What is there for you in this article?
- If you are a real estate developer, you will learn- how to find the perfect land for the development?
- If you are a real estate owner/agent, you will learn what real estate developers look into while evaluating a land.
- What are the parameters you should consider while doing a land valuation?
Let’s begin.
What is Market Value?
Market Value is the estimated price paid for a hypothetical transaction, on the date of valuation, between a willing buyer and a willing seller in an arm’s length, well-marketed transaction, wherein each party has acted willingly, knowledgeably, and without compulsion.
There are several factors that determine the market value of the land. Those factors can be divided majorly into four categories-
- Physical Factors
- Regulatory Factors
- Legal Factors
- Social Factors
Here is the list of land valuation factors with their criticality score in percentage.
Let’s deep dive into each of these factors in detail.
Physical Factors
1. Location
Location is the most important aspect when valuing land. A land parcel is tied up to its location which affects both regulatory and social factors associated with it. This is also one of the most rigid factors of any valuation as there is no scope of change or alteration for the same.
Criticality Factor: High
2. Access Road
Most of the developers who have been interviewed in due course of writing this article have agreed that access road is one of the most critical factors while valuing a particular land parcel. The width and typology of access roads significantly affect the price of land. Hence, a land parcel with an arterial road as the access road commands a significantly higher price than a land parcel of similar nature with a sub arterial road as an access road.
Criticality Factor: High
3. Shape & Size of the Land
The shape & size of the land always exerts significant influence on the land valuation. Square or rectangular land shapes are desirable as it ensures the least wastage of land during development. The size of the land parcel has its own implication depending on the development choice of the developer. A large land can be demanded by a developer who wishes to build a township project while the small size of a land parcel will be attractive to a developer who is eyeing for development of a standalone building
Criticality Factor: Low
Regulatory Factors
4. Land Zoning
Land zoning determines the type of development to be constructed on the land. It also determines the type and number of clearances required for construction. Hence, land zoning is considered a vital aspect of land valuation.
Criticality Factor: Moderate
5. Development Potential
The development potential of a land parcel depends on the prevailing development regulations that are to be applied to the land. The total development potential of the land is one of the most crucial factors to consider while valuing land. Any restriction in Development Control Regulations i.e., building byelaws can lead to a lower value of the land.
Criticality Factor: High
Legal Factors
6. Land Title
No development can occur without a clear land title. It is one of the most basic and important requirements of a land valuation exercise.
Criticality Factor: High
Also, read: 11 Roadblocks on the way to a Successful Land Transaction
7. Number of Owners
Due to the Urban Land Ceiling act lands are of fragmented nature in terms of ownership in an urban area. Hence, most of the time to buy a large land parcel a developer needs to buy several small land parcels. These land parcels can have single (ownership divided among immediate family members) as well as multiple owners. In the case of multiple owners mostly a single person works as representation on behalf of all the owners. However, in a few cases that is not the scenario; in this case, it becomes difficult for the developer to buy the land. Hence this is considered a vital factor.
Criticality Factor: Moderate
Social Factors
8. Demography
Demography of an area affects the land price. The population composition of a location is generally inspected by the developers before fixing the same for potential development. Hence, demography is always factored in all kinds of land valuation
Criticality Factor: Moderate
9. Social Infrastructure
Social infrastructures are considered beneficial for any kind of social development. Except for township development where social infrastructures are constructed within the development, in other cases, social infrastructure is considered as advantageous in land valuation exercises.
Criticality Factor: Low
10. Social Taboos
Any kind of social taboo like land near graveyards or crematoriums etc. can reduce the value of the land. Thereafter, if present social taboos are factored in land valuation
Criticality Factor: Low
Land Market Price (LMP) by Earthfields
Earthfields provides an ideal land market price (LMP) range to its suppliers through the detailed study of several micro-location projects primarily residential in nature.
It helps land agents and owners to form a basic understanding of the market price of the land they are interested in.
All the factors discussed in this article help to determine the market price of land; hence Earthfields presumes all of the above eventually resulted in existing projects’ pricing dynamics while studying the ideal price range for available land.
What do you think of these land valuation factors and their criticality score? Let’s discuss this in the comment section below.