Capitalization Of Earnings And Assumed Development Methods Of Land Evaluation

With the development of the market economy of China and the further development of reform of economic system, the importance of real estate market has become more and more obvious. The rational and efficient use of land requires the establishment of complete real estate market, and land price is the core of the real estate market. There must be a scientific method of evaluation of land price.At present, there are six basic methods of evaluation of land: assumed development, cost method, capitalization of earnings, market comparison, base land price leveling factor method, and route price method, in which the commonly used methods are capitalization of earnings and assumed development. This paper makes theoretical analysis of the two commonly used methods.1. Theoretical analysis of capitalization of earningsThe capitalization of earnings is used, when the evaluation of land is made, purchasing of land is regarded as an investment and the land price is regarded as the invested capital for land earnings in purchasing land in the future years. Therefore, the capitalization of earnings evaluates the base land price.At present, when the capitalization of earnings is applied in land evaluation, it is generally assumed that the duration of land is finite and other factors remain unchanged, the basic formula of calculating the land price is . The basic condition of value evaluation of right to use profitable land is that the stable earning rate of investment can be acquired continuously and in balance. However, in fact when n tends to the long cycle, r, A cannot realize the continuous and stable earning rate. In the meanwhile, in a long cycle, when the utilization rate keeps high and cannot be reduced, the netrental income can continuously acquire the operation of compound interests in the same, which is unimaginable.The capitalization of earnings itself and its application have severe constraints, which can be divided into three levels: constraint of theoretical structure, constraint of mathematical mode and constraint of boundary for application of mathematical mode.This study discussed two paradoxes in the capitalization of earnings method:Paradox 1-the logic paradox of definition of capitalization rate andland-using right value function, that is, the capitalization rate is determined by land using-right value and vice versa, which is a typical logic paradox.Paradox 2-the paradox in the level of operation, that is, the paradox inacquiring the concrete capitalization rate.The capitalization rate is not the endogenous variable of theoretical structure of the method, not an independent variable itself, but a derived variable and plays a role of intermediate and transitional mechanism in an important logical arrangement. Its occurrence directly leads to the production of the two paradoxes.The theoretical essence of capitalization of earnings lies in finally earnings. As far as the presentation of value is concerned, the earning rate is not necessary, but the earning is necessary. As far as the presentation of time value is concerned, it is not necessary for discount to adopt the earning rate of investment or capitalization rate, and the general market rate can be used. As far as discount is concerned, the compound interest is not necessary, and the single interest is also necessary. As far as the transferring of the future earnings is concerned, the discount is necessary, and the theory of reliability based on probability and all other uncertain mathematical theories are also necessary. Thus, their combination leads to the discount theory of capitalization rate, the discount theory of general market rate, the discount theory of single interest,the discount theory of compound interest, the discount theory of earnings and the theory of earnings reliability as well as other uncertain theories. All the components are probable and expanded fields. The abandonment of pursuit of capitalization rate and discount, making probability analysis of the future earnings, determination of types of probability dis...