UNDERCAPITALIZATION
Undercapitalization
is the opposite to overcapitalisation. The building is a much lower
land use than that for the highest and best use. That is, the
building does not capture the full potential of the site. An
industrial example would be a cottage instead of an allowable substantial factory.
An
intending developer would pay nothing for the old cottage as it would
be have to be demolished to make way for the highest and best use; a factory. Not only does the cottage have no value or
demolition value only, it is a nuisance or detriment to the
site as the new owner will have to incur the cost of demolition. That
is, the land value is less than for an equivalent vacant site nearby.
Sales
of such properties are known as site sales and are good
evidence of land value in a locations where there are few vacant
land sales.
See
highest & best use
Compare
with overcapitalization