Methods of Open Lands Valuation

Methods of Open  Lands Valuation

Dr. Jaspal Singh, Professor, Civil Engg Department, Er. Anil Kumar Nanda, Civil Engg Department, PAU Ludhiana

Introduction: Valuation is defined as an opinion of an expert who assesses the worth of an asset, be it a property/ machine/gold or any other item. By valuation, the present value of land/ property is determined. In every valuation, land is one of the important components of valuation. The lands may be with single ownership or joint ownership with others or Hindu Undivided Family. Land may be defined as the balance available area of the Earth's crust after deducting the areas of the sea. This landed area may be Agricultural lands, Open land, Forest land and Rocky and Hilly lands. A land is to be classified into two categories viz. agricultural and non agricultural. The agricultural lands can further be classified as purely agricultural and semi-agricultural lands. Further, the agricultural lands in the periphery of a city or a municipality are likely to be declared as urban land. Broadly lands can be classified as urban lands and farm lands. The urban open lands may be residential/ industrial, 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 on the basis of which, people can earn their livelihood.

Necessity of Valuation: The valuation of open plot or any other property is required for the purpose of Income Tax, Wealth Tax, Banks and Embassies. For submitting annual returns in Income Tax department, valuation is required for purposes of income & wealth tax. Even for the purpose of getting loan from banks and for showing assessts to the embassies, (For getting visas) the valuation is required. There are different methods of valuation viz. Abstractive method, Belting method, Developmental method and Comparative method.

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 properly fetching rent is considered and its capitalized value is worked out by multiplying its net income by year's purchase (Say S).

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, (Say T).

The difference D= ( S- T) gives the value of the land and if A is the area of land, the cost per unit area = D/A.

Belting Method: When a plot of big size is to be valued or when a plot with less frontages 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 decrease as the depth of the plot increases or in other words, 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 up to which the maximum land value extends 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, 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 divided 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.

Consider the size, shape, location and various other factors affecting rate of land, a suitable rate of land is estimated and that is taken for the first belt. For second belt, two-thirds of rate of first belt is taken and for third belt, one-half of rate of first belt is taken. There is no hard and fast rule regarding the ratio of land values of front portion and back portion. Each case has to be studied independently depending upon the merit of each case, a valuer has to apply his own judgement.

Developmental Method: This method is used for Lands which are not developed but bears potential strength to appreciate to a considerable value if converted to residential/commercial or an industrial layout depending upon the location, size, shape, frontage & depth etc. If an NA Land is developed, the net plotable area is only 50%. Working back, one can arrive at the present Value of NA Land of Residential area.

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. 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 transaction took place. The element of time plays 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 unreliable.

Following factors are to be taken into account while making analysis using comparative method:

i) Location: The value of land which is situated in a busy locality or centre of city or shopping district will certainly be more than that of land which is situated far away from the town. The location of the property is very important and it is quite likely that a slightly different location can cause a vast difference to the market value. The location is said to be a prime factor in demand for land.

ii) Size: The size of plot also plays an important role in fixation of its value. The rate of a large land cannot be compared to that of a small land. Usually, there will be keen demand for plots of certain sizes in a particular locality. The rate of land with such sizes should be considered as the trend prevailing in that locality for arriving at the value of open lands under consideration.

iii) Shape: People prefer to have land having regular shape. It is observed that plots of land with regular shapes will be sold at a higher price than those with irregular shapes.

iv) Frontage and depth: It is quite clear that the most valuable part of a plot of land is its street frontage and the value of rear portion of plot decreases as the distance from street increases.

v) Return frontage: A corner plot gets an additional return frontage and depending upon the importance of intersecting streets or roads, there will be corresponding increase in the value of such plots. The corner plot has better facility of entrance and egress & gives more light and ventilation. In residential area, a corner plot gives wide scope for better layout of shops or offices with greater space for show-rooms and advertisements.

vi) Level: If the natural level of land is lower than the road level, considerable amount will have to be spent for filling and there will also be substantial increase in the cost of foundations. On the contrary, if the natural level of land is considerably higher than the road level, there will be difficulty in laying water / drainage lines and hence, the extra earth will have to be excavated to make the plot reasonably level.

vii) Nature of soil: For lands with building potentiality, the bearing capacity of soil should also be considered. If the bearing capacity is adequate, the cost of foundation will be reasonable in proportion to the total cost of the building. If, however, the bearing capacity is poor, considerable amount will have be spent to make the structure stable. It is thus clear that the land with good bearing capacity will command more rate as compared to the land with poor bearing capacity.

viii) Land-locked land: It sometimes so happens that a plot of land has no well-defined legal access and it is surrounded on all sides by plots belonging to other owners resulting in less value.

ix) Restriction on development: The permissible floor space index or F.S.I should be studied for the plot to be valued and scrutinized. The plot of land having more permissible F.S.I. will naturally be sold at higher price as compared to the one having less permissible F.S.I.

x) Encumbrances: The plots of land which are subject to the easement rights of air, light or passage will be less attractive to the prospective purchasers and depending upon the inconveniences caused, there will be reduction in values of such lands.

xi) Miscellaneous advantages: In addition to the above consideration, if the property possesses some special advantages because of its location or any other reason, the same should be considered while arriving at the reasonable rate of open land.

