, when the property undergoes little change. c) Disintegration Is the period of decline, when the property’s economic usefulness is near an end and constant upkeep is necessary. d) Rejuvenation It is also called as revitalization and is the period of renewal when the property is reborn, often with a different highest and best use. Rejuvenation or revitalization of a property can take different forms. If a building is restored to good condition without being changed, its called rehabilitation. If a floor plan or style is altered, its called remodelling. And an entire neighbourhood can be rejuvenated by redevelopment, such as an urban renewal project in which rundown buildings are demolished and replaced. 6.6 Approaches to Value There are three general groups of methodologies for determining value. These are usually referred to as the "three approaches to value" which are generally independent of each other 6.6.1 The cost/ Summation approach The theory is that the value of a property can be estimated by summing the land value and the depreciated value of any improvements. The value of the improvements is often referred to by the abbreviation RCNLD (reproduction cost new less depreciation or replacement cost new less depreciation). Reproduction refers to reproducing an exact replica. Replacement cost refers to the cost of building a house or other improvement which has the same utility, but using modern design, workmanship and materials. In practice, appraisers use replacement cost and then deduct a factor for any functional disutility associated with the age of the subject property.

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The cost approach is considered reliable when used on newer structures, but the method tends to become less reliable for older properties. 6.6.2 The sales comparison approach The sales comparison approach in a real estate appraisal is based primarily on the principle of substitution. This approach assumes a prudent individual will pay no more for a property than it would cost to purchase a comparable substitute property. The approach recognizes that a typical buyer will compare asking prices and seek to purchase the property that meets his or her wants and needs for the lowest cost.

6.6.3 The income approach The income capitalization approach (often referred to simply as the "income approach") is used to value commercial and investment properties. Because it is intended to directly reflect or model the expectations and behaviors of typical market participants, this approach is generally considered the most applicable valuation technique for income-producing properties, where sufficient market data exists to supply the necessary inputs and parameters for this approach. 6.7 Valuer Actually, no one in India can claim that he is a "Government Approved Valuer". Yet, everyone desires to engage services of a "Government Approved Valuer" and therefore, to satisfy the clients, everyone who is enlisted or empanelled with various Government Departments, states that, he / she is "Government Approved Valuer" . There are three levels of governments in India i.e. Central Government, State Government and Local Self Government. All these Government levels solicit the services of valuers for one or the other reason and many of them are maintaining a register of valuers with them for specific purpose or a panel of valuers from which a particular one can be called upon to undertake their assignments. The closest body we have is the Practicing Valuers Association (India) is an organization of valuation professionals and others interested in the valuation profession. In India we lack an a professional body eg RICS in UK which is a representative professional body which regulates property professionals and surveyors in the United Kingdom.

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7. COST PROJECTIONS/ CASH FLOW ANALYSIS/COST CONTROL/COST BENEFITS 7.1 COA – Schedule of Services STAGE SERVICE Concept Design • Prepare rough estimate of cost on area basis (Stage 1) Preliminary Design • Prepare preliminary estimate of cost on area basis (Stage 2) Working drawings & • Prepare the estimate of cost based on the schedule of Tender Documents quantities and specifications of items part of the Tender (Stage 4) Document. • Advice client on the method of payments to contractors. Appointment of • Invite, receive and analyse tenders Contractors (Stage 5) Completion of Project • Understanding of Actual project Cost (Stage 7) 7.2 Methods of Preparation of Estimate 7.2.1 Plinth Area Method The cost of construction = Plinth Area x Plinth Area Rate Plinth Area is the built-up covered area measured at the floor level. It includes area of porches other than cantilevered, balconies and area of mumty at terrace level, area of walls. The following areas are excluded in calculating the plinth area of the building: a. Internal shafts for services less than 02 sqm b. Sunshades & cornices c. Loft 7.2.2 Unit Base Method The cost of construction = Total number of units x unit rate of the item Some of projects where it is used are educational institutions (unit is students), Hotels (unit is keys/rooms) Hospitals (unit is beds) Restaurants (unit is covers) 7.2.3 Cubical Contents Methods The cost of construction = Total cubical contents x Local cubic rate Total cubical contents = L X B X D/H

