Do you own a vacant plot in the city and wonder what potential it holds? Evaluating such land is complex, but it offers immense opportunities. This article shows you how to accurately determine and increase the value of your urban plot.
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The topic briefly and concisely
The value of urban undeveloped land is primarily determined by location, building rights, development, and market dynamics; land value reference points provide an initial orientation. [1-2,1-5]
A professional assessment and potential analysis are essential to accurately determine the market value and leverage opportunities for value enhancement. [1-3]
Risk management through checks for inherited liabilities and hidden costs, along with thorough due diligence, minimizes financial uncertainties. [1-4]
The value of urban undeveloped land is a complex subject that holds significance for both owners and investors. Given the increasing urbanization and limited land resources in cities like Berlin or Munich, where land prices often exceed €2,000/m², a well-founded evaluation is essential. [2-1] This article highlights the crucial factors, from location to building regulations, and introduces you to proven methods for valuation. Find out how to maximize the potential of your property and make informed decisions for sale or development.
Basics: These factors determine the value of urban properties
The value of urban undeveloped land depends on numerous aspects. Location is often the most important factor, with a distinction made between macro-location (regional infrastructure) and micro-location (immediate surroundings). [1-2] A plot in a desirable city location naturally commands higher prices, often over €1,000/m² in major cities. [2-4]
The layout and size of the plot are also crucial. Unfavourably shaped or very small parcels can diminish buildability and thus the value. The average plot size in Germany is around 680 m². [2-4] An optimal shape allows for more efficient use and construction.
The soil condition plays a role, particularly regarding potential contamination or necessary foundation measures. A soil survey can provide clarity here and help avoid costs of several thousand euros. These factors form the basis for any serious land valuation and directly impact development potential.
Building Law and Development: The Legal and Technical Framework
The applicable building law is a major value driver for undeveloped urban land. A legally binding development plan provides information on the type and extent of building use (e.g. residential, commercial, floor area ratio). [1-3] If there is no development plan, the permissibility is governed by § 34 BauGB (integration into the character of the surrounding area).
The degree of development is another important factor. Is the land already connected to public roads, sewage, water, and electricity supply? Fully developed plots are generally 15-25% more valuable than undeveloped ones. The costs for subsequent development can quickly reach five-figure sums. [1-3]
Rights and encumbrances registered in the land register, such as rights of way or building encumbrances, also affect the value. A building law assessment is therefore essential. These aspects are critical before considering a specific project development.
Understanding Market Dynamics: Land Reference Values and Current Trends
In order to assess the current value of urban undeveloped land, land value benchmarks serve as an important guide. These average values are determined and published by appraisal committees at least every two years. [1-5] They are based on actual purchase prices of similar plots of land. [2-2]
The land value benchmarks can be viewed via the BORIS Deutschland platform or through local appraisal committees. [1-4] Please note that the land value benchmark is an average value for a zone; individual characteristics of your property can lead to variations. Between 2015 and 2022, land prices nationwide increased by about 9 percent per year. [2-3]
In addition to land value benchmarks, general market trends such as interest rate developments and demand for housing also influence property prices. A thorough market analysis for properties helps to understand these dynamics. Understanding these trends is important to evaluate the potential for a possible increase in value.
Assessment methods: How the land value is precisely determined
Various recognised methods exist for determining the value of undeveloped urban land. The comparative value method is often the preferred choice when there are sufficient comparable properties available. [1-3] Recent sales prices of similar properties are used in this approach.
The land value method, often based on standard land values, is another common method, especially when comparative values are lacking. According to § 179 BewG, the value of undeveloped land is regularly determined by its area and standard land values. [4-2] Here, the land area is multiplied by the adjusted standard land value.
A detailed potential analysis can provide additional insights: What could be developed on the land and what value could be achieved with it? This is particularly relevant for building land potential assessments. The following aspects should be considered:
Maximum permissible floor area ratio (FAR)
Possible number of residential or commercial units
Achievable rents or sales prices for the new building area
Deduction of development and construction costs
These methods help to determine a realistic market value, which in turn forms the basis for sales or investment decisions.
