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, where in each party has acted willingly, knowledgeably and without compulsion.”
There are several factors which determine the market value of a land. Those factors can be divided majorly into four categories
- Physical Factors
- Regulatory Factors
- Legal Factors
- Social Factors
Physical Factors:
Location
Location is the most important aspect while valuing a 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.
Access Road
Most of the developers who has been interviewed in due course of writing this article has agreed upon that access road is one of the most critical factors while valuing a particular land parcel. Width and typology of access road significantly effect the price of a land. Hence, a land parcel with arterial road as the access road commands significantly higher price than a land parcel of similar nature with sub arterial road as access road.
Shape & Size of the land
Shape & Size of the land always exert significant influence on the land valuation. Square or rectangular land shapes are desirable as it ensures least wastage of land during development. Size of the land parcel has its own implication depending on development choice of developer. A large land can be demanded by a developer who wishes to build a township project while small size of a land parcel will be attractive to a developer who is eyeing for development of a standalone building
Regulatory Factors:
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 a construction. Hence, land zoning is considered as a vital aspect for land valuation.
Development Potential
Development potential of a land parcel depends on the prevailing development regulations that are to be applied on the land. Total development potential of a land is one of the most crucial factors to consider while valuing a land. Any restriction in Development Control Regulations i.e., building byelaws can lead to lower value of a land.
Legal Factors:
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.
Number of Owners
Due to 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 within immediate family members) as well as multiple owners. In case of multiple owners mostly a single person works as representator on behalf of all the owners. However, in few cases that is not the scenario; in this case it becomes difficult for the developer to buy the land. Hence this is considered as a vital factor.
Social Factors:
Demography
Demography of an area affects the land price. 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
Social Infrastructure
Social infrastructures are considered as 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 exercise.
Social Taboos
Any kind of social taboos like land near graveyard or crematorium etc. can reduce the value of a land. Thereafter, if present social taboos are factored in land valuation