Owning real estate or a piece of land diversifies your investment portfolio and offers financial security. If we talk about the land value in India, the value of land in India, especially in urban areas, has exponentially grown over the last two decades. The value of plot or land has continuously been increasing due to IT and infrastructural developments.
Now, when it comes to calculating the land value in India, there are a wide range of ways used in real estate to evaluate the land value. Here in this article, we have listed the top methods used to assess the value of land in India. But before that, you need to understand that along with the following methods, a few factors like level, shape, size, legal issues, location etc. are taken into consideration while calculating the land value.
Let’s start with the methods and understand how each of them works to determine the land value in India.
Method 1: Land and Building Method
The first method of land valuation in the list is the Land and Building method. In this method of valuation, the value of the land and building is calculated separately. Later, the sum of the land value and building value is the final cost of the property in question. In other words, the assessment of a building and the land on which it stands are done separately. This method of land valuation is also known as a Cost Approach method. If stated mathematically, the formula used to calculate property value is:
Value of property = Reconstruction cost- Depreciation + Land value
The value of the building is calculated by estimating the reconstruction cost and assessing the current value by taking the depreciation into account. The cost of building the same building using similar materials and construction methods is known as reconstruction cost. On the other hand, the loss in the value of a building or its improvements is known as depreciation. While calculating depreciation, the age of the building, the current condition of the building and the method of construction are taken into consideration.
The value of land is estimated by the comparative method. The current value of the land is ascertained on the basis of the price at which similar property has been recently sold in that locality.
Also Read: What is Clicworth Property Valuation Tool
Method 2: Guidance Value Method
The government of every state fixes a minimum value at which the property must be registered, and this is called a guidance value. It is also termed as Circle Rate or Ready Reckoner Rate. The registration value of the property should be above or over the guidance value. Any real estate which is registered less than the guidance value is considered as illegal registration. This rate differs from one location to another and is fixed by the State government to impose registration and stamp duty charges while transferring properties. Generally, these rates are periodically changed to match the market rates. While selling a property, it is crucial to know the guidance value of that locality or area.
Method 3: Comparative Method
This method is also known as the Sale Comparison Approach. It is one of the simplest and most direct methods that is used to calculate the land value in India. In this method, the land value is calculated by comparing it with the recently sold property, which is just the same as the one that is appraised. Some of the critical factors that play an essential role while determining the property value under the Comparative Method involve the following:
1. Location and neighbourhood
2. List of recently sold properties
3. Age and condition
4. Features involved
Method 4: Belting Method
Another method that helps in calculating the value of land in India is Belting Method. This method is a unique method for the assessment of the land value of large plots in urban areas. The Belting Method calculates the land value on the basis of road frontage. In order to find the real value of the land in India as per the Belting Method, the entire plot or piece of land is divided into three belts on the basis of its proximity to the main road. Each belt is then valued at different rates.
The first belt, having a width up to 10 meters, has the maximum value. The second belt, which might be up to 50 meters from the main road, is valued at 75% of the value of the first belt. And the third belt, for any stretch beyond 50 meters from the main road, is valued at half the rate of the first belt or 50% that of the rate of the first belt. Remember, the width of each belt and the percentage values of the subsequent belts will differ from city to city and location to location.
Method 5: Development Method
The Development Method of land valuation is the phenomenon where upcoming real estate developments in a locality jack up the prices of all properties in that area. There are many cases where the building of an Expressway pushes up the prices of plots adjoining the Expressways. In general, the land around the Expressway used to cost Rs. 4-5 lakhs per bigha. But, with the announcement of the Jewar Airport construction, the cost of the same land has gone up 5 times to around Rs. 20 lakhs per bigha. A similar price increase is also seen in plots of land located around the Ganga Expressway linking west and east Uttar Pradesh. There are upcoming plans to develop industrial parks in key areas, and such developments will surely push the real estate prices up.
In mathematical terms, the below-mentioned formula is used to calculate the land value by Development method:
Land = Gross Development Value - (Construction + Profit + Other fees)
Here, Land refers to the cost involved in acquiring or buying the land.
Gross Development Value (GDV) is the projected final capital value determined while selling a piece of land at a specific time.
Construction indicates the costs involved in constructing a building.
Profit is the cost calculated at an early stage by the developers to estimate the return they will get by investing in that particular land.
Other fees involve transaction costs, marketing costs etc.
That’s all! These were some of the top methods widely used in India to calculate the value of the land. Based on the type of property, you can opt for any of the methods above and evaluate the property price without any hassle.
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