Cologne - Determining the value of anticipated building land

Hi!

I am interested in a land offer that is being marketed as [Bauerwartungsland].

1206m² for €310,000 = €257 / m²

The standard land value in the immediately adjacent already developed area is €580 / m²

Since there is a chronic shortage of building land in Cologne, the city is under pressure accordingly, and the development of the area is concretely under discussion, I consider the risk that nothing will happen here to be manageable. But, if you are unlucky, it can also take 10 years.

For me, the question is whether you can roughly say what kind of discount compared to classic building land is normal here. I would like to assess the price attractiveness of the offer.

Best regards
Oliver

Hello Oliver,

Valuing [Bauerwartungsland] is relatively difficult; the range is about 10-60% of the value for fully developable land, and presumably, there are assessments up to 70% as well.

It all depends on the rough estimate of how likely it is to become building land as well as various value-influencing factors, such as how far any preliminary planning has progressed. As you describe it, it should be at least 30%.

However, there might already be a standard land value for the area in [BORIS.NRW], or you can obtain or commission information from the expert committee of the city of Cologne.

For self-study, you can google the following:

[*][WertR (Wertermittlungsrichtlinie)]
[*][WertV (WE-Verordnung)]
[*][BORIS.NRW (Bodenrichtwertkarte NRW)]
[*][Gutachterausschuss Stadt Köln]

Best regards
Dirk Grafe

Hello Dirk,

thanks for your statement.

Then the price seems to be okay; the standard land value right next door (not even 5 meters from the property) is well known. I can't imagine that it differs much and if it does, I could imagine it being slightly higher.

Today I was lucky to be able to speak both with the property owners and the planning department of the city of Cologne. The new development area is currently being heavily promoted and pushed forward by a single investor. Of course, there are always unknowns, but I was told that a waiting period of 10 years is unrealistically long. However, construction will not be possible today or tomorrow, as no development plan has yet been drawn up. I understood the clerk to mean that it will most likely start in about three years. The assumption that houses will be completed in five years is considered realistic.

All in all, a borderline but still manageable time frame. We'll have to see. That building there will never happen or only in 10-20 years seems very unlikely. Of course, there remains a risk but I don't see it as a high-stakes gamble. We'll see....

Nevertheless, you have to be careful and calculate correctly.

The price for the land with development potential does not include any infrastructure connections – to resell the piece as a speculative object in 3-5 years, it would have to:

[*]Be optimally connected according to the development plan as it lies or be easily divisible into presumably smaller parcels so that it can be built on immediately. For that ...

[*]... you have to pay/incorporate the proportional infrastructure costs for the sewage system and make a deal with the investor, because I think that not only 1206 m² will be newly planned there – the investor advances the costs for the creation of the development plan or the city of Cologne does. But no one does that for free.
[*]Additionally, a portion of your parcel will be "deducted" as road area as part of a land readjustment or you have to provide a value compensation for the infrastructure area of the road.

The same applies if you want to build on it yourself, your personal profit from the acquisition is therefore significantly smaller than the difference between the purchase price and the expected standard land value for building-ready land.

Or in other words: only when the land with development potential has been developed from the stage of "raw land" to building land can it achieve the forecasted price on the market. However, this development costs money – the question is how much that will cost you for the respective piece. And above all – where your piece lies in the development plan.

At first glance, that sounds tempting, but for laypeople the follow-up costs are hardly foreseeable; in addition, you enter into a direct struggle with the investor. If he buys 20,000 m² and prepares the development plan himself, how high do you estimate the chances are that your concerns will be optimally taken into account?

Best regards
Dirk Grafe

That sounds tempting at first glance, but for laypeople the follow-up costs are hardly foreseeable; moreover, you are entering into a direct conflict with the investor. If he buys 20,000m² and draws up the development plan himself, how high do you estimate the chances are that your concerns will be optimally considered?

You are absolutely right. The whole thing is probably not even remotely an option. Nevertheless, I am curious about what would happen, based on the scenario you outlined, if someone buys this property and the investor buys the rest of, say, 20,000m². The investor drafts the development plan, i.e. he could simply designate a playground or another area not usable for houses there. How would it proceed from there? I might not be allowed to build a house on "my" property, but no one can force me to build a playground there either. What do you think would happen?

Thank you for making it very clear that the matter is not worth pursuing further.

The question is easy to answer:

Your property is included in the total area to be redeveloped with a value x. You will then receive, elsewhere, a value compensation in the form of building land or money (equivalent in value to the building land, including the added value), minus the share for roads and public areas, if you prefer that.

The acquisition may not be completely pointless; it just depends on what you plan to do with it and whether you are aware of all eventualities. Without plans, etc., it makes little sense, and to ultimately achieve added value, you must be able to take care of such an area.

Best regards Dirk Grafe