What is Land Value?
Land value is the monetary worth assigned to a piece of land, distinct from market value of land, determined by its location, size, development potential and proximity to amenities, transportation hubs, etc. For example, land in urban areas like Chennai, Mumbai or Delhi is typically more expensive than in other parts due to high demand and limited availability. Likewise, a relatively smaller plot with world class amenities in a prime area of Chennai might be valued for crores of rupees, while larger plots for sale in the outskirts may be valued for just a few lakhs.
What is Market Value of a Land?
The market value of land also known as the land guideline value can be defined as the estimated amount that a piece of land would sell for on the open market under normal conditions. It is essentially what buyers are willing to pay for the land to sale in the current market conditions. The market value reflects current economic trends, buyer demand, and the property's characteristics, such as its location, size, zoning restrictions, and proximity to infrastructure and amenities. Essentially, it's the most probable price that the land would fetch in a competitive and open market. For example, plots in Gurgaon might have a high market value due to its potential for residential or commercial development, proximity to IT parks, and good connectivity to the city center. In contrast, a similar-sized plot in a remote area with limited development and poor connectivity might have a significantly lower market value.
Land Valuation - How to Calculate Land Value?
One common method for calculating land value is the Comparative Market Analysis (CMA), where the value is estimated by comparing the land to similar properties that have recently been sold in the area.
There's no fixed formula, but the process generally involves the following.
1. Identifying comparables (comps) of properties that have recently sold.
2. Adjusting the value of those comps based on differences with the land to sale (current condition, size, location, amenities, etc.).
3. Averaging the adjusted values to estimate the land's value.
Let's consider an example where the value of land is calculated based on its size, measured in square feet, and recent sales of similar plots in the area.
Plot A: 1,000 sq. ft, sold for Rs. 20,000 per sq. ft (Total: Rs. 2 Crores)
Plot B: 1,200 sq. ft, sold for Rs. 19,000 per sq. ft (Total: Rs. 2.28 Crores)
Plot C: 950 sq. ft, sold for Rs. 21,000 per sq. ft (Total: Rs. 1.995 Crores)
One of the plots for sale is similar in location and characteristics but measures 800 sq. ft. To estimate its value, we would first calculate the average price per square foot from the sold plots.
Average price per sq. ft = (Rs. 20,000 + Rs. 19,000 + Rs. 21,000) / 3 = Rs. 20,000
Then, we multiply this average price by the size of the land in question.
Land Value Estimation = 800 sq. ft × Rs. 20,000 per sq. ft = Rs. 1.6 Crores
This calculation provides a basic estimate of land price in Chennai suggesting that an 800 sq. ft plot might be valued around Rs. 1.6 Crores, assuming it has similar attributes to the compared plots. This is a simplified example and, in practice, other factors like the exact location, shape, zoning, and local market trends would also play a role in determining the actual value which we have discussed below. However, readers must understand that property appraisal is different from property valuation. Alternatively, for convenience, you can find out property value and obtain property valuation report by using reputed online services. By providing property details on these platforms, you can easily download a property value certificate within a specified timeframe.
Factors Affecting Land Price and Market Value of Property
When calculating land value and determining its market value, it's essential to take into account a range of factors that collectively contribute to the land's worth.
Location
The location of a land parcel is a primary factor influencing its price and market value. Properties in urban or developed areas generally have higher values due to better access to amenities, employment opportunities, and infra developments. When compared to land for sale in Chennai, plots developed in small towns and rural regions typically command a lower price.
Size and Shape
The size of the land directly impacts its price, with larger plots usually being more valuable. However, the shape of the land also plays a crucial role. With regular-shaped residential plots for sale, Chennai offers highly desirable developments of more value compared to irregularly shaped layouts in the same locality.
Zoning and Land Use Regulations
Land designated for commercial use in a bustling city area, for instance, is typically more valuable than land zoned for agriculture in the same area. Similarly, changes in land use regulations can lead to significant fluctuations in land prices, as a commercial plot for sale has different usage regulations and developments permissible on the land.
Infrastructure and Accessibility
Well-connected land property with easy access to major roads, airports, or public transport usually has a higher market value. The development of new infrastructure projects in an area can also lead to an increase in land prices as they improve accessibility and attract more developments in the region.
Market Demand and Economic Conditions
The real estate market is influenced by the overall economic conditions, including factors like interest rates, economic growth, and employment rates. High demand in a booming economy can drive up the value of housing land for sale, while a downturn can lead to decreased demand and lower prices.
It’s a Wrap
Land value and market value are closely related but distinct concepts in real estate. The land value of residential plots for sale in Chennai represents the inherent worth of the land, taking into account aspects such as its location, size, and potential uses. Market value, on the other hand, is the price that a piece of land might fetch in the open market, influenced by current economic conditions, buyer demand, and other external factors. There are several ways to calculate land value which involves real estate professionals like property developers, land appraisers and land valuers. Homebuyers should take in account that real estate plots for sale from reputable developers like VGN promises compliance with legal and zoning regulations and investing in infrastructure and community development further enhances the market value.