Key factors in determining the value of developable land

Accurately determining the value of developable land requires analysing various technical, legal and economic factors. Unlike consolidated urban land, a developable plot requires a prior stage of planning management and transformation works before building can take place.

Location and accessibility of the land

Location is the criterion with the greatest impact on the final price. A plot situated near major urban centres or in areas with high residential demand will have a significantly higher valuation. Likewise, proximity to main roads, public transport networks, educational centres and commercial areas notably increases its appeal to developers and investors.

Buildability and planning yield

Buildability defines the total volume of buildable square metres per square metre of land. This figure is set by each municipality's General Urban Development Plan (PGOU). The higher the assigned buildability ratio, the higher the potential economic return of the land, directly increasing its market price.

Classification: sectorised and non-sectorised developable land

It is essential to distinguish between sectorised and non-sectorised developable land. Sectorised land has a defined perimeter for development through a Partial Plan, which speeds up the timeframes for obtaining building licences. Non-sectorised land requires additional and lengthier administrative procedures to be integrated into urban planning, increasing uncertainty and reducing its initial value.

Development charges and infrastructure costs

Converting a developable plot into land suitable for building requires executing infrastructure works such as sewerage, paving, street lighting and utility connections. The estimated cost of these works negatively impacts the valuation of the raw land, being deducted from the final value of the development.

Official methods for calculating developable land valuation

To establish the value of developable land rigorously, technicians and institutions rely on standardised regulatory methodologies used in the real estate sector.

The residual method

The residual method is the main tool for valuing buildable land. It involves determining the estimated price of the final property once built and marketed, deducting all costs associated with executing the project. These costs include construction, licences, technical fees, financing expenses and the developer's profit margin.

This methodology is divided into two approaches depending on the time horizon:

• Static residual method: Applied when the planned development will be executed immediately or in the short term, without accounting for price variations over time.
• Dynamic residual method: Used for medium- and long-term projects, employing discounted cash flow analysis to consider changes in costs, interest rates and sales periods.

The comparison method

This involves examining offers and transactions of land with similar characteristics in the same area or comparable environments. To guarantee the validity of the calculation, it is essential to have reliable market evidence and make necessary technical adjustments based on surface area, assigned buildability and the status of planning approval.

Urban planning regulations and social housing allocations

The development of developable land is subject to compliance with regional and municipal legislation, which requires free transfers of land to the local council for roads or public amenities, as well as allocations reserved for social housing.

Within the regional framework of the Comunidad de Madrid, urban plans impose specific percentages of land designated for the construction of official protection housing (VPO). Since the maximum sale price of protected housing is capped by law, these obligations limit the expected revenue of the development and proportionally reduce the economic value attributable to the raw land.

Financing and viability when purchasing plots

Acquiring developable land requires a solid financial structure. Credit institutions impose stricter requirements when financing land compared to completed homes, covering lower percentages of the appraisal value.

To optimise the purchase transaction and identify the most suitable financing routes, it is advisable to work with mortgage credit intermediaries. These professionals evaluate project viability, negotiate terms tailored to the client's profile and facilitate securing funding for purchasing the plot and financing the infrastructure works.

Steps to correctly value developable land

Before formalising the purchase or sale of developable land, it is advisable to carry out a systematic process of technical and legal verification:

1. Request the planning certificate (cédula urbanística): Contact the local council to obtain the official document specifying land classification, permitted uses and buildability.
2. Check the status in the Land Registry (Registro de la Propiedad): Verify plot ownership, the absence of encumbrances or liens and consistency with land registry (Catastro) data.
3. Quantify development charges: Analyse the budgets for the infrastructure project and outstanding contributions to the land development board (junta de compensación).
4. Study the local real estate market: Analyse supply and demand prices for finished properties in the immediate surrounding area.
5. Commission an accredited valuation: Hire a qualified surveyor or valuation company to obtain a formal, legally valid valuation report.

Summary of developable land prices

The value of developable land results from weighing urban planning, technical and market factors. Understanding buildability, processing timeframes and infrastructure costs allows for an accurate valuation estimate and well-informed investment decisions.