ECONOMICS

UNIT 5
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Unit 5: Urban land values - land utilization, factors involved in

development of urban land.
Building Cost - Cost and cost indices, preliminary for building.
Concepts of life cycle costing with reference to buildings. Time value of
money-present worth and inflation. Sources of finance for buildings.
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LAND USE PLANNING

 Land use: Term used to mean man‟s activities which are directly

related to land.

 Land use is a very fundamental concept in physical planning.

 Land use can be defined as activity or development which occupies

land.
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 Land put to use is land use.

 Human activities on land is land use.

 Land use plan is intended as an important means of reaching physical,

economic and social community goals.

 Land use plan for any city is prepared for that particular time and is

prepared purely on primary survey.

 Land use planning is necessary to know how a town or a city is using

its land.
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 The character and extent of land use depends on the intensity of

development.

 Land use plan is the reference for all who engaged in urban
development.

 This is the plan which forms the foundation for the precise plans for
zoning, parks and recreation, schools and other buildings, the civic
center, cultural and sports centers.

 This is the plan which guide the corporation to design the services and
other facilities.

 This is the plan to which all can refer for guidance in determining their
investments in the city.
 The percentage of different land uses varies from city to city and town
to town.
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DIFFERENT TYPES OF LAND USES:

Various land uses are differentiated on the map with
standard color code.

SL.NO. LAND USE COLOUR

1 Residential Yellow
2 Commercial Blue
3 Industrial Violet
4 Traffic and transportation Grey
5 Public utilities Brown
6 Public and semipublic Red
7 Open spaces Green
8 Vacant land White
9 Agricultural land Bluish green
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- The land use plan establishes the allocation of neighbourhood units and
their several facilities.
- Land use will be a compilation of all the data from which the estimates of
required areas were calculated and the standards determined.
LAND USE PATTERN OF ANY CITY, SHOULD BE,
LAND USE PERCENTAGE

Residential Should not be less than 50%

Commercial 2–4%

Parks and playgrounds Not less than 10%

Roads and streets 15 – 20 %

Public and semi public Between 10 – 15 %

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ELEMENTS OF LAND USE PLANNING:

ACTIVITIES

PEOPLE LOCATION
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RESIDENTIAL LAND USE:

- Single family.
- Multifamily.
- Holiday homes and boarding homes of permanent nature.
- Any residential accomodation- like dharmashala, tourist houses.etc.,

COMMERCIAL LAND USE:

- Retail trade
- Whole sale trade
- Ware houses and storage
- Offices and banks excluding governmental organisations
- Restaurants, hotels and transient boarding houses.
- Cinema and other places of public assembly run in a commercial basic
professional establishment.
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INDUSTRIAL LAND USE:

- Service industry

- Light industry

- Extensive industry

- Heavy industry

- Noxious industry.

TRAFFIC AND TRANSPORTATION:

- Railway yards, railway stations and sidings.

- Roads and road transport departments.

- Parking areas

- Air terminals
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PUBLIC UTILITIES:

- Water supply installations including treatment plants

- Drainage and sanitary installations including disposal works

- Electric power plant- high tension and low tension transmission

lines, substations etc.,

- Gas installations and bunkers.

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PUBLIC AND SEMI PUBLIC:

- Government administration centers, secretary District offices.

- Law Courts

- Jail and police stations

- Governor residence.

- Educational, cultural and religious institutions.

- Medical and health institutions.

- Cultural institutions like, theaters, opera houses( non

commercial nature) .

- land belongs to defense

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PARKS AND OPEN SPACES:

- Sports grounds, stadiums, play grounds
- Parks and other recreational use.
- Cemeteries, crematoria's etc.,

VACANT:
- Barren land

- Partly built but unoccupied.

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AGRICULTURAL LAND:

- Market garden

- Orchards and nurseries.

- Land under staple crops

- Gracing pastures, forest, cultivated land, land under water.

- Marshy land.
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Land Value
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What is land value?

“The price, of a particular site of land is what a fair exchange

brings in terms of money during an agreed trade or transaction

between two parties, one of whom is the land owner is called land

value”

The ingredients that constitute land value are utility, scarcity

and desirability
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Land value is the value of a piece of property, including both the value of

the land itself as well as any improvements that have been made to it.

Land values increase when demand for land exceeds the supply of

available land, or if a particular piece of land has intrinsic value greater

than neighbouring area.

