The Indian real estate boom has drawn large interests from around the world. However, the increasing property prices have created a tense situation for the potential buyers especially the individuals who have been waiting to turn their dream of owing a home in reality for long.

The next two months are believed to be extremely critical for the real estate market. If demand does not revive by then, a correction can not be ruled out. With the Sebi coming up with fresh guidelines on the subject, valuation of land has become a hot topic of discussion nowadays.

Let's have a view on questionnaire that seems to be on mind of everyone desiring to purchase/sell the land.

What does the valuation of land mean?

Valuation of land, in most cases, means evaluating the land at its future saleable prices. This may come up with artificially hyped prices. 'As-is-where-is' is an applied statistical learnt rule of thumb' to calculate the approximate value of land. But, the valuations done must be realizable and comparison, if any, must be derived between the lines.

What entities require to be kept in mind during the land evaluation?

As such, each of the entity taken will give out a different value. Therefore, one needs to make a number of assumptions regarding the structure to come up on the land. For example, the agricultural land is generally shown as land bank in case of a special economic zone (SEZ). But, it has to be converted as non agricultural land for the development process. Such land valuations and costs largely depend on mere assumptions. The more the assumptions, the large the valuations come.

How to Evaluate the True Value of land bank?

The quality of titles plays a critical role. The assumptions for land valuation can be more realistic on the basis of verification of the following details:

• Is the property developer real owner of the land?
• Are payments of the land complete by his end?
• Does he have the permission to utilize the land in his own way?

What guidelines should investors follow when evaluating real estate equities?

A real estate developer will always want to fund his project with the help of debt. In case of debt funding, the savings of the developer is liable to some deductions including interest burden, which is also deductible expense. The left out part is known to be the developer's profit. However, if he dilutes equity, his profit gets shared. Besides, he also needs to pay a high dividend distribution tax.

What is the immediate effect of the interest rate surge on real estate in India?

Land loans will be only provided if the land is a part of any construction project. Such a criterion is nowadays followed by many banks. The increasing interest rates do not affect those who already own low-price land. Contrary to this, those who have purchased high cost land through auctions, whose cost is funded by bank or any financial institution, will feel the urgency to complete the project soon, as the interest rate is rising fast. Also, the on time project completion will help the developer to prevent the damage and sell it off.

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