In some ways it’s a bit like asking how much should I pay for a bottle of wine in a restaurant. Billy Connolly says it’s easy to choose wine because on the right hand side of the wine list is a how-nice-it-is indicator i.e. the prices. Some people talk as if buying a land plot is like this too.
I do valuations in southern Spain as part of the Survey Spain network where the valuations meet the standards of the RICS and are recognized by the British courts. I can tell you a valuation appraisal is not a simple process so beware loose talk amongst estate agents who bandy about rates per square metre as if they were talking about buying apples at the greengrocers.
There are a number of valuation techniques available and which one the appraiser uses will vary according to the use to which the valuation is to be put. Amongst these techniques are a residual analysis and a comparative analysis.
The Residual Valuation Method
The residual method means you calculate the value of the completed development and deduct from the figure all the costs associated with the construction. The result is the maximum a purchaser would, in theory, pay for the site. Assessing what property could be built and what its value might be and all the construction costs requires a detailed study and expert knowledge.
The comparative Valuation Method
The comparative method uses evidence of open market transactions of similar land in similar locations and depends for its accuracy on good information about a number of these. Less similar transactions can be adjusted by a skilled assessor to make the comparison relevant.
Licenses to Build: Urban vs. Rustic land
Note that the planning situation greatly affects price and value. In Spain the planning situation tends to be pretty clear which is helpful. Land is either urban land (which despite its name could be in the countryside) in which case it comes with outline planning consent. You just have to comply with the local rules about size, height, and aesthetics but the assumption is that you can build.
Alternatively the land is rustic in which case the assumption is you can’t build and you have to justify to a number of different bodies why you should. This process is not for the fainthearted although having said that we have been successful at getting detailed consent for a holiday resort on rustic land quite recently due to the environmentally sensitive way the project was designed.
How Plot Prices Vary
How much you should pay for your plot will vary according to the micro conditions: access, infrastructure and communications, views, overall desirability, which vary considerably regionally locally and between individual sites and the macro conditions, such as the strength of demand, threats to the economy and currency.
Since the crash in property values in 2008 the price of land in Spain held up fairly well until this year 2011. We are now seeing, at least for those owners who are serious about selling, a reduction in asking prices for land, which can make it cheaper to build than to buy second hand assuming you are after quality. It can hold true for relatively up-market projects in sort after locations. And of course you get your ideal property build just for you rather than a second hand on built for someone else.
In fact we are currently looking in some detail at a site in Marbella where you may be able to buy the land for 200,000€ build for 700,000€ and have a property worth over a million. The devil is in the detail and we are working on the figures.
We are also about to launch a package of feasibility studies which address all the uncertainties people face when they’ve found a plot they like and I will detail these in another blog post within a week or so.
Author: John Wolfendale
Bio: John is a founder of Eco Vida and is passionate about bringing modern design and construction practices to Spain. He believes a home which is warm in winter and cool in summer is largely a matter of design and selective use of materials. He is British and a Chartered Surveyor with 18 years experience living and working in Spain.