Top 10 Factors affecting Land Value
Land value can be defined as the monetary cost of the land. It can be the cost of undeveloped land with or without a built property. Generally speaking, land value in real estate is primarily associated with a vacant plot or piece of land. When discussing real estate in general, the term “property value” is more appropriate for any built structure.
Depending on the district or city you live in, the prices will vary based on different factors such as land use, land market, interest rate, and overall real estate value of that particular area. The land value is determined by the economic principle of the highest and best use of land which produces the highest net return in any term over a period. The property value is dependent on structural attributes, land rates, aesthetics, accessibility, land use, and land location.
Factors affecting Land Value are of importance while calculating or estimating land prices, understanding these factors will provide a more accurate and realistic cost of land. These factors affecting Land Value do not necessarily give the exact amount but are helpful in comparison.
Factors affecting land value.
While there are several reasons and factors which influence the price of land, these factors can be grouped into the following categories:
• Accessibility & Land Use.
• Physical attributes.
• Location.
• Market Price of the surrounding and nearby area(s)
• Market Value and property price.
The various factors which directly or indirectly affect the land value are described below:
- Accessibility to economic activities: The more easily economic activity is accessible, the more the value of the land. For example, most metropolitan cities have the maximum land values at the center of the central business district of the city. This is because of the nearness to the economic activities and workplace. This factor affecting land value is the sole most important factor which led to the development of various land price models in urban economics. The CBD area is the most accessible market area and thus usually houses the most expensive businesses and services.
Examples include cities such as London, Ney York, Beijing, and Mumbai among others, which have the world’s highest real estate prices.
2. Physical attributes: These include quality of location, topography, climate, availability of water, sewer lines, etc. Better-planned Cities with good facilities tend to have a higher price of land. Topography further has a direct effect on the construction cost and thus the overall development cost. The facilities thus developed on uneven land will have a much higher cost as compared to the flat plain. This is the reason why construction cost is much higher in hilly and mountainous areas and the price of land is low.
3. Social Amenities in the neighborhood: The cost of land is also affected by the availability of the facilities such as shopping areas, medical facilities, school parks & playgrounds, and other basic human needs. This helps in saving the time of people every day, the time saved adds up to the cost of land. Also, the reduced travel and reduced trip distance will directly have monetary benefits for the person residing in an area with many such facilities in proximity. Depending on the need of a buyer, he or she may decide to live in a residential area or near a commercial area. Such places have a direct impact on daily transportation costs.
4. Present and future land use: The value of the land is also determined by the land use permitted in the land premises. For example, if we compare the values of two lands of the same prices and the same location but the land use permitted in the lands are different, one is commercial and one is residential. In such a case the value of the land with the land use which has more rate of return over some time will be valued more. People are willing to pay a higher amount for commercial land and mixed-use development, in some cases industrial or institutional land use might attract even higher prices. Agricultural land has the lowest price since there are several restrictions on permitted activities. Future value also depends on upcoming Greenfield development or brownfield development.
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5. Demand and Supply Function: With the significant demographic changes in the cities with time, the need for land also increases with the same factor, with the increase in population there is an increase in economic and other activities. This directly increases the demand for land components. The anticipation of high yields may also induce false scarcity of land; hence the location advantages of the properties at any time within the urban boundaries and hence causes the economic values of land to increase. For any site, there are specific points of transition in use, closely related to the infrastructure and services, where a jump in property value is likely to happen.
6. Location and Transport Linkages: The property located in the area of a high level of infrastructure facilities or the one located in or adjacent to the area of intensive economic activities such as markets or industries have higher value. Transport linkages are also crucial since they govern the mobility & ease of movement to and from the area. Clearly defined hierarchy of roads, efficient public transportation and lack of congestion are some of the desired transportation attributes of any area. Residential land values are also observed to be in direct proportion to the hierarchical order of the adjacent road. Easy access and proximity to public transport such as bus or metro train is an added advantage for the resident and thus adds up to the cost of land.
7. Land and Property Records: While buying land, buyers need to be aware of the actual ownership of the land. Thus having verifiable records of past purchase and buyers of land become important. This is of particular importance if any dispute arises in the future and the current land owner is required to prove the ownership of the land. Land without any verifiable records is usually available at a cheap price but should be avoided.
8. Development Controls and building bye-laws- Since we are discussing the price of land, it becomes important to take into account the various restrictions and regulations in place related to construction. Land once purchased will be put to use in some or another manner and thus needs to be developed. The construction which will take place is governed by various laws such as land use, land tax, premise level use, floor area ratio, and other development controls. Thus such rules and regulations are major factors in the price of land.
9. Real Estate Prices: In major cities, the land valuation takes into account the above-mentioned factors and is known as market price. The price is thus driven by the market in that area based on the other deals or similar purchases. This method is usually the quickest and easiest to get an idea about the land value in an urban area and used my real estate broker.
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10. Age of the structures: Age is also a major factor when discussing property valuation. In the case of a built property, the age of the structure has a direct impact however the land value has an indirect impact. Land located in an area with predominantly old buildings will see a negative impact due to the age of structures in the surrounding. A newly developed town thus might have a higher land value as compared to a similarly developed area with very old buildings.
Despite looking at those other factors mentioned above-affecting land value might give a price that no one is willing to pay, and thus the actual amount paid becomes the price instead of the evaluated price.
source: Amity Realtors Ltd
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