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Its is usually used for multi-storeyed buildings. 7.3 Methods of Cost Control 7.3.1 Value Engineering (VE) VE is defined as a systematic method to improve the value of goods/services by using an examination of function. The primary tenet of VE is that quality of goods/services is not compromised. 7.3.2 Scope Reduction Scope reduction involves identifying areas of the project scope of work that can be reduced in quality, quantity or both in a manner that is acceptable to the owner. 7.3.3 Deferral of scope of items Scope deferral involves identifying areas of project that can be delayed for future completion. 7.4 Cash Flow Management Techniques Some of the common techniques used by Contractors for cash flow management are: 7.4.1 Front-end Loading The process involves of unbalancing the trade-payment breakdown, so as to a source of interest-free fund. Another aspect of this technique is to consider areas of the job which may result in change orders or billable quantity overruns. 7.4.2 Avoiding excessive investment in equipment 7.4.3 Sub-Contractor Payment Clauses 7.4.4 Credit Arrangement of Suppliers

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8 LAW RELATING TO PROPERTIES, BUILDINGS AND EASEMENT Various laws related to properties and buildings by GOI are: 8.2 PROPERTY LAWS 8.2.1 Transfer of Property Act 1882 Need The act relates to transfer of property between two living persons. The Act refers to certain kinds of transfer of property, such as sale of property, lease or renting of property, mortgage of property, gifting property and exchange of property. Apart from these, there are certain other transactions which resemble transfer of property, though they do not actually amount to a “transfer”, such as partition, availing paying guest accommodation, creation of a charge etc. Main Terms • Immovable Property It includes land, buildings, hereditary allowances, rights to way, lights, ferries, fisheries or any other benefit which arises out of land, and things attached to the earth or permanently fastened to anything which is attached to the earth. It does not include standing timber, growing crops, nor grass. • Transfer of Property an act by which a living person conveys property, in present or in future, to one or more other living persons, or to himself and one or more other living persons. • Mortgage, Mortgagor, Mortgagee & Mortgage-Money A mortgage is the transfer of an interest in specific immoveable property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an existing or future debt. The transferor is called a mortgagor, the transferee a mortgagee; the principal money and interest of which payment is secured for the time being are called the mortgage-money, and the instrument (if any) by which the transfer is effected is called a mortgage-deed. Lease, Lessor, Lessee & Rent A lease of immovable property is a transfer of a right to enjoy such property, made for a certain time, express or implied, or in perpetuity, in consideration of a price paid or promised, or of money, a share of crops, service or any other thing of value, to be rendered periodically or on specified occasions to the transferor by the transferee, who accepts the transfer on such terms. The transferor is called the lessor, the transferee is called the lessee, and the money, share, service or other thing to be so rendered is called the rent. Exchange When two persons mutually transfer the ownership of one thing for the ownership of another, neither thing or both things being money only, the transaction is called an "exchange".





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A transfer of property in completion of an exchange can be made only in manner provided for the transfer of such property by sale. Related Concepts
• Easement

An easement is the right to use the real property of another without possessing it. Easements are helpful for providing pathways across two or more pieces of property or allowing an individual to fish in a privately owned pond. Historically four types of easement was enforced by law: - Easement of way: the right of way. - Easement of support: for excavation - Easement of light and air - Rights pertaining to artificial waterways
• Stamp Duty

It is a tax that is levied on documents. Historically, this included the majority of legal documents such as: cheques; receipts; military commissions; marriage licences; land transactions; etc. Registration and payment of stamp duty are two important facets of transfer of immovable property. Provisions regarding to registration are laid down in the Registration Act 1908 (and not the Transfer of Property Act). The Registration Act lists the transactions that should be compulsorily registered, the mode of registration, the place of registration etc. Every state has a Stamp Act which lays down the stamp duty that should be paid for a particular transaction, the mode of stamping etc. The stamp duty for property transactions may be prescribed EITHER as a percentage of the market value of the property involved OR as a fixed amount for a particular kind of transaction.
Deeds



A deed is a signed and, in some jurisdictions, usually sealed legal instrument in writing used to grant a right. Title deeds are documents showing ownership, as well as rights, obligations, or mortgages on the property. 8.2.2 Land Acquisition Act, 1894 Need Act allows GOI to acquire any land in the country. Land Acquisition literally means acquiring of land for some public purpose by government/government agency, as authorised by the law, from the individual landowner(s) after paying a government fixed compensation in lieu of losses incurred by land owner(s) due to surrendering of his/their land to the concerned government agency.
Public Purpose

