Several land valuation systems have been developed to arrive at the right value of land across the world. Based on their effectiveness, some methods have been more popular globally. These are also quite commonly used in India. Read on to learn more about how to calculate land value.
Top 5 methods to calculate land value
Here are the top five methods used for calculating land value in India.
1. Comparative property valuation method
At a time when apartment-based projects have become an inherent part of urban living, this method is often put in practice to arrive at the worth of flats. Also known as the sales-comparison approach, this method helps you arrive at the value of your property by way of examining the value of similar properties in that very location.
Let us say two flats were recently sold in your housing society for Rs 1 crore each. If you were to sell your property in the near future, the same amount would be the asking price for your property.
This property valuation method works because you are living in an active market where comparable data exists to make the calculation. However, when you actually put your flat up for sale, you might find that buyers are not willing to pay you more than Rs 90 lakh for your flat. This could be because of many reasons.
- Location: Even within a housing society, location plays a major role in deciding a property’s worth. Flats that are closer to the main entry point, for example, will fetch a lower price, because of the continuous disturbance that the residents may be subjected to. Similarly, a park-facing flat is more lucrative for a buyer and hence worthier than a flat that is surrounded by other flats.
- Shape: While nobody prefers a house with an irregular shape, the possibility of such homes getting as much as the asking price are further diminished with Vastu making a big comeback in India. Under the principles of Vastu, flats with irregular shapes hamper the owner’s personal, as well as professional growth.
- Size: If your house is even slightly smaller than your neighbour’s, your property would never command the same monetary value as their’s.
- Level: Depending on the city where you have your apartment, the level of your apartment would also decide the value of your property. In Mumbai, an upper-storey flat in a housing society costs more than an apartment at the ground floor, because of recurring flooding during the monsoons. The opposite is true in Delhi-National Capital Region (NCR) where ground floor homes command a premium.
- Frontage: A corner flat or a corner plot, by virtue of having easier entry and egress points, would command a premium, as compared to other properties.
- Legal issues: Suppose your property is jointly owned by your sibling who is not willing to sell his share in the property. Such a problem may not only stall the sale but also result in value depreciation.
See also: igrs.ap.gov.in market value in Andhra Pradesh (AP)
2. Development method of land valuation
This method is primarily used in deciding the worth of plots and apartments built on them. Also known as the residual land value method, this globally accepted approach helps one to gauge the potential of a land parcel.
At one point, the worth of the plot might be negligible but upcoming infrastructure development could increase its worth multifold.
In Jewar, for example, a bigha (27,000 sqft) of land was being sold for Rs 4-5 lakh in the past. After plans firmed up to build NCR’s second airport at Jewar, land rates have now touched Rs 20-25 lakh a bigha. Consequently, values of apartments in housing societies in nearby Greater Noida locations have also increased, along with rentals.
3. Land and building method of land valuation
Under this method of land valuation, the value of land is separately assessed and the value of the building is added to the number to arrive at the final value. Using this method, one could arrive at land valuation as well as property valuation.
To reach the value of the building, reconstruction cost is first worked out and then, adjustments are made for depreciation. If the building could be reconstructed for Rs 25 lakh, for instance, then, Rs 5 lakh might be deducted from its value as depreciation, because of its age, method of construction, current condition, quality depreciation, etc. By this process, the cost of the building is only Rs 20 lakh, in this case. Now, the rental capacity of any comparable property should be factored in, to reach its capitalised value by multiplying its net annual income (let us assume this is Rs 55 lakh). The difference between the two figures, i.e., Rs 35 lakhs, is the building value.
4. Belting method of land valuation
To assess the worth of a large land parcel in urban areas, the belting method is most effective and generally used. For this purpose, the entire land parcel is divided among three belts, with the greatest weightage given to the part closest to the main road. Typically, the front belt could stretch up to 10 ft and the second belt up to 50 ft. The part thereafter would be the third belt. While 75% of the value of the first belt could be assigned to the second belt, half of its value could be assigned to the third belt. If belt 1 is worth Rs 10 lakh, areas up to 150 ft would be worth Rs 7.50 lakh. Areas beyond this would be worth Rs 5 lakh, depending on how vast it is.
5. Guidance value method of property valuation
For some of us, the job becomes easy since authorities have carried out the onerous task and have allocated a specific guidance value — also known as circle rate, ready reckoner rate, etc. — to land. This is done by states in order to levy stamp duty and registration charges on transfer of properties. Gurugram’s district administration, for example, recently announced a hike in circle rate that is likely to make purchase of plot-based properties costlier. However, the government-specified rates could be higher and lower than the prevalent market value of the property. In case you are planning to sell your plot/flat, find out about the prevalent market rate.
Key factors affecting land value
There are several factors that affect the value of land, such as:
- Location: Location plays the biggest role in determining the worth of land. The scale of development in a locality, decides its worth or the lack thereof. This is why a large land parcel in a developing locality would fetch much less money than a tiny piece of land in a well-developed area. The increase in land prices near the Jewar Airport, in Noida, is a fine example of this.
- Quality of construction: Second in determining the value of land comes the quality of construction of the building standing on it. In the same locality, a building will cost much more if premium materials have been used to build it, as compared to a building constructed using average quality materials, even if there is no age difference between the two buildings. Do note that you have to hire technical experts to gauge the construction quality, as you may lack the expertise to do so on your own.
- Age of the property: Age is another factor that impacts the worth of a property. An old construction would cost much less than a new construction in the same location.
- Builder: In case of a building, the brand of the developer will also have an impact on the pricing. A project by a well-known developer will, for instance, cost more than a project by a comparatively less-known developer.
