Do you own land whose potential remains untapped? Many owners underestimate the value lying dormant in their property. This article shows you how strategic land development can not only increase your property's value by up to 60% but also create new living space.
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The topic briefly and concisely
The conversion of fallow or arable land into land ready for construction is the greatest lever for value enhancement and can increase the value by over 50%.
The Building Land Mobilisation Act of 2021 provides new instruments to create building rights more quickly in cooperation with the municipality.
The development costs make up a significant part of the investment and need to be calculated precisely, as up to 90% can be passed on to the owner.
Is your land lying fallow while the demand for housing grows daily? In Germany, around 52 hectares are designated as new residential and traffic areas every day. For owners of unused land, this represents an enormous opportunity. Transforming farmland or a fallow plot into buildable land is the greatest lever for increasing value. However, the path to achieving this is complex and carries financial risks. A professional analysis and strategic planning are crucial to unlocking the full potential and avoiding costly mistakes. With this guide, you can safely navigate through the process.
Potential Analysis: Determine the True Value of Your Property
The first step to successfully developing unused land is a realistic assessment of its potential. The standard land value only provides an average value for a location. The actual market value can, especially in metropolitan areas, deviate by 20-30%. Therefore, a detailed site and market analysis is indispensable. It takes into account the micro and macro location, local infrastructure, and current demand. The crucial question is not what your land is worth today, but what it could be worth after development. A professional potential evaluation for building land objectively answers this question. This way, you create a solid data foundation for all further decisions and minimize your investment risk right from the start.
Status Check: From Agricultural Land to Buildable Land
The legal status of your property significantly determines the next steps and the potential increase in value. Transforming from land with potential for development to construction-ready land can increase the value by 30% to 60%. It is crucial to understand which phase your property is in. Here is a brief overview of the phases:
Agricultural Land: Agricultural area with no development prospects.
Land with Development Potential: Future development is likely but not yet legally secured. The value is often only around 25% of the future building land value.
Undeveloped Land: Designated for development in the zoning plan but not yet serviced.
Construction-Ready Land: All legal and technical requirements for immediate construction are fulfilled.
Each of these steps requires specific actions and presents different risks. A clear legal assessment is the basis for further planning.
Creating Building Rights: The Path through the Development Plan
The creation of building rights is the greatest hurdle in the development of unused land. Without a legally binding development plan (B-Plan) from the municipality, construction is usually not possible. Since 2021, the Building Land Mobilisation Act has made it easier for municipalities to designate residential building land. Instruments such as the sectoral development plan can expedite procedures. For owners, this means working proactively with the municipality. Show how your project can contribute to meeting local housing needs. An urban development contract can help regulate the interests of both parties and drive the development of inner-city properties forward. The duration of a B-Plan process can range from six months to several years.
Planning development: Weighing costs and benefits
Once planning permission is secured, technical development follows. This transforms raw land into a valuable, construction-ready plot. The costs for this are significant and often underestimated. They include connection to public networks and road construction. Here is a typical cost breakdown:
Surveying costs: In advance, 2,000 to 3,000 Euros are required for site plans and staking out.
Connection to sewage system: Depending on the distance to the main sewer, costs can range from 5,000 to 15,000 Euros.
Water and electricity supply: Expect costs of 2,000 to 5,000 Euros each.
Telecommunication: Connection to the fibre optic network costs around 1,000 Euros.
The municipality can pass up to 90% of the development costs onto property owners. Detailed planning of the development is therefore crucial for the economic viability of your project.
Marketing strategy: Achieving maximum revenue
Owning a plot of land ready for construction is a valuable asset. Now it's important to choose the right marketing strategy. A direct sale to a property developer can quickly bring liquidity, but often does not achieve the highest price. Selling to private builders can increase the proceeds per square metre by up to 15%, but it involves more effort. A data-driven pricing strategy is the key to success. Analyse comparable land sales in your area to determine a realistic price. Between 2010 and 2022, residential property prices rose by around 94%, highlighting the high demand. Use a professional market analysis for your property to determine the optimal time and price for the sale. Sometimes it may even be worthwhile not to sell the land immediately to benefit from future value increases.
Conclusion: Strategic development as the key to success
Developing unused land is one of the most effective methods to increase property value. However, the process is not straightforward and requires careful planning, legal knowledge, and a precise cost-benefit analysis. Many hurdles must be overcome, from the initial potential analysis to gaining planning permission and final marketing. The real estate market is constantly moving, and a data-driven decision-making basis is essential. Seek support to manage the complexity. A neutral, AI-supported assessment can help you take the right steps at the right time and unlock the full potential of your property. Take the first step towards activating your hidden capital.
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Additional useful links
The Statistical Office (Destatis) offers detailed data on construction prices and real estate price indexes, including tables on the purchase values of land.
A publication from the Federal Institute for Research on Building, Urban Affairs and Spatial Development (BBSR) highlights relevant issues regarding urban and spatial development.
The Federal Environment Agency provides data on settlement and transport areas relevant for land use planning.
The Federal Ministry of Justice offers access to the Building Code (BauGB), a central legal framework for land development.
The ZIA Germany provides information about the work of the Land Commission and their recommendations for land mobilization.
The report "Emerging Trends in Real Estate" from PwC offers insights into current developments and trends in the real estate market.
The Federal Association of Independent Real Estate and Housing Companies (BFW) publishes articles on municipal land mobilization and land policy.
FAQ
How can I find out if my property can be developed?
The first step is to make an enquiry at the relevant urban planning or building office in your municipality. There, you will receive information about the current land use plan and any existing development plans. For a detailed analysis of the potential, a professional assessment by experts such as Auctoa is recommended, as they also examine the market situation and economic feasibility.
What risks are there in land development?
The biggest risks are the refusal of planning permission by the municipality, escalating development costs, and a misjudgment of market demand. In addition, the process is time and capital-intensive. Therefore, careful planning and solid financing are essential.
Is the development of building land also worthwhile for communities of heirs?
Yes, especially for inheriting communities, the joint development of a plot of land can be a very profitable option. Instead of managing an undeveloped area that is difficult to divide, a plot ready for construction or the proceeds from its sale can be distributed fairly. It is important that all co-heirs work together and make decisions collectively.
What is an urban development contract?
An urban development contract is an agreement between an investor or landowner and the municipality. It can regulate details of planning and development, such as the landowner taking on planning costs or the obligation to create social housing. This can significantly facilitate cooperation with the municipality.
Can I deduct the development costs for tax purposes?
Development costs are considered part of the production costs of the property. If you sell the property later, these costs reduce the taxable capital gain. In the case of development and subsequent rental, the costs can be depreciated over the useful life of the building. Consulting a tax advisor is recommended in this situation.
How can Auctoa assist me in developing my land?
Auctoa offers a data-driven, neutral assessment of your property's potential. With our ImmoGPT and the analysis of our experts, you'll receive a clear evaluation of the opportunities and risks. We provide you with the solid foundation you need for negotiations with municipalities, banks, and buyers to maximise the value of your land.