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Land for putting up educational institutions or schemes such as housing, health or slum clearance, apart from the projects for rural planning or formation of sites. Further, it is also necessary that the notification has to be affixed in conspicuous places of that locality. Process of Land Acquisition Investigation • When a local authority or a company requires a land, an application is required to be made by it to the revenue authority. • The application should be accompanied with a copy of the plan showing survey nos., purpose of acquisition and the reason for the particular site to be chosen and the provision made for the cost of the acquisition. • After the government has been fully satisfied about the purpose, the least area needed, and other relevant facts as provided under land acquisition rules, it will issue a notification under Section 4 of the act that the particular land is required for public purpose. • One of the revenue officers is appointed as the collector to hold an inquiry under Section 5-A of the Act. • After notification the owner is prohibited from selling his property or disposing of it and prevented from carrying out any works of improvements for which no compensation will be paid if executed without prior permission from the collector.

Objection and Confirmation • Objections are invited from all persons interested in land within thirty days from the date of notification. • The objections will be valid on one or more of the following grounds: i. That the purpose for which the land is proposed for acquisition is not a public purpose. ii. That the land is not or less suitable than another piece of land for the said purpose. iii. That the area under acquisition is excessive. iv. That the acquisition will destroy or impair historical or artistic monuments or will desecrate religious buildings, graveyards and the like. • The collector after hearing the objections will submit his report to the government who will finally declare the land for acquisition under the Section 6 of the Act. • After notification the collector proceeds with the claim. He has the site marked out, measured and a plan of the same is made. Claim and Award • The collector will issue notices under Section 9 to all persons interested in the acquisition to file their claim reports.

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The collector is not to be a party to the proceedings, is to possess an expert knowledge on valuation, and offers a fair price to an owner and checks that the public funds are not wasted. • The claim filed should contain the names of the claimants and co-shares if any rents or profits for last three years and a valuation report of the land from an architect or an engineer. • The government can abandon the acquisition proceedings by simply canceling the notification. However, in that case compensation has to be paid under Section 48(2). • In determining the compensation the market value of the land is determined at the date of notification. The rise and fall in the value during the period of transaction and notification is taken into consideration. • Compensation is also payable when: i. Part of the property is proposed for acquisition in such a manner that the remainder depreciates in value. ii. When the land notified for acquisition has standing crops or trees. iii. If the person interested has to change his place of residence or business then the excess rent payable for the new premises is also considered for compensation. • Matters which are not taken into consideration for the purpose of land acquisition are: i. The degree of urgency which has led to the acquisition. ii. Any disinclination of the person interested to part with the land. iii. Any increase in the land value likely to accrue from the use to which it will be put when acquired. • After necessary inquiries the collector declares his award showing true area of the land, total amount of compensation payable and apportionment of compensation if there are more than one owners or claimants. • The collector has to make the award under section 11 within a period of two years from the date of notification. Reference to Court • Any person interested to whom the award is not satisfactory can submit a written application to the court. • This application should be made within six weeks from the date of declaration of the award. Apportionment • In apparent of the compensation each of the claimants are entitled to the value of his interest, which he has lost, by compulsory acquisition. • Thus it is required to value a variety of interest, rights and claims in the land in terms of money. • 8.2.3 Indian Registration Act, 1908 Need The main purpose for which the Act was designed was to ensure information about all deals concerning land so that correct land records could be
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maintained. The Act is used for proper recording of transactions relating to other immovable property also. The Act provides for registration of other documents also, which can give these documents more authenticity. 8.2.4 Indian Urban Land (Ceiling & Regulation) Act, 1976 Need The act provides for imposition of a ceiling on vacant land in urban agglomerations, for the acquisition of such land in excess of the ceiling limit, to regulate the construction of buildings on such land and for matters connected therewith, with a view to preventing the concentration of urban land in the hands of a few persons and speculation and profiteering therein and with a view to bringing about an equitable distribution of land in urban agglomerations to subserve the common good. This ceiling limit ranges from 500-2,000 square metres (sq. m). Excess vacant land is either to be surrendered to the competent authority appointed under the Act for a small compensation, or to be developed by its holder only for specified purposes. 8.2.5 Delhi Rent Control Act Need The act provides for the control of rents and evictions and of rates of hotels and lodging houses, and for the lease of vacant premises to Government, in certain areas in the Union territory of Delhi. The common thread running through all rent control acts and legislations is that they serve two purposes: a. To protect the tenant from eviction from the house where he is living except for defined reasons and on defined conditions; and b. To protect him from having to pay more than a fair/standard rent. Exception
i. Any premises whose rental exceeds INR 3500. ii. Any premises belonging to government, or rented through grant from the government. iii. Any premises constructed after 1988, for a period of 10 years from the date of construction.

