What is the reduction rate?

The concept and types of land reduction rate;

(1) The concept of land reduction rate.

The land reduction rate is the ratio used to reduce the net income of land to the land price. Loan interest rate, deposit interest rate, return on investment in various industries and real estate rent data can all be used as the basis for determining the land reduction rate.

(2) The type of reduction rate.

The reduction rate is divided into the following three categories: comprehensive reduction rate, building reduction rate and land reduction rate.

(3) The relationship among land reduction rate, comprehensive reduction rate and building reduction rate.

Equation1:r = (r1* l+R2 * b)/(l+b).

Equation 2:r=[r 1*L+(r2+d)B]/(L+B).

Where: r-comprehensive reduction rate; R 1- land reduction rate; R2 building reduction rate; L- land price; B- construction price; D-depreciation rate of buildings.

The first formula above is applicable to the net income after depreciation of buildings; The second formula is applicable to the net income before depreciation of buildings.

2. Determination method of land reduction rate.

(1) The ratio of land net income to land price was investigated to determine the reduction rate.

The ratio of net income to price of the same or similar land in the market is adopted. In order to avoid contingency, it is often necessary to investigate many cases of land (usually at least three cases) and find the average of their net income and price.

(2) Determine the reduction rate by adjusting the safe interest rate and risk value.

Reduction rate = safe interest rate+risk adjustment value.

The safe interest rate refers to the risk-free rate of return of capital investment, and one-year annual interest rate of government bonds or one-year bank time deposit rate can be selected as the safe interest rate. The risk adjustment value should be determined according to the social and economic development of the area where the appraisal object is located and the impact of the land market.

(3) Insert the comprehensive ranking of investment risk and return on investment to determine the reduction rate.

Rank the returns of various social investments (such as bank deposits, loans, national debt, bonds, stocks, etc.). ) from low to high, and then according to the experience, judge which range the investment income and risk of the real estate to be evaluated should fall in, so as to determine the specific value of the required reduction rate.