Identify and harness potential for value enhancement
The value of urban undeveloped land is not static. There are various strategies to realise the value enhancement potential of undeveloped land. One option is to establish building rights, if these have not yet been optimally utilised. A positive preliminary building inquiry or an approved building application can increase the value by 20-50%.
Dividing a large plot into several smaller parcels can also be worthwhile if there is high demand for smaller units. Conversely, consolidating pieces of land can improve buildability. In Germany, according to BBSR, there are at least 99,000 hectares of build-ready, potentially developable land. [3-4]
Checking for contamination and its potential remediation is another factor. A ‘clean’ plot is significantly more valuable. Consider alternative uses that are in demand in the urban context, such as areas for urban gardening or temporary installations that can at least cover ongoing costs. A professional evaluation, like the one Auctoa offers with AI support, uncovers such potentials and provides you with a solid basis for decision-making. Chat now for free with our ImmoGPT to get an initial assessment.
Risk Management: Minimising Hidden Costs and Uncertainties
Dealing with urban undeveloped land also involves risks. Hidden costs can diminish returns. These include, for example, unexpected development contributions that municipalities can levy even years later, often up to 90% of the allocable costs.
Soil contamination or legacy issues are significant risks. The cost of remediation can exceed the value of the land. A soil survey, which can cost between 2,000 and 10,000 euros depending on the extent, is an important preventative measure here. [1-4]
Market fluctuations and changes in municipal land-use planning present additional uncertainties. Careful due diligence and obtaining current information from the planning department are essential. An analysis of standard land values and their development can also provide clues about market risks. This careful examination is the key to successful exploitation.
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The value of urban undeveloped land is a dynamic field influenced by many factors. Precise knowledge of the location, building regulations, development status, and current market situation is crucial. On average, land prices have risen by approximately 9% annually between 2015 and 2022. [2-3]
Use professional valuation methods and carefully analyze the development potential. A neutral, data-driven valuation, as offered by Auctoa, protects you from misjudgments and helps you achieve the optimal price or choose the right development strategy. Request your free valuation offer now.
With the right strategy and informed knowledge, you can transform your undeveloped urban land from a passive investment into a valuable asset. Your land holds more potential than you might realise!
Additional useful links
Statistisches Bundesamt provides data on residential property price indices.
Statistisches Bundesamt offers a quality report on land purchase values.
Gesetze im Internet provides access to the Building Code (BauGB).
BORIS-D is the central information system for standard land values in Germany.
Deutsche Bundesbank publishes statistics on real estate and construction performance prices.
ifo Institut informs about expected price increases for real estate worldwide.
ZIA Deutschland offers current market data of the real estate industry.
BBSR provides information on land prices.
FAQ
What is the difference between land value and site value?
The land value refers purely to the value of the land itself. The property value can also include the value of any existing (albeit unusable) structures or special features, but in the case of undeveloped land, it is often used synonymously with land value. [1-4]
How often do land appraisal values change?
Standard land values are typically updated and published by the expert committees every two years. [1-5]
What costs are incurred when selling an undeveloped plot of land?
Typical costs include notary and land registration fees (approximately 1.5-2% of the purchase price), possibly an estate agent's commission (3-7% depending on the region and agreement), and potentially capital gains tax if the holding period is less than 10 years.
Is an AI-powered assessment useful for my property?
Yes, an AI-powered evaluation like that from Auctoa can quickly provide an initial well-founded assessment by taking into account large datasets and market developments. It serves as an excellent basis for further decisions.
What does 'Erschließungszustand' mean?
The development status describes the extent to which a property is connected to public supply networks (road, water, wastewater, electricity, gas, telecommunications). A fully developed property is more valuable. [1-3]
Do I have to pay property tax for an undeveloped plot of land?
Yes, even undeveloped land is subject to property tax. The amount is determined by the property tax value assessed by the tax office and the multiplier rate of the respective municipality. [4-4]