8.3 LABOUR LAWS 8.3.1 Building and Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996 Need There are about 8.5 million building and other construction workers in India as per the estimates of National Sample Survey (1987-88). These workers are one of the most numerous and vulnerable segments of the unorganised sector in India. The building and other construction works are characterised by their inherent risk to the life and limb of the workers. The work is also characterised by its casual nature, temporary relationship between employer and employee, uncertain working hours, lack of basic amenities and inadequacy of welfare facilities. Therefore this act regulates the employment and conditions of service of building and
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other construction workers and to provide for their safety, health and welfare measures. Applicability a) whole of India and b) every establishment which employs, or had employed on any day of the preceding twelve months, ten or more building workers in any building or other construction work. Exception Residential houses for own purpose constructed with a cost not exceeding Rs. 10 lakh and such other activities to which the provisions of Factories Act, 1948 and Mines Act, 1952 apply. Main provisions a) Provision for registration of each establishment within a period of sixty days from the commencement of work to ensure that there are no malpractices and to discourage non-compliance of law by circumventing. b) Provision for registration of building workers as beneficiaries under this Act. c) Provision for health and safety measures for the construction workers in conformity with ILO convention No.167 concerning safety and health in construction revising the Safety Provisions (Building) Convention, 1937. d) Provision for immediate assistance in case of accidents, old age pension, loans for construction of house, premia for group insurance, financial assistance for education, to meet medical expenses, maternity benefits etc. e) Provision for constitution of safety committees in every establishment employing 500 or more workers with equal representation from workers and employers in addition to appointment of safety officers qualified in the field.
8.3.2

Building and Other Construction Workers Welfare Cess Act, 1996 Need To provide for the levy and collection of a cess on the cost of construction incurred by employers with a view to augmenting the resources of the Building & Other Construction Workers’ Welfare Boards constituted under the Building & Other Construction Workers (Regulation of Employment and Conditions of Service) Act, 1996. Applicability a) whole of India Main provisions Under the Act 1% cess shall be collected from every employer where the cost of construction is more than Rs. 10 lakhs. The proceeds of the cess so collected shall be paid by the local authority or the State Government collecting the cess to the Board after deducting the cost of collection of such cess not exceeding 1% 0f the amount collected.

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8.3.3 The Child Labour (Prohibition and Regulation) Act, 1986 Need An Act to prohibit the engagement of children in certain employments and to regulate the conditions of work of children in certain other employments. Applicability a) Whole of India b) To Building and construction industry (Part B Processes) Main provisions a) Child" means a person who has not completed his 14th year of age. 8.3.4 Contract Labour (Regulation and Abolition) Act, 1970 Need An Act to regulate the employment of contract labour in certain establishments and to provide for its abolition in certain circumstances and for matters connected therewith. Applicability a) Whole of India b) To every establishment in which twenty or more workmen are employed or were employed on any day of the preceding 12 months as contract labour. Exception It shall not apply to establishments in which work only of an intermittent or casual nature is performed. Work performed in an establishment shall not be deemed to be of an intermittent nature(i) if it was performed for more than 120 days in the preceding 12 months, or (ii) if it is of a seasonal character and is performed for more than 60 days in a year. Main provisions a) The establishments covered under the Act are required to be registered as the Principal Employer. Likewise, every contractor to whom the Act applies is required to obtain a licence and not to undertake or execute any work through contract labour except under and in accordance with the licence issued. b) The Act has provided for establishment of canteens. For the welfare and health of contract labour, provision is made for restrooms, first aid, wholesome drinking water, latrines and urinals. In case of failure on the part of the contractor to provide such facilities, the Principal Employer is made liable to provide the amenities. c) The contractor is required to pay wages and a duty is cast on him to ensure disbursement of wages in the presence of the authorised representative of the Principal Employer. In case of failure on the part of the contractor to pay wages either in part or in full, the Principal Employer is liable to pay the same. In case the contract labour perform same or similar kind of work as regular workmen, they will be entitled to the same wages and service conditions as regular workmen. 8.3.5 Employers Liability Act, 1938 Need

