Basic Principles for Valuation of Urban Land

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The value of anything means it’s worth or utility as also the qualities inherent in the thing on which its utility or worth depends. The simple definition by Hadley is ‘Price is a fact and value is an estimate of what the price ought to be’.

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Courtesy - 123rf

There are no mathematical formulas by which the market value of the land can be ascertained. The determination of the market value involves a little amount of guess work which is of quasi-scientific nature. Generally, the market value is based on the sale price of the very property under consideration or by comparing the land whose market value is determined with the instances of sales of similar lands in a similar neighbourhood.

Each plot of land has great influence on the use on which the land is put depending upon the supply and demand in a particular locality. The design of each plot characterises the sale price of land. The market value of the land is governed by so many factors which include its location, situation, size and shape, type of locality in which it is situated, its distance from various service infrastructures like,  Railway Station, S.T. Depots, Schools, Colleges, Markets, Hospitals, Temples, Mosques, Gardens, Recreation Centres etc. level of land, its topographical and physical condition, frontage available, soil conditions and type of soil, the zone in which it is situated, type of use to which it can be out and encumbrances like right of air, way, sewerage on the property, effect of flood or monsoon waters, tenure of land, maximum permissible F.S.I, possibility of full commercial exploitation of the maximum F.S.I., cost of infrastructural development and services, services available to the property like water supply, drainage, electricity, roads, transport facilities, communication facilities like posts, telegraph, telephone, telex, T.V etc., the development surrounding the property, sentimental or social issues affecting the value, location of obnoxious industries, cattle house, cemetery, graveyard, mutton markets etc. surrounding the property.

Also Read: What are the Different Purposes for Valuation of House?

Urban land values: 

The urban areas developed by the passage of time acquire values on account of their ability to create employment Potentialities in industries, offices, business and different work centres. The availability of employment and the possibility of livelihood drive the rural people to urban areas creating demand for urban land. Every urban city will have its own pattern of urban value depending upon the State Policies, important businesses, type of housing accommodation, climatic conditions, economic activity and such other allied factors. The method of determining urban land values has shifted from the calculation of land area to F.S.I. In the property market, the rates of property are dependent on the availability of FSI for the development and not on sq.ft. of land area. The urban land values also got shifted due to the new concept of floating FSI. New inventions from ingenious brains of the builders and developers circumventing the legal network and defining down to earth schemes for satisfying the needy people are dazzling the people and the authorities alike.

The method of judging the urban land value requires to be a modern one. The comparative method of valuation commonly used consist of collecting the sales instances for plots and from consideration of the said statics to estimate the value of the sale under consideration. The method pre-supposed firstly that a sufficient number of sale transactions of open land are available for comparison and secondly that all those plots are similar or atleast comparable to judge the land value. Unfortunately, these pre-suppositions do not hold good in the circumstances prevailing in highly developing urban areas. Alternatively, the builder’s method to judge the land component and the land value is the proper technique in judging urban land values. The builder constructs flats or tenements and sells them. The builder’s selling cost includes land component per sq.ft. of built up area, the cost of construction per sq.ft. of built up area, overhead cost per sq.ft. of built up area and profit per sq.ft. of built up area.

In a case of some of the old buildings in heart of city and in commercial areas, the building component would be very less as it would fetch more or less scrap value while the land component would be major and dominant one.

Must Read: Importance of Value & Valuation

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