I had a conversation lately and found myself explaining what I thought was a fairly basic concept. I was surprised they disagreed with me, so I thought I’d share it here.
When we go to the grocery store and we need toilet paper, the larger packs work out to be less per roll. Or we need some flour, the larger packs cost less per gram. The same principle of bulk buying applies when buying land. A larger allotment will cost less per square metre than a smaller allotment (all other factors being equal).
It would have to be this way for developers to operate. Buying a large piece of land and then sub-dividing it, selling the smaller allotments at a much higher rate per square metre.
There are less buyers interested in larger blocks of land. This is the reason I tend to attribute to this and likely the reason why Valuers will always be assessing the ‘highest and best use’ of a property. The use and purpose of a property is critical in assessing value.
For example, a house block that is 400m² and a house block that is 450m² will not vary much in value. The main purpose for the allotments are to be occupied by a house. Apart from the rare inefficiencies of the market, we can be sure that the 450m² block will be valued less on a per square basis.
The small town where I come from has land valued as follows:
– Residential allotments (700m² – 1,000m²) $90,000 – $110,000 or $110/m² – $129/m²
– Acreage allotments (3,000m² – 5,000m²) $120,000 – $150,000 or $30/m² – $40/m²
– Rural Lifestyle (2 hectares) $180,000 – $220,000 or $9/m² – $11/m²
It works this way in every location that I have been. There may be a special occasion where this does not apply, however it would be a rare occurrence.
Feel free to comment, or if there are any burning questions, please feel free to ask.