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An act to declare that certain defences shall not be raised in suits for damages in respect of injuries sustained by workmen. Applicability a) Whole of India Main provisions a) Defines the term workman and employer. Workman is defined as any person who has been entered into or works under a contract of, service or apprenticeship with an employer whether by way of manual labour, clerical work or otherwise, and whether the contract is expressed or implied, oral or in writing. b) Circumstances for personal injury to workman which shall not be form the defence. 8.3.6 Equal Remuneration Act,1976 Need An Act to provide for the payment of equal remuneration to men and women workers and for the prevention of discrimination, on the ground of sex, against women in the matter of employment and for matters connected therewith or incidental thereto. Applicability b) Whole of India Exception Nothing in this act to apply a) to cases affecting the terms and conditions of a woman's employment in complying with the requirements of any law giving special treatment to women, or b) to any special treatment accorded to women in connection with – (i) the birth or expected birth of a child, or (ii) the terms and conditions relating to retirement, marriage or death or to any provision made in connection with the retirement, marriage or death. Main provisions a) No employer shall pay to any worker, employed by him in an establishment or employment, remuneration, whether payable in cash or in kind, at rates less favourable than those at which remuneration is paid by him to the workers of the opposite sex in such establishment or employment for performing the same work or work of a similar nature. 8.3.7 The Minimum Wages Act, 1948 Need To safeguard the interest in term of wages of labour specially in unorganised sector, where labour is vulnerable to exploitation, due to illiteracy and having no effective bargaining power, minimum rates of wages are fixed and revised by both central/state government.
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Main provisions The minimum wages as per the notification by Delhi Government (Mar 2008). The minimum rates of wages in scheduled employments covered under the minimum wages act is as follows: Category Rate (INR) Un-Skilled 140 Semi-Skilled 146 Skilled 150 Clerical and Non-Technical Supervisory Staff Non- Matriculates 147 Matriculates but not graduates 157 Graduates and above 169 8.3.8 Workmen's Compensation Act, 1923 Need The Workmen's Compensation Act, aims to provide workmen and/or their dependents some relief in case of accidents arising out of and in the course of employment and causing either death or disablement of workmen. This act is a central legislation which provides for payment of compensation for injuries suffered by a workman in the course of and arising out of his employment according to the nature of injuries suffered and disability incurred, where death results from the injury, the amount of compensation is payable to the dependants of the workmen. 8.4 Environmental Law 8.4.1 The Environmental (Protection) Act, 1986 Terms 8.4.1.1 Environment It includes water, air and land and the inter- relationship which exists among and between water, air and land, and human beings, other living creatures, plants, micro-organism and property. 8.4.1.2 Hazardous Substance any substance or preparation which, by reason of its chemical or physicochemical properties or handling, is liable to cause harm to human beings, other living creatures, plant, micro-organism, property or the environment. 8.4.1.3 Environmental Impact Notification Assessment Notification 2006 Environmental Impact Assessment (EIA) is an important management tool for ensuring the optimal use of natural resources for sustainable development. 8.4.2 Delhi Tree Preservation Act, 1994 Need To provide for the preservation of trees in the National Capital Territory of Delhi.

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Main Provisions To provide a framework for the following: • Felling and removal of trees anywhere in the National Capital Territory of Delhi. • Distribution of seedlings free of cost to public. • Enforcement of Indian Forest Act,1927 and the remedies available • Enforcement of Wildlife Act,1972 and the remedies available • Applicability of Forest Conservation Act,1980 • Enforcement of Tree Preservation Act,1994 an the remedies available • Duties of public in general The process for Felling and remival of Trees in NCT-Delhi a. Permission to fell trees is regulated under provisions of Delhi Tree Preservation Act, 1994, a copy of the same may be obtained from the Government Printing Press. b. If a private individual/company wants to fell tree/trees anywhere in Delhi owned by them an application, in Form 'B' has to be made to the Tree Officer, Dy. Conservator of Forests (South/Central/West) and to Conservator of Forests, Delhi. The forms are available with the nearest Forest Office. Licences to fell trees can be given only 1Ha. Area of Khasra No. and only 2 licences can be issued in a year in respect of one property. The permission for felling is deemed to have been granted if no reply is received from the Tree Officer within 60 days. The applications complete in all respect will only be entertained by Tree Officer. c. After obtaining permission, the individual/Company should fell the trees within the time limit prescribed in the licences. d. If any tree is causing danger to life and property, the owner of the land may fell the tree and report the fact within 24 hours and such intimation should be made in Form 'A'. e. It is for each individual and Company to effectively protect all the trees growing in their areas.

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