Faced with new regulatory constraints and a changing market, land valuation requires a strategic approach. Mastering planning rules, analysing the economic environment and anticipating costs makes it possible to optimise the value of a site and secure projects.
The valuation of a site is based on its development potential and the prospects it offers. It is not limited to a simple calculation: it incorporates regulatory, economic and financial factors. With recent legislative changes, in particular the ZAN (zero net land take) objective, land valuation is becoming an even more complex exercise. Environmental constraints, new planning rules and market dynamics can have a considerable impact on the value of a site.
The residual land value (charge foncière) is calculated by deducting all the costs of the project from the resale or operating value of the property development. This approach draws on three complementary analyses.
01Understanding planning constraints
Studying the planning rules is a key step: they define how much can be built on a site and, consequently, its value. The essential elements to examine include:
- The local zoning plan (PLU): it is vital to analyse its latest update as well as any planned changes, particularly with regard to zoning and urban and social mix.
- The development and programming guidelines (OAP): these set out the broad orientations for a sector and may open up opportunities or create constraints.
- Specific constraints: protected areas, reserved sites, setback requirements. All of these can reduce or optimise the buildable potential.
A site with potential for value creation can lose its appeal if these constraints are not correctly assessed from the outset.
02Analysing the economic environment and the market
Beyond regulatory matters, the valuation must be in line with the local market:
- Local supply: studying ongoing projects and market dynamics to gauge the competitiveness of the site.
- Demand: analysing the need for housing, offices, shops or facilities to guide the nature of the project.
- Market depth: assessing absorption capacity, particularly where units are to be let, to avoid vacancy or saturation.
- The economic environment: infrastructure, transport, schools and business hubs play a key role in attractiveness.
03Assessing costs to determine the residual land value
The items to be deducted from the value are varied: construction and demolition costs; architects’ and project management fees; marketing and financing costs; eviction compensation where occupiers are in place; and the developer’s margin, which is necessary for the profitability of the scheme.
04From theory to reality
A property project is never set in stone. Discussions with the authorities frequently lead to changes to the initial project: a site with a potential of 2,000 m² of buildable floor area under the PLU may see this area reduced following consultation. Anticipating these adjustments is essential to secure the investment. The residual land value approach makes it possible to factor in these uncertainties and refine the strategy according to different scenarios, with a multidisciplinary team (urban planners, economists, lawyers) where necessary.
05Conclusion
Land valuation is not limited to a figure: it is a strategic process that incorporates regulatory constraints, prospects and project costs. The residual land value becomes a lever for optimisation for investors and owners, and a negotiating aid for a seller or partner. A sensitivity analysis combined with the valuation makes it possible to observe the impact of the main variables on the residual land value.
The residual land value becomes a lever for optimisation for investors and owners, and a negotiating aid for a seller or partner.
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