- Legal compliance and documentation: Unresolved legal issues, ownership conflicts, and incomplete documentation can significantly delay property transactions, often leading to a decrease in value. Buyers typically steer clear of properties entangled in legal disputes to avoid unnecessary complications.
Why is it important to know the land value?
Land valuation offers several advantages, particularly for buyers. Here are some key benefits:
- Prevents malpractices: Knowing the accurate value of the land reduces the risk of falling victim to scams or unethical practices. Proper land valuation in India aids in making informed decisions and determining the land’s true market value.
- Helps assess land’s pros and cons: A land valuation report provides insights into the property’s pros and cons, including market value, location benefits, structural feasibility, and more. This information allows buyers to make an informed choice on whether to proceed with the purchase.
- Aids in property insurance: Accurately valuing land is crucial for obtaining appropriate insurance coverage, helping to avoid over-insurance or underinsurance. Since insurance amounts and premiums are closely linked, proper land valuation can lead to savings on premiums.
- Facilitates property sale: If a buyer decides to sell the land, having a clear understanding of its market value through land valuation can expedite the decision-making process and help set realistic price expectations.
- Evaluates project viability: Before investing in land for development purposes, it’s essential to assess the viability of potential projects. Land valuation helps in determining whether the land is suitable for the intended development, thus avoiding unwise investments
How to get a land valuation certificate?
A land valuation certificate is a legal document that confirms your plot’s value as recorded in the Land Values register. This document is essential for tax purposes or when applying for a bank loan. To obtain one:
- Visit the Tehsildar Office and complete the land valuation certificate application form.
- Submit the necessary documents, such as the land deed, survey number and revenue receipt, along with the form.
- The application will be reviewed by the relevant authority.
- Upon approval, pay the application fee and receive an acknowledgement receipt.
- The application process typically takes around 15 days, after which you will receive the land valuation certificate.
Difference between market value of land and market price of land
The market price of land and the market value of land are not one and the same thing. The market price of land is the money that the owner is willing to sell his land for, in the open market. The market value of the land is reflected in how much this land is worth, especially in the eyes of prospective buyers, as compared to its price.
Almost always, there is a value that an owner attaches to his property, based on several factors. However, when a prospective buyer starts to evaluate this same land, he may not assess this asset to be as worthy as estimated by the owner. This is indicative of the fact that buyers and sellers do not attach the same value to land.
The market price of a land parcel can be determined based on some key factors, without even physically visiting the property. The factors that determine the market price of land or property are supply and demand, the condition of the property and past transactions for similar properties.
You just have to do some data crunching and find out for the price at which similar land parcels in the same area are being sold currently. So, if a similar land plot sale fetched the owners, say, Rs 2,000 per sq ft, an agent would expect to get the same price for his client.
However, for the agent to fully understand the value of this land parcel, he would have to physically visit the site, since the market price of land is attached without adding the value component.
If the site is adjacent to the main road, for example, the plot has greater value than similar land parcels in the areas. If the plot is, say, adjacent to a cemetery, its value would be much less than other similar plots in the area.
Now, only after assessing all these factors, should an owner put a market price to his land parcel or property. This should be a price that the buyer should be willing to pay and the seller should be willing to accept.
The rate at which the transaction would finally take place, would be the market price of land, which will have an impact on the market value of properties in the area. Hence, both these things continue to impact each other immensely.
What is the fair value of land? How is it different from the market value of land?
Land value is the worth of a piece of property, which includes both the value of the land itself and any enhancements made to it. On the other hand, fair value of a land is referred to its worth if there are no rentals, mortgages, or anything else present that would otherwise affect the value of the property. Fair value and market value differ primarily in their calculation and purpose. Fair value is an objective assessment based on standardised methods, often used for financial reporting and legal purposes, providing a stable estimate of a property’s worth. In contrast, market value reflects the current price a property would fetch in the open market, influenced by real-time factors like demand, supply, and recent transactions, making it more variable and dependent on market conditions.
Housing.com POV
Calculating land value in India is a crucial step for anyone involved in real estate transactions, whether buying, selling, or developing property. The various methods of land valuation offer different approaches to accurately assess the worth of a piece of land. These valuations are not only vital for setting realistic price expectations but also for ensuring legal compliance, securing appropriate insurance and evaluating the feasibility of potential projects. A clear understanding of land value helps prevent malpractices, informs decision-making and enhances the overall effectiveness of property investments. By obtaining a land valuation certificate, you gain a legal document that supports your transactions, making it an indispensable tool for both individuals and businesses in the real estate sector.
FAQs
What is land value?
The cost attached to a property is known as its value.
What is guidance value?
Guidance value is the state-specified value allocated to land/property.
What is the difference between guidance value and land value in India?
The guidance value represents the lowest value at which a property or plot must be registered. In India, the actual land value can be significantly higher than the guidance value, largely influenced by current market conditions.
Can land value fluctuate, and what causes these changes?
Yes, land value can fluctuate due to various factors. Changes in economic conditions, government policies, infrastructure development, and shifts in demand and supply in the real estate market can all cause land value to rise or fall. Additionally, factors like natural disasters, environmental issues, and changes in zoning laws can also impact land value significantly.
Can land value differ within the same locality?
Yes, land value can vary within the same locality due to factors like proximity to main roads, commercial centres, and public amenities. Land located closer to these features tends to have a higher value. Additionally, the shape, size, and topography of the plot, as well as any legal encumbrances, can also cause variations in land value within the same area.
