Owning a property will branch out your investment portfolio and provides a financial security. A plot or land is always treated as highly priced asset due to limited availability. Due to the continuous infrastructural and IT development in today’s world, value of land/plot is increasing day by day. There are numerous ways used in real estate to evaluate the land value in India.
Investors must know how to value the property and make guesses about how much profit each will make, through property value or rental income. Accurate real estate valuations can help investors make better decisions when it comes to buying and selling properties. Property valuation is a process that determines the economic value of an investment.
Here are some methods which are used to assess property value.
- Guidance Value method
- Land and Building method
- Development method
- Comparative method
- Belting method
Along with these methods, there are few factors such as shape, level, size, frontage, legal issues, and location which are considered while assessing the property value.
GUIDANCE VALUE METHOD:
The government of every state fixes a minimum value at which the property should be registered called guidance value. The registration value should be above and over the guidance value. A property which is registered below guidance value is considered as illegal registration. This rate varies from one location to another. Guidance value is fixed by the state government to impose stamp duty and registration charges while transferring properties. These rates are changed periodically to match market rates. While selling a property it is important to know the guidance value of that locality.
LAND AND BUILDING METHOD:
In this method of valuation, the land value and the building value is calculated separately. The sum of the land value and building value is the final cost of the property. The formula used to calculate property value is:
Value of property = Reconstruction Cost – Depreciation + Land Value
The building value is calculated by estimating the reconstruction cost and assessing the current value considering the depreciation. The cost to duplicate the same building using similar materials and construction techniques is known as reconstruction cost. The loss in value of a building or its improvement is termed as depreciation. The age of the building, the building’s current condition, method of construction, etc. are factored in while calculating depreciation. The current value of the land is obtained based on the price at which a similar property was recently sold in that zone.
DEVELOPMENT METHOD:
The method of land valuation is used to calculate the value of developed land or plot. This method helps in identifying the land which has development potential. It is calculated by using the below-mentioned formula –
Land = Gross Development Value – (Construction + Profit + Other fees)
Where, Land = the cost involved in buying the land.
Gross Development Value (GDV) = It is a projected final capital value determined while selling land at a specific time.
Construction = Costs involved in constructing a building.
Profit = This is a cost that is calculated at an early stage by the developer to estimate the returns he gets by investing in that land.
Other fees = It includes marketing cost, transaction costs, etc.
This method is globally accepted to determine land value. The infrastructural developments in that locality have major role in determining the increase or decrease in land value.
COMPARATIVE METHOD:
It is the simplest and direct method of evaluation used to calculate the land price. In this approach, the value of land is calculated by comparing it with the recently sold property which is similar. Some of the factors that are considered while determining property value under the comparative method are –
List of recently sold property gives a fair idea of the property price in that locality. The amenities in the locality such as schools, hospitals, parks, and infrastructural development are considered to determine the price in that locality. The prices are higher in a locality which is well-developed with all amenities. The property with similar age and quality should be considered for evaluation. The number of bedrooms, bathrooms, and parking space should be similar to the one that is appraised.
BELTING METHOD:
The belting method is calculated based on road frontage. To find the real value of the land the entire plot is divided into three belts. Each belt is valued at different rates. The first belt has a maximum value, the second belt is valued at a two-thirds rate of the first belt and the third belt is valued at half the rate of the first belt.
These are some of the methods that are widely used in India to calculate the land value. Based on the type of property you can choose a suitable method to evaluate the property price.
KEY POINTS TO REMEMBER DURING LAND VALUATION
Location of the property: Location plays the biggest role, in determining the worth of land. The scale of development in a locality, decides its worth. This is why land in a developing locality would fetch much less money than a tiny piece of land in a well-developed area.
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 with premium materials used will cost more than a building with average materials, even if there is no age difference between the two buildings. You have to hire technical experts to gauge the construction quality, as you may lack the expertise to do 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 brand: In case of a building, the brand of the builder will also have an impact on the pricing. A project by a well-known builder will cost more than a project by comparatively less-known builder.
