The Dilemma That Is Land ValueOct 11, 2022 Land
The Dilemma that is Land Value
Land value is an enigma to most as the way it rises over short periods raises questions. In Kenya today, the average millennial may not be able to afford land owing to the ever-rising prices.
What determines the value of land? Few people can explain how rates grow annually (or even within a shorter period) unprecedentedly, and lately, enough Kenyans have been hoping for a property bubble burst to regulate the market. While we are not holding our breath, we sought to understand what leads to these upward fluctuations.
Here are some of the known reasons that determine property values worldwide.
Demand and Supply
When large tracks of land are available for sale, the supply is supposed to lower market values and vice versa. It’s unlikely for there to be an excessive supply of land in already occupied territory, it being a non-renewable resource, but this is usually a determinant for prices in an open market. For instance, if someone tries to sell an acre of land for a few months unsuccessfully, they will lower the cost to try and incentivize buyers.
While still at market forces, we could mention interest rates since they play a huge role in regulating all markets – property included. Lower bank rates mean cheaper loans and, very likely, more money in circulation, which drives the cost of land and property up as demand is expected to rise. The opposite is expected to happen when interest rates go up.
Land close to cities and major towns is usually costlier owing to the infrastructure. Commercial buildings are almost always in demand in cities, and the little available undeveloped land is in high demand. Things are changing lately with residential properties, with more people choosing the quieter, more rural areas, so this growth still impacts the prices in these satellite towns.
Type of Property – Commercial or Agricultural
Commercial property has many uses, and the issuing authority can determine whether or not its value could rise in the future depending on the planned development. Think highways and bypasses that automatically open up an area or the government building airstrips in the future. These developments will, naturally, blow up the value of anything nearby as the area opens up to the new economic activity. Such property will usually be worth more than agricultural land, whose principal value will be farming.
Forested agricultural land will usually cost more than bare land since trees are termed biological assets that already hold value. Floor Space Ratio (FSR) – the bare and available space to develop – will also determine the land cost in cases where there are amenities, such as buildings and roads.
We mentioned land valuation being an enigma at the beginning, and here’s (partly) why: as much as some economic aspects are expected to play a role in how land prices behave, they don’t always, at least in our country. What could be the reason for this? Now, the economic situation of the masses is quite different from that of the 1-10% of people that seem to live in an entirely different ecosystem. When the majority of the citizenry feels the tough times, a small percentage, probably having discovered more creative income streams, lives large with exponential expendable income. This small crowd will spend several million in acreage without blinking, which keeps the demand for property high at all times – regardless of the times - and unavailable to the average Joe and Jane.
Now, does the government ever step in to regulate the cost of land and property and, in a way, fix inequality? Typically, governments try to stay out of things subjected to the free market, but price controls are not impossible. We have seen the government place ceilings on bank interest rates when they became ungovernable, so the same is possible with property. It, however, would take intentionality and legal follow-up, seeing as the stakeholders in the most prime assets in this country are in the highest places of power.
That being said, you can own property in satellite towns like Kikuyu while it is still affordable. How do you like serviced plots located proximately to the road with all the amenities you need to live a fulfilled life? Pro-Property Ltd has a good number of prime properties that you need to check out here.