Appraised value and zonal valuation of real estate

When you apply for a loan, the lending institution will send its appraiser to assess the value of the property in preparation for determining the loanable amount. The appraised value is not necessarily the market value of the property. More often than not — and this is especially true with commercial banks — appraisers rely on the zonal valuation which is much lower than the market value. Zonal valuation is fixed by the government and re-assessed from time to time. “Much lower” actually means only a third or even a quarter of the market value.

This difference in valuation may seem advantageous in terms of determining the real property tax. But since most real estate developers offer house and lot packages, the price of the property per square meter is determined not only by the value of the land but by the value of the house as well. Zonal valuation rarely takes into account the value of improvements on the land.

The harsh reality is that most developers jack up real estate prices. That’s why there are more house-and-lot packages in the market than lot-only options. By constructing a house on an otherwise inexpensive piece of land, the market value of the property can go up by as much as three or four times depending on the quality of construction. But even “quality” is a subjective standard for determining prices. A house may look pretty when new with its fresh coat of pain in bright colors but real quality, or the lack of it, may not begin to show until after a few years when the paint peels, the roof leaks and the plumbing rusts.

The conspiracy between real estate developers and banks aside, if you’re looking at a P4 million house sitting on a land with a zonal valuation of P2 million, don’t expect banks to give you a loan equivalent to 70% of P6 million.

What about the borrower’s capacity to pay?

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