Land ownership diversifies the investment portfolio while still providing financial stability. Owing to its limited supply, a plot or piece of land is often considered as a valued asset. The value of a piece of land or a plot of land has risen as a result of ongoing infrastructure and IT growth. In India, there are a variety of methods for determining the value of land. Here are several techniques for determining property value.
Methods used to calculate property value are:
There are a few methods used in India to calculate the value of a property –
Guidance Value method
Land and Building method
Development method
Comparative method
Belting method
In addition to these approaches, a variety of variables such as form, level, height, frontage, legal issues, and position are taken into account when determining the property value. Let's take a closer look at each approach to see how it contributes to assessing the value of land in India.
Guidance Value Method:-
Every state's government establishes a minimum value at which a property must be licensed, known as a guidance value. It's also known as the ready reckoner rate or circle rate. The registration value should be greater than the suggested value. Any property that is registered for less than the guidance value is considered to be illegally registered. This rate varies depending on where you are. The state government establishes the guidance worth in order to levy stamp duty and registration fees on property transfers. These prices are adjusted on a regular basis to reflect market rates. When selling a home, it's crucial to understand the neighborhood's guidance meaning.
Land and Building Method:-
The land value and the building value are measured separately in this system of valuation. The net cost of the property is the sum of the land and building values. The land and construction method is also known as the Cost Approach method. The following is the formula for measuring property value:
Value of property = Reconstruction Cost – Depreciation + Land Value
The current value of a building is determined by measuring the expense of renovation and evaluating the current value after depreciation. Reconstruction cost is the cost of duplicating a building using similar materials and construction techniques. Depreciation is the term used to describe the decline in the value of a building or its development. When measuring depreciation, the age of the house, its current state, the method of construction, and other considerations are taken into account.
The comparative approach is used to measure the land value. The current value of the land is determined by the price at which a comparable property in the area was recently sold.
Development Method:-
The value of established land or plots is calculated using the residual method of land valuation. This approach aids in the identification of land with development potential. It is calculated using the formula given below –
Land = Gross Development Value – (Construction + Profit + Other fees)
Where, Land = the cost involved in buying or acquiring the land.
Gross Development Value (GDV) = It's an estimated final capital value calculated when selling land at a certain point in time.
Construction = Costs involved in constructing a building.
Profit = This is an expense that the developer estimates early on to predict the returns he will earn from investing in that property.
Other fees = It includes marketing cost, transaction costs, etc.
This method of determining land value is widely used around the world. The construction of infrastructure in that area has a significant impact on the increase or decrease in land value.
Comparative Method:
The selling comparison approach is another name for the comparative process. It is the most straightforward and straightforward way of calculating the land price. The value of land is measured using this method by comparing it to a recently sold property that is identical to the one being appraised. The following are some of the considerations that are taken into account by using the comparative approach to determine property value:
List of recently sold properties: This provides a good indication of the value of real estate in that region.
The amenities in the community, such as schools, hospitals, parks, and infrastructure growth, are taken into account when determining the price in that area. Prices are higher in a well-developed neighborhood with all amenities.
Age and condition: Search for a property that is comparable in age and quality.
The number of bedrooms, toilets, and parking spaces should be comparable to the one being appraised.
Belting Method:-
The belting method is dependent on the length of the lane. The entire plot is divided into three belts to determine the true value of the land. Each belt has a different price tag. The first belt has the highest value, the second belt is worth two-thirds of the first belt's value, and the third belt is worth half of the first belt's value.
These are some of the commonly used methods in India for calculating land value. You may select an appropriate method to calculate the property price based on the type of property.
