Ground rent capitalization derives site value from which of the following?

Correct Answer

C) The rent the land itself earns under a lease

Why this is correct: Ground rent capitalization derives site value from the rent the land itself earns under a lease (the ground rent). This lease payment is a direct market indicator of the income the land can generate independently of any building. Capitalizing this annual ground rent at an appropriate market-derived rate yields an estimate of the land's value. Why the other choices are wrong: "The rent the completed building earns yearly" is the total property income, not just the land's portion. "The ratio of site value to total property value" describes the allocation method, not ground rent capitalization. "The residual left after paying building costs" describes the land residual technique within the cost or income approaches. Exam tip: This method is only applicable where genuine, market-based ground leases exist, which limits its use to specific markets.