Factors influencing valuation of open plots in Hyderabad
Valuation of Land Valuation is the process of measuring as well as determining the fair value or value of land parcels. In this article, we’ll show you the most important techniques for the valuation of land, than can be utilized to value land based on the quantity of data available.
The land is divided into agricultural and non-agricultural into both rural and urban regions. In general, the land that is located in urban areas that are non-agricultural or agricultural is valued more than land in rural areas. Land that is agricultural and more fertile is usually valued higher than barren land. Non-agricultural land can be classified as commercial, industrial, or residential and the worth of such areas is mostly determined by the growth potential of the land by constructing suitable structures over the land.
We must first comprehend the elements on which the valuation of the land is based. After that, we will look at different methods of valuation for land.
Valuation factors
- Location
According to the saying, in real estate, it’s a place, and location. The main factor that affects the appraisal of land is the land’s location. The land in urban areas is more costly than land in rural areas. The worth of land in the city center is more expensive than areas in the outer reaches.
- Usage
Commercial property is more valuable than industrial or residential land. Similar to residential and industrial land is more important in comparison to agriculture. Therefore, it is crucial to assess the use of the land to determine its value.
. Size
The smaller plots of land for residential use generally have higher prices per unit when compared to larger plots due to factors of affordability. But, if the land is intended to be utilized for commercial or industrial purposes, larger plots could fetch a higher price.
- Shape
In general, rectangular or square plots are more popular than irregularly shaped. Thus, the regular-shaped plots of land have higher costs.
- Level
If the soil is greater than the nearby road it could be challenging to lay drainage and water lines. Additional earth needs to be removed to keep the land accessible. If the land is significantly lower than the road’s level, significant costs are incurred for filling the land. When you are valuing a piece of property, it is important to be aware of all expenses for leveling.
- Depth and Frontage
A land that is wider facing the road or the street is worth more. In the same way, the worth of the land depends on the distance it is from the road. A property located on the fifth or fourth street that is located away from the main road is valued less than one facing towards the road.
- Return Frontage
A plot that has multiple frontages has a higher value than one frontage. For eg., A corner plot or a three-side open plot would be more expensive than plots with just one side open to the road.
- Accessibility
Land value is contingent on the accessibility of the land. If the land is locked, or the access to the road isn’t adequate it will be sold at lesser prices.
- Floor Space Index (FSI)
Floor Space Index is the ratio of the built-up area to land. It is the value that land has. is determined by FSI or, more precisely, on the floor area of the building that could be built on the land.
- Infrastructure & Development
The development of infrastructure and development within the area of the land is directly influenced by the cost. A well-developed region that is home to hospitals, schools, wide roads, metros, and 24X7 water supply and power will invariably fetch more.
- The nature of the soil
The capacity of the soil’s bearing can also influence the value of the land. If the capacity of the soil is adequate, the price of foundations will be affordable. However, the price of foundations can increase substantially if the soil-bearing capacity is low. Therefore, land that has good soil-bearing capacity is more expensive to purchase.
- Vastu
A lot of people living in India are believers in Vastu Shastra. North facing as well as East facing plots have a premium in comparison to West or South facing plots.
- Encumbrances
Land parcels with easement rights for air light, passage, or air will not be as appealing to prospective buyers, and, depending on the disruption caused, there could be a decrease in the value of these properties.
- Special Benefits
If a piece of land is a particular advantage due to its area of origin or another reason it is important to consider it when valuing it.
Methods to Valuate Land
- Comparative Method
This is by far the most favored method. The estimation of the value of land is done by looking at recent sales prices of similar properties in the same area by adjusting prices to take into account any variations in shape, size, or location as well as other factors. However, this method can be useful in areas where there is an active market and the prices of transactions are readily accessible. The appraiser must review average prices throughout the years and look for any fluctuations in the prices.
- Development Method
This technique is employed to calculate the value of land that can be constructed to unlock its real worth. For eg., agricultural land that has been converted in the land utilization (CLU) into residential may be transformed into a township consisting of multi-story buildings and residential plots. The method of development takes into consideration the potential for the development of the land to determine its fair market value. Some of the most important aspects to be considered in this method of valuation are location, usage soil type, and FSI.
- Allocation Method
This method assumes that, in certain locales, a consistent relationship exists between the value of land and the value of the entire property. For eg. in certain locations, the value of land could be 50 percent of the property’s total value. However, this assertion must be backed by sufficient statistics. This technique is especially useful in areas where land sales are limited However, properties are easily accessible.
- Extraction Method
In this method of valuing land, the unit prices of comparable land are calculated from the development of property near by subtracting the value estimated for the area of built-up from the price of sale. The value can then be adjusted to reflect any change in shape, size, or location as well as other characteristics.
The precision of this method is contingent upon the accuracy of the estimate of the area built up. This is the reason why this method is typically applied only to properties that have recently constructed areas that are not depreciated at all or for properties where the build-up area is a minor part of the overall amount of value for the home.
. Income Capitalization Method
Another way to evaluate the land is to use the income capitalization method. This method comes in two sub-categories:
- A) The Capitalization of the Ground Rent
In this method of valuing land, the value of market rental of the land is calculated and then capitalized with the market-derived rate of capitalization for land to determine the fair market value of the land. Rates of capitalization and market rent are to be used for the best and most efficient use of the land.
- B) Land Residual Technique
In the land residual technique, the net operating profit derived from the land is separated and capitalized to create evidence of the land’s contribution to the property’s value. These steps should be adhered to:
Create a hypothetical structure on the land parcel i.e. top and optimal utilization in all aspects.
Estimate the operating net income from the property, as it is developed by calculating rents from the market and costs.
Calculate the amount required to make a reasonable return on the capitalization rate that is derived from sales.
Assign the remainder of the revenue (residual) to the farm.
Turn residual income into the value of land with market-based property capitalization.
- Belting Method
The method used to value land considers the width and frontage of the parcel. Land with a higher frontage is more valuable. Also, the value of the land decreases with the area (distance from the main road) grows. In this way, the land can be divided into belts, with allocated values based on a percentage of the worth of land that is located on main roads. The most difficult part of this method is arriving at a decrease in land value as the distance from the road increases.
- Guideline Value
To establish the worth of property for stamp duty or wealth tax, property tax, etc. The government releases guidelines on values for a specific time and place.
Conclusion
It is essential to conduct a site tour and thoroughly read all documents to gather all the information required for valuing land. Based on the available information it is important to select any of these methods of valuation for land to assess your property. There are a variety of methods to cross-check and evaluate valuations. You should hire an expert valuation expert if you require an appraisal report.
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