While you may have heard experts mention that land is a secure investment, you should be aware of certain critical points before proceeding with the investment. Since it is a big financial decision, you have to know the details about land valuation and its ways. This guide will assist with the key factors that impact land value and how it is calculated.
Land valuation
Land value refers to the total value of a property – land plus any alterations or enhancements made to the project. Land valuation surges if:
- The demand for land is more than the supply.
- The land is rich in oil, ore or any other rich source of income.
What is site value?
Site value is the land’s fair value in the absence of rentals, mortgages or anything that will impact the property value.
Factors that impact land valuation
- Location: This is an important parameter on which land valuation depends. A parcel of land of a lesser area in a Tier-1 city will be more expensive than a parcel of land with a larger area in a Tier-2 city, primarily because of the location.
- Circle rate: The circle rate, ready-reckoner rate or the guidance value is the minimum value that a land or a property commands.
- Presence of existing infrastructure: A land that has an existing structure may be valued based on the structure’s presence.
- Ownership: A land that has clear titles and a single owner has better prospects than a land with multiple owners due to legal risk
See also: Why are plotted developments considered safe investments in India?
What are the methods used for land valuation?
Circle rate or guidance value
The minimum value is commanded by the land as per government directives. This is the benchmark based on which the property’s stamp duty and registration charges are paid.
Developmental method
The land valuation is done based on infrastructural development.
Land valuation = Gross development value (GDV) – (cost of construction + profit + other fees, such as marketing, transaction, convenience fee etc.)
This is also known as the residual land value method.
Comparative method
As the name suggests, two pieces of land are compared based on age, land condition and presence of physical/social infrastructure.
FAQs
How can you calculate land value?
Circle rate, development method and comparative method are how you calculate land value.
When does a land see a value surge?
When the demand is more than available, the land value sees a surge.
What is a comparative method of land valuation?
A comparative method of land valuation is when you compare two pieces of land based on certain factors and decide the price.
What is the circle rate?
Circle rate is the minimum value that a land commands, as fixed by the state government.
What is market value?
Market value is the value at which a property is sold to the buyers. A circle rate can be less than the market value.
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