Case Study

Valuation ascertaining the fair market value of the immoveable property comprising an open plot with boundary wall situated at G.T. Road (N.H. No. 1) Ludhiana as required for the purpose of fair market value.

Note:
The valuation for the fair market value of the above said property required for the purpose of fair market value is based on personal inspection of the property and the information and the data supplied by the owners during inspection on March 2, 2010.

Though the property has been physically verified and the physical data collected during inspection has been made the basis of assessment of the value of the property. This is important to mention that the physical identity of the property & its relation with the ownership documents is to be authenticated by exploring the previous long-term records by the legal advisor.

Location:-The property under question is located at G.T. Road, National Highway No. 1, Ludhiana. It is mixed locality & facilities like pacca roads, street lights, school & hospital are available in its vicinity. This locality is out of Municipal Corporation limits.

Identification of Property

A) Documents Made Available
As per document produced by owners, the area of the land comes out to be 8570.43 Sqyds (7167.40 Sqms) as per detail given below:

Wasika No. Dated Area Owner
16200 11-02-04 7 Kanal 11 Marla Smt. X
3179 19-05-04 6 Kanal 12.33 Marla. Sh. Y

B) Physical Identification
The property has been identified as per site as under: -

East :- D.T.Road (126'-6")
West :- Rasta (183'-9")
North :- Common Road & Sh. Z (382'-0"+178'-0")
South :- Open plot (256'-0"+198'-0")
The tenure of the land is free hold.

Beside this, certain land marks near to the open land are depicted by Photographs 1,2 & 3. This will help in complete identification of the open land.

Revenue Records

Khasra no. : 4//25-8//3/1-3/2-4-8/1, 5//21/1/1, 8//5/2, 6/2, 7, 8/2, 12/2/1, 13/1, 14/2/1, 15/1/1, 21/1/2, 7//1/1, 4//15/2, 16, 17, 24 min & 5//11, 20/1, 20/2, 4//24 min, 5//19, 20/3
Khewat no. : 5, 191,
Khatoni no. : 5, 6, 221, 222, 224
Jamabandi : 1999-2000
Hadbast no. : 229

Basis of Valuation:- As the property under question is open plot, land method of valuation has been adopted for arriving at fair market value of the above property on the date of valuation. Land rate has been adopted considering various factors such as size, location, frontage and depth of the plot.

Location of the Plot:-
The plot is situated in mixed area with thin population.

Size of the Plot:-
The plot is of big size.

Frontage & Depth of the Plot:-
Frontage & depth of the plot are good size.

Level of the Plot:-
The plot is leveled.

Encumbrance on the Plot:-
It is an open, so there is no encumbrance on the plot.

Prevailing Market Condition:-
Prevailing market conditions are normal in this area.

Valuation

(A) Boundary Wall L.S. = Rs.2,00,000.00

(B)Land Value
Keeping in to consideration various factors such as size, shape, depth frontage & location of the plot, land rate is fixed at Rs.6000/- Per Sqyd.
Hence 8570.43 Sqyds. @ Rs.6000/- Per Sqyd. = Rs.5,14,22,580.00
Total A + B = Rs.5,14,22,580.00 + 2,00,000.00 = Rs.5,16,22,580.00
Say Rs.5,16,22,600.00

Certificate

Methods of Open  Lands Valuation

The certificate is prepared keeping in mind above mentioned points, certifying the value Rs.5,16,22,600/-(Rupees Five Crore Sixteen Lac Twenty Two Thousand & Six Hundred Only). In the present case study,the fair market value of an open plot with boundary wall situated at G.T. road, N.H. no. 1 Ludhiana is to reasonable at Rs.5,16,22,600/-(Rupees Five Crore Sixteen Lac Twenty-two Thousand & Six Hundred Only) as on current date required for the purpose of fair market value.

Remarks
Valuation report is based on the documents & other information made available and physical inspection of the site identified by party's concern. The report is a technical expert opinion which may be taken into account or rejected at the discretion institution concerned and it is only a suggested value.

The documents placed by client made the basis of valuation report and the genuineness of the documents produced by the owner can only be checked at "legal advisor" table and it is not possible to ascertain the authenticity of the documents at valuer's level.

Methods of Open  Lands Valuation

References:

  • Gireesh D. Shiggaon: "Valuation of open lands" Journal of institution of valuers, Feb. 2010,Page no. 138-148.
  • E.Subba Rao: " Fresh valuers- Valuation of land" Journal of institution of valuers, Sept. 2010, Page no. 1030-1036.
  • C.H. Gopinatha Rao: "Valuation practice of immovable properties".
  • B.N.Dutta: "Estimating and costing in civil engineering" UBS Publishers Distributors Pvt Ltd (2010).

NBMCW May 2011

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