In the real estate sector, land valuation is one of the most significant components to determine the true worth of a property. A nuanced understanding of how factors like size, location, and market activity impact value is vital for both seasoned investors and newcomers alike. In this blog, we are going to discuss how these various factors influence the market valuation of land and help you make better informed decisions in a competitive market.
What is Land Value?
In simple terms, land value is the monetary worth given to a piece of land based on different factors, including location, size, future development potential, and proximity/distance to major amenities (transportation systems, schools, hospitals, and commercial centers).
The market valuation of land can also fluctuate based on demand, development potential, and availability of land in urban and rural settings.
Land Valuation – How to Calculate Land Value?
One way of performing land valuation is with the use of a Comparative Market Analysis (CMA), which estimates value by comparing the land to recently sold similar properties in the area.
There is no specific formula, but here is the general way the process goes for performing land valuation:
- Identifying comparables (comps) of properties that have recently sold for unraveling land valuation.
- Adjusting the value of the competitors based on variances with the land to sale (current
condition, size, location, amenities, etc.)
When understanding land valuation in Tamilnadu, considerations of regional value influences (government regulations, zoning, local market conditions, etc.) should also be assessed.
Exploring Land Valuation Growth in Tamil Nadu: Key Trends and Infrastructure Impact
Land valuations in Tamil Nadu have experienced remarkable growth in the past 10 years. From 2015 to 2023, growing cities in Tamil Nadu – Chennai, Coimbatore, and Madurai, to name a few – experienced annual appreciation rates of 8-12% (substantially more than the national average).
- The IT corridor on Old Mahabalipuram Road was particularly prominent, with land valuation increasing on the order of approximately 15% per annum.
- Chennai real estate market trends are showing a steady increase in real estate prices, particularly in high-demand areas like OMR and ECR.
- Recent infrastructure projects, such as the Chennai Metro expansion and industrial corridors, further accelerated growth in previously nascent regions, with some peripheral regions experiencing land valuation growth of 30-40% after infrastructure plans were publicly announced.
Understanding Land Valuation: Key Factors and Insights for Smart Investment Decisions
The market valuation of land, commonly known as the land guideline value, typically defines the price at which the land is likely to sell in today’s market while taking into consideration the land’s unique circumstance, current buyer demand, and changing economic conditions impacting whether buyers are likely to pay that price or not.
Unlike land value, which considers land potential and location, land valuation is predicated on what REAL buyers are willing to pay potentially in current conditions.
Several key factors that drive land valuation are as follows:
1. Location: A Major Determinant in Land Valuation
Location plays a significant role in land valuation. This is especially true in urban areas, where in cities such as Chennai, Coimbatore, or Madurai, land valuations can vary dramatically based on their distance to transport hubs, commercial areas, or other service points.
Land in prime locations, such as IT corridors or commercial spaces, tends to result in higher market valuations. Areas that offer favourable access to airports, highways and/or metro transport tend to have a higher market valuation, and this is indicative of the value placed on their distance from these accessibility and transportation options in and out of the urban area.
In Tamil Nadu, a good example of land valuations dictated by location is found along the Old Mahabalipuram Road corridor, which is a favoured location for the IT sector.
2. Size: How It Influences Land Valuation
Another important consideration influencing the market value of the landis the land size. In general, the greater the size of the land, the higher the overall land value, especially in areas with greater amenities and/or proximity to development.
However, the relationship between land size and land value is not always straight-lined. In some urban spaces, smaller land sizes, in prime locations (behind technology parks, or in a commercial location) can have a higher per square foot land value.
For example, some parts of Tamil Nadu may have larger land values for smaller sizes of land in areas closer to a metro station or major commercial spaces, despite being smaller sizes of land compared to their peripheral location counterparts.
3. Market Trends and Economic Influences on Land Valuation
Changes in land demand, the status of a government agency, or anticipated physical development can create changes in the market valuation of land.
For example, in 2022 the government of Tamil Nadu changed its guidelines for land valuation, which significantly affected the market-assessed value of land and formally documented land price appreciation in many major urban areas.
Further, areas that are economic hubs, such as IT centers or wholesale manufacturing areas, generally have an upward trend in land value when companies and industries seek proximity to these areas.
The land values in Tamil Nadu, like many urban areas, will continue to change as ventures grow, and governmental initiatives continue forward enhancing land valuation. Market players should assess themselves and maintain awareness of real estate prices or property market trends.
4. The Role of Infrastructure in Influencing Land Valuation
The introduction of infrastructure constitutes an important part of land valuation. Areas expected to benefit from large infrastructure projects, including highways, metro rail systems, and industrial corridors, experience rapid increases in the market value of land.
In Tamil Nadu, the expansion of the Chennai Metro and the establishment of industrial corridors have greatly increased land valuation in the peripheral areas that historically have low levels of demand. Land in surrounding areas can increase 30-40% as the infrastructure is introduced or completed, depending on the scale of the infrastructure project enhancing land evaluation.
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We have analysed that being aware of some of the distinctive factors contributing to land values is important when making an informed purchasing decision. If you are looking for residential or commercial property, G Square Housing has various curated plots for sale in key areas, including Chennai, Coimbatore, and Tiruchirappalli.
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FAQs
- What factors affect land valuation?
Land valuation is affected by factors such as location, size, infrastructure, economic conditions, and market trends.
- What is the difference between land value and land valuation?
Land value is the potential worth of the land should it be developed, whereas land valuation is the price in the current marketplace that buyers are willing to pay.
- How does infrastructure affect land value?
Infrastructure improvements including highway construction, metro expansions, and industrial corridors improve accessibility which can increase land valuation in surrounding areas.
