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Land Valuation is the technique of estimating and determining the fair price or value of a land parcel. In this article, we explain you all major land valuation methods, any or all of which can be used for valuation of land depending on the amount of information available.
Land can be classified into agricultural & non-agricultural in both urban and rural areas. Generally, land in an urban area whether agricultural or non-agricultural is valued higher than rural land. Agricultural land which is more fertile is generally valued higher than barren land. Non-agricultural land can be classified into residential, industrial or commercial and the value of such lands primarily depend on the development potential by constructing appropriate structure over them.
Now let us first understand the factors on which valuation of land depends. Then, we will see various land valuation methods.
Factors for Valuation of Land
As they say, in real estate, its location, location and location. The biggest factor in land valuation is the location of land. Land in an urban area is more expensive than rural land, value of land in city centre is higher than the land in outskirts.
A commercial land is more valuable than residential or industrial land. Similarly, residential and industrial lands are more valuable than agricultural land. Hence, it is important to determine the usage of land to evaluate its price.
Smaller residential plot sizes generally fetch higher per unit rate as compared to larger plots because of affordability reasons. However, if the land can be used for industrial or commercial purposes, larger plot sizes may command a premium.
Generally, square or rectangular plots are preferred over irregular shapes. Hence, regular shaped plots of land command higher prices.
If the level of land is higher than the adjacent road, it will be difficult to lay water & drainage lines. Extra earth has to be excavated to make the plot at reasonable level. Similarly, if the land is considerably lower than the road level, substantial cost will be incurred in land filling. While valuing a piece of land, you should keep in mind all such levelling costs.
6. Frontage and Depth
A land with higher width facing the street or road commands premium. Similarly, the value of land also depends on its distance from the main road. A plot in the fourth or fifth street from main road is priced much lower than the one which faces the main road.
7. Return Frontage
A plot with multiple frontages commands premium over a plot with single frontage. For eg. a corner plot or a three side open plot will be priced higher than a plot with only one side open to road.
The value of land also depends on its accessibility. If a plot of land is land locked or if the access road is not wide enough, it will fetch much lower prices.
9. Floor Space Index (FSI)
Floor Space Index is the ratio of built up area to the area of land. The value of land also depends on FSI or in other words on the total floor area of the building that can be built on the plot.
10. Infrastructure & Development
The infrastructure & development in the vicinity of land have direct bearing on prices. A well-developed area which has schools, hospitals, wide roads, metro, 24X7 water supply & power will naturally fetch higher prices.
11. Nature of Soil
The bearing capacity of soil also affects the land valuation. If the soil bearing capacity is good, cost of foundation will be reasonable. However, the cost of foundation can go up significantly if the soil bearing capacity is poor. Hence, land with good soil bearing capacity will be priced higher.