The value of real estate between building and land
Benvenuti, Antonio
The allocation of value to real estate between the building and the land aims at separating the worth of the land from that of the appraised building. It is also an operation required by international accounting standards to calculate depreciation of the real estate property. The influence of any element on the property value is expressed through the complementary ratio; there is, therefore, a complementary ratio of the land and a complementary ratio of the building. The measurement of these ratios is usually based on the observation of the price of the building site and on an estimate of the cost of reconstruction. The study proposes a financial model for the calculation of the complementary ratio of the land when there are no available building sites and addresses the insurmountable difficulties met in the cost of reconstruction and in the level of the depreciation of older buildings. These circumstances are recurrent in large, long-established cities, as is often the case in the Italian real estate market.
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