METHOD OF VALUATION FOR OPEN LANDS

 

The open lands cab broadly be divided in two categories , namely, urban lands and farm lands. The urban lands are classified in different ways such as residential, industrial, etc. and the value of such lands primarily depends on the potentiality of their development by constructing appropriate  structures over them. The farm lands are agricultural fields and they are capable of producing earnings themselves. . The valuation methods of urban open lands will now be briefly discussed. 

          Following are three methods adopted for the valuation of urban open lands:

• Comparative method
• Abstractive method
• Belting method
• Comparative Method: in this method, the various transactions of nearby lands are properly

studied and then a fair rate of land under consideration is decided . Thus, the comparative method will be useful only in case of an active market where there are large number of statistics available for comparison . It should however be remembered that the method involves few dangers, if the market is stable i.e resistant to sudden change of condition. It is for this reason that the valuer has to satisfy himself after a thorough inspection of all the underlying factors in the market that there have been no changes in conditions since the transactions took place. The element of time a vital role in this method. In case of volatile markets, it is found that within a very short interval of time, the evidence of sale chosen for comparison becomes reliable.

          The price of the urban developed property would determine the value of the land has already been developed, but it possesses redevelopment potential, it will be the redevelopment potential which will determine the value of the land rather than the existing use. For instance, a higher price for the real property would be given by a developer, if he can see that he could make an adequate profit by demolishing the existing structure on a site and constructing a new one.

          The land values in an urban area are determined by the collective demands for real property both present and future. Hence , ultimately , the land values will  be dependent on the factors which govern the prices of the developed real properties.

          The question often arises as to who creates a particular urban land value.Is it the private and public bodies which have made capital improvement to the other surrounding land by way of roads, transport facilities, gardener, etc, or the developer who sees the potential use for the particular piece of land? This can be explained by an analogy in the physical sciences.

                   Following factors are to be taken into account while making analysis of sale instances:

• Situation
• Size
• Shape
• Frontage and depth
• Return frontage
• Level
• Nature of soil
• Land-locked land
• Restrictions on development
• Encumbrances
• Miscellaneous advantages.
• Abstractive method: The abstractive method becomes useful when no information is available regarding land transaction in the nearby area or in other words, the value of land where sales are not occurring frequently can be worked out by the application of this method:

Following three distinct steps are involved in this method:

• A nearby property fetching rent is considered and its capitalized value is worked out by multiplying its net income by year’s purchase. Let us say this to be C.
• The estimated cost of the replacement of the above building is worked out and then , after making due allowance for the depreciation , a figure representing the cost of the building alone at present is obtained . Call this as S.
• The difference C-S gives the value of the land and if a is the area of the land, the cost per unit area = C-S/A. This unit cost of land is ten used to find the value of open plot under consideration.

It is clear that in this method, the more nearer the selected land resemble the land under consideration , the more correct value of the land will be obtained. Also, the land value which is abstracted in this process depends for its accuracy on the following two estimating process neither at which is simple:

• The estimate of replacement cost; and
• The estimate of depreciation.

The estimate of cost as if new involves the ability to calculate the cost of today, based on the use of the same or closely related materials with more or less similar specifications of work. The depreciation estimates of the sample problem are even more tricky or difficult and requires special skill or care.

• Belting method: When a plot of big size is to be valued or when a plot with less frontage and more depth is to be valued , it is logical to adopt the method of belting. It is due to the principle that the value of land in general decreases as the depth of the plot increases or in other words, that the front land abutting road is more valuable than the rear land away from road.

The  main problem facing the valuer while adopting this method is to decide the depth upto which the maximum land value extend and from that point onwards, it starts declining or diminishing . The next step would then be to fix the relationship regarding the value of back land to the front land.

     In this  method , instead of estimating an average rate of land, the plot of land under consideration is divided into different sections or zones and different rates of land are estimated for each section or zone. Usually, the plot of land is divide into three belts. The depth of first belt near the road is suitably adjusted. The depth of second belt is kept 50%  more than that of first belt and the depth of third belt is kept 50% more than that of second belt.

     Considering the size , shape, location and various other d=factors affecting rate of land , a suitable rate of land is estimated and that is taken for the first belt . For second belt, two-third of rate of first belt is taken and for third  belt, one-half of rate of first belt is taken. If the plot is of irregular shape , the rate of recessed lands i.e lands not lying between the perpendiculars from the road frontage, are taken as one-fourth less than their corresponding values from the consideration of belts.

     The above is the general procedure followed in this method in our country. There is no hard and fast rule regarding the ration of land values of front portion and back portion . Each case has to be studied independently and depending upon the merit of each case, a valuer has to apply his own judgment.

     The belting method, though logical is treated as an artificial method . it should therefore , be applied in deserving only. It is due to the fact that depth alone or road frontage alone cannot considered as only factor affecting the rate of open land.

Following important facts should also be kept in mind:

• Depth of front belt: There is no general and uniform rule  which can be laid down for deciding the optimum depth of front belt. It will depend on various factors such as location of the property, suitability for development , instances of Sales for comparison , zoning regulations, etc.
• Division of plot: If the plot of land can be suitably subdivided  by internal means of approach roads as per the prevailing bye-laws of the local authority , the application of this method will not be suitable. It is due to the fact that the basic principle of belting method, namely that the second belt is approachable from the first belt and the third belt is approachable  from first and second belts , will not prevail, when such division is legally permissible.
• Sufficient date: The method can prove to be perfectly scientific, if sufficient date and sales are available showing relative values of land according to the distance from the main road.
• Utility: the method is full of assumptions and unless used skillfully by an experienced valuer, it may give incorrect and unreliable results. The method is practically useless for agricultural lands and garden lands which are usually sold by hectares.

NOTE: SHARING FOR KNOWLEDGE GAIN PURPOSE ONLY