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FACTORS THAT CONTRIBUTE TO LAND VALUE

The physical attributes of land

Quality of location, fertility and climate;

Convenience to shopping, schools and parks;

Availability of water, sewers, utilities and public transportation;

Absence of bad smells, smoke and noise;

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The legal or governmental forces

• The type and amount of taxation,

• Zoning and building laws,

• Planning and restrictions

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The social factors

• Population growth or decline,

• Changes in family sizes,

• Typical ages,

• Attitudes toward law and order,

• Prestige and

• Education levels.
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The economic forces

• Value and income levels,

• Growth and new construction,

• Vacancy and

• Availability of land
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Land Value Variation from CBD to outskirts of the city

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Factors affecting Land Value mainly include the following:

1. Physical attributes: These include quality of location, topography,

climate, availability of water, sewer lines, etc. More and better
facilities is attributed to a higher price of land. Topography further
has a direct effect on the construction cost and thus the overall
development cost. The facilities thus developed on an uneven land will
have a much higher cost as compared to the flat plain.

2. Accessibility to economic activities: The more easily there is

accessibility to economic activity, the more is the value of the land.
For example, most of the metropolitan cities have the maximum land
values at the center, or at the central business district of the city.
This is because of the nearness to the economic activities and work
place. This factor affecting land value is the sole most important
factor which led to the development of various land price models in
urban economics.
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3. Neighbourhood amenities: The value of land is also affected by the

availability of the facilities such as shopping areas, medical facilities,
school, parks& playgrounds, and other basic need of the humans. This
helps in saving time of people every day, the time saved adds up the cost
of land. Also the reduced travel and reduced trip distance will directly
have the monetary benefits of the person residing in an area with number
of such facilities in proximity.

4. Present and future land use: The value of the land is also determined
by the land use permitted in the land premises. For example, if we
compare the values of two lands of same prices and same location but the
land use permitted in the lands are different, one is commercial and one
is residential. In such case the value of the land with the land use which
has more rate of return over a period of time will be valued more. People
are willing to pay a higher amount for a commercial land, in some cases
industrial or institutional land use might attract even higher prices.
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5. Demand and Supply Function: With the major demographic changes

in the cities with time, the need for land also increases with the same
factor, with the increase in population there is increase in economic and
other activities. This directly increases the demand in the of the land
components. Anticipation of high yields may also induce false scarcity of
land; hence the location advantages of the properties at any time within
the urban boundaries and hence causes economic values of land to be
increased. For any site there are certain points of transition in use, closely
related to the infrastructure and services, where jump in property value are
likely to happen.

6. Location and Transport Linkages: The property located in the area of

high level of infrastructure facilities or the one located in or adjacent to the
area of economical intensive activities such as markets or industries have
higher values. Transport linkages are also important since they govern the
mobility & ease of movement to and from the area. Clearly defined
hierarchy of roads, efficient public transportation and lack of congestion
are some of the desired transportation attribute of any area. Residential
land values are also observed to be in direct proportion to the hierarchical
order of the adjacent road.
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SOURCES OF FINANCE
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This assessment might consider:

Funding options for building
developments • Budget.
It is rare in the private
• Draw-down facilities.
sector for the client to provide
all the funding for • Approvals and consents.
its capital projects and even in
• Tax and grants
the public
sector the government has • Loan size and term.
sought to use
• Land and site value.
external funding by means of
the private finance • Building costs.
initiative (PFI).
• End valuation.
A preliminary assessment
of funding options should be • Stage payments.
carried out when considering
• Planning risk.
whether to proceed with
a project. • Profit on cost.
• Collateral or guarantor.
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Sources of funding might include:

• Construction and development loans from
a specialist property funder or senior debt lender (such as a
commercial or high street bank).
• Mezzanine finance.
• Bridging finance.
• Project finance with special project vehicle (equity) and syndicated
non-recourse loans and /or limited recourse finance.

For the public sector, funding options might also include:

• Private developer scheme (PDS).
• Leasehold.
• Crown build.
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Sources of funding might include:

Construction and development loans from a specialist property funder
or senior debt lender.

Mezzanine finance – provides a second layer of debt funding to bridge

the gap between the senior debt (typically provided by a bank or fund),
and the actual requirements of the developer.

Bridging finance - s a short-term funding solution which can be used

to „bridge‟ a gap between money being owed and credit becoming
available. Typically, bridging loans are used in property transactions
and can be essential in ensuring a property purchase can be achieved.

Project finance with special project vehicle (equity) and syndicated non-
recourse loans and /or limited recourse finance.
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For the public sector, funding options might also include:

Private finance initiative (PFI) – are a very broad range

of partnership where the public and private sectors collaborate for some
mutual benefit.

Private developer scheme (PDS) - A private developer scheme (PDS) is a

form of public procurement in which the construction of a built asset is
undertaken and funded by a private developer, but the asset is then occupied
by the government, who pay rent to the developer for a minimum term under
a leasehold agreement.

