VALUATION OF VACANT LAND

 

There has been a boom in the volume of investment in vacant real estate over the past decade;this boom seems to be driven by certain misconceptions which have been fed by advertising campaigns and the mass media. This misconception is that land values appreciate at a rate which exceeds rates of return on alternative investments such as treasury bills, stock or other asset classes. These misconceptions have led to the growth of a speculative bubble which seems to have driven the costs of available real estate beyond reasonable levels whilst creating a surplus of under-developed real estate.
Property for sale. - stock photo

In general, by investing in developing the land you may destroy an option and at the same time you may create other options. Vacant land represents an option of retaining it in its vacant form and expecting an increase in value of the land, or turning the vacant land into a development, thereby increasing its intrinsic potential for value creation through the injection of capital.

 

The valuation of land requires the computation of risk-neutral probabilities that generate expected cash flows corresponding to various project outcomes. The computation of these probabilities requires the calculation of current and future construction costs, current and future market prices of real estate in the area where the land is located.

 

Prior to purchasing land, it is pertinent to have an idea of the use to which the land is to be put, including the proposed structures which are to be constructed upon the land and the market prices or rental values such structures would fetch in the future based on the surrounding properties in the area. In calculating the values of the property, provision should be made for the probability that the property may fall in value in the future.

 

We hope these tips will prove useful to you as you begin to navigate the world of real estate investment. For further information and consultancy, we may be contacted directly on +2348036258312, or by email on : miltoncrosslexng@gmail.com.

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