Which land valuation method uses the amount of ground rent the land will generate, and then capitalizes that income into a value for the land using a capitalization rate?

The ground rent capitalization method is a distinct approach used in land valuation that focuses specifically on the income-producing potential of a piece of land. This method involves estimating the amount of rent that the land can generate when it is leased out and then applying a capitalization rate to that income stream to calculate the overall value of the land.

This technique is particularly useful in markets where land is leased rather than sold, providing a clear framework for investors or appraisers to determine the fair market value based on anticipated income. Capitalization rates, which reflect the risk associated with an investment, are critical here, as they help translate future income into present value.

In contrast, other methods like the abstraction and allocation methods do not specifically focus on income generation from ground rent. The abstraction method typically involves removing improvements from the overall property value, while the allocation method divides a property's total value into components like land and improvements based on percentages. The land development capitalization method focuses more on projecting the income from a developed property rather than the raw land itself. Thus, ground rent capitalization stands out for its specific application to land valued through its income potential.