Leasehold - in property law describes a lease from the freeholder of a

property that enables the leaseholder to use the property for a specified
period subject to conditions set out in the lease in return for
the payment of rent. At the end of the lease, the premises revert to
the freeholder.

Crown build - Crown build projects are new-build construction projects

or refurbishment projects that are funded directly by the government through
the government's capital expenditure budget. The completed development
remains in public ownership.
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An illustration:
The damning 2011 House of Commons Treasury Select
Committee report on PFI has found '...that PFI projects are
significantly more expensive to fund over the life of a project' and
that there is no '...clear evidence of savings and benefits in
other areas of PFI projects which are sufficient to offset this
significantly higher cost of finance'.
On the 5th December 2012, the government published details of a
new approach, stating that it „…remains committed to private
sector involvement in delivering infrastructure and services, but
has recognised the need to address the widespread concerns…‟.
The new version of PFI is referred to as PF2, and the key changes
are set out in the article: PF2.
In the October 2018 Budget, the then Chancellor Philip
Hammond announced that he would abolish the use of private
finance initiatives (PFI) for future building projects.
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• Sources of finance are equity, debt, debentures, retained earnings,

term loans, working capital loans, letter of credit, euro issue,

venture funding etc.

• These sources of funds are used in different situations.

• They are classified based on time period,

ownership and control, and

their source of generation.

• It is ideal to evaluate each source of capital before opting it.

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A company might raise new funds from the following sources:

· The capital markets

· Loan stock

· Retained earnings

· Bank borrowing

· Government sources

· Business expansion scheme funds

· Venture capital

· Franchising.
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Ordinary (equity) shares

Ordinary shares are issued to the owners of a company. The market value
of a quoted company's shares bears no relationship to their nominal value,
except that when ordinary shares are issued for cash, the issue price must
be equal to or be more than the nominal value of the shares.

Loan stock
Loan stock is long-term debt capital raised by a company for which interest
is paid, usually half yearly and at a fixed rate. Holders of loan stock are
therefore long-term creditors of the company.
Debentures are a form of loan stock, legally defined as the written
acknowledgement of a debt incurred by a company, normally containing
provisions about the payment of interest and the eventual repayment of
capital.

Retained earnings
For any company, the amount of earnings retained within the business has
a direct impact on the amount of dividends. Profit re-invested as retained
earnings is profit that could have been paid as a dividend.
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Bank lending
Borrowings from banks are an important source of finance to companies.
Bank lending is still mainly short term, although medium-term lending is
quite common these days.

Leasing
A lease is an agreement between two parties, the "lessor" and the "lessee".
The lessor owns a capital asset, but allows the lessee to use it. The lessee
makes payments under the terms of the lease to the lessor, for a specified
period of time.
Leasing is, therefore, a form of rental. Leased assets have usually been
plant and machinery, cars and commercial vehicles, but might also be
computers and office equipment. There are two basic forms of lease:
"operating leases" and "finance leases".

Hire purchase
Hire purchase is a form of instalment credit. Hire purchase is similar to
leasing, with the exception that ownership of the goods passes to the hire
purchase customer on payment of the final credit instalment, whereas a
lessee never becomes the owner of the goods.
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Government assistance
The government provides finance to companies in cash grants and other
forms of direct assistance, as part of its policy of helping to develop the
national economy, especially in high technology industries and in areas of
high unemployment.
Venture capital
Venture capital is money put into an enterprise which may all be lost if
the enterprise fails. A businessman starting up a new business will invest
venture capital of his own, but he will probably need extra funding from a
source other than his own pocket.
Franchising
Franchising is a method of expanding business on less capital than would
otherwise be needed. For suitable businesses, it is an alternative to raising
extra capital for growth.
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The time value of money (TVM) is the idea that money available at the

present time is worth more than the same amount in the future due to

its potential earning capacity. This core principle of finance holds that,

provided money can earn interest, any amount of money is worth more

the sooner it is received.

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Inflation is an increase in the amount of money necessary to obtain the

same amount of goods. This occurs when the value of the currency goes

down from one time period to the next. Different-valued currencies (in

different time periods) must be accounted-for, because economic

calculations span many time periods. That is to say, we must account for

not only for money's time value, but also its actual value.
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Time Value of Money, Inflation, and Opportunity Cost

The time value of money is a basic principal to compare two known

scenarios: a payment today or the value of a payment in the future. But
TVM also connects with inflation and opportunity cost. Inflation itself
will devalue money you receive today. You need to be considering what
the future value of the money sitting in your bank account is. Any
money you have today that isn‟t earning any interest (as is the case
with most major banks‟ checking accounts) is slowly going down in
value. You need to earn some sort of return to simply keep up with
inflation.

Another important concept connected with the time value of money is

opportunity cost. Even if the better decision is to wait until three years
from now for the payment, you still might be better off by taking the
payment now because no financial decision is made in a vacuum.
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Construction Cost Index is an indicator of the average cost

movement over time of a fixed basket of representative goods and
services related to Construction Industry.

Constitution of the basket of goods and services is done so that their

cost variations best represents the inflationary/deflationary changes
of a specific sector of Construction Industry or cumulatively for the
entire Industry.

At present, separate series of index numbers are compiled to capture

the price movements at regional and Industry subsection level in
India.
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Construction cost index for buildings (CCI) (input price index)

The index measures changes in cost for production factors in housing

construction, that is, materials of various types, equipment, salaries,

transport, etc. The index does not take account of the market situation,

but is based on measurements of a number of goods and salaries. Index

figures are calculated for multi-dwelling buildings, collectively built one-

or two-dwelling buildings and agricultural buildings in total and by

major type of cost.

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Life Cycle Costing

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Introduction
At the start of any project, it is important to understand the costs

involved

Traditional methods simply look at start up costs, cash flow and profit or

loss

Focused primarily on the manufacturing stage of product life cycle

Pre & post – manufacturing are treated as expenses costs

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Definition
• Life cycle costing is defined as the total cost throughout its life

including planning, design, acquisition & support costs & any

other costs directly attributable to owning / using the asset.

• Category of LCC Capital assets :

• Initial costs

• Operating costs

• Disposal cost
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Life Cycle Costing (LCC) Life cycle costing, LCC, is the process

of economic analysis to asses the total cost of ownership of a

product, including its cost of installation, operation,

maintenance, conversion, and/or decommission.

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• Product life cycle (PLC) is the cycle through which every product

goes through from introduction to withdrawal of it.

• A product‟s life cycle costing refers to the costs that are incurred

from its design stage through development to market launch,

production and sales, and finally to its eventual withdrawal from the

market
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• Life cycle costing is a system that tracks and accumulates the actual

costs and revenues attributable to cost object from its invention to its

abandonment. Life cycle costing involves tracing cost and revenues on a

product by product base over several calendar periods.

• “The total cost throughout its life including planning, design,

acquisition and support costs and any other costs directly attributable

to owning or using the asset”.

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Costs Involved
• Initial Cost (Cic)

• Delivery and Installation Costs (Cinst)

• Energy Cost (Ce)

• Operational cost (Co)

• Maintenance Cost (Cm)

• Downtime Costs (Cs)

• Decommissioning/disposal costs (Cd)

Formula LCC = Cic + Cinst + Ce + Co + Cm + Cs + Cd

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Characteristics of Life Cycle Costing:

a. Product life cycle costing involves tracing of costs and revenues of a
product over several calendar periods throughout its life cycle.

b. Product life cycle costing traces research and design and development
costs and total magnitude of these costs for each individual product and
compared with product revenue.

c. Each phase of the product life-cycle poses different threats and

opportunities that may require different strategic actions.

d. Product life cycle may be extended by finding new uses or users or by

increasing the consumption of the present users.
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Stages of Product Life Cycle

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Following are the main stages of Product Life Cycle:

(i) Market Research:
It will establish what product the customer wants, how much he is
prepared to pay for it and how much he will buy.
(ii) Specification:
It will give details such as required life, maximum permissible maintenance
costs, manufacturing costs, required delivery date, expected performance of
the product.
(iii) Design:
Proper drawings and process schedules are to be defined.
(iv) Prototype Manufacture:
From the drawings a small quantity of the product will be manufactured.
These prototypes will be used to develop the product.
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(v) Development:
Testing and changing to meet requirements after the initial run. This period
of testing and changing is development. When a product is made for the
first time, it rarely meets the requirements of the specification and changes
have to be made until it meets the requirements.
(vi) Tooling:
Tooling up for production can mean building a production line; building
jigs, buying the necessary tools and equipment‟s requiring a very large
initial investment.
(vii) Manufacture:
The manufacture of a product involves the purchase of raw materials and
components, the use of labour and manufacturing expenses to make the
product.
- Selling
- Distribution
- Product support
(xi) Decommissioning:
When a manufacturing product comes to an end, the plant used to build
the product must be sold or scrapped.
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Life Cycle Costing Process:

Life cycle costing is a three-staged process. The first stage is life cost

planning stage which includes planning LCC Analysis, Selecting and

Developing LCC Model, applying LCC Model and finally recording and

reviewing the LCC Results. The Second Stage is Life Cost Analysis

Preparation Stage followed by third stage Implementation and Monitoring

Life Cost Analysis.

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Thank you