Buying a property is not just about purchasing a good house, spacious land, or a property that falls under your budget. There can be several other reasons why a property holds value, and the value of the property can vary from one place to another based on several factors including connectivity, location, demand, infrastructural facilities, quality of property, rental potential, and future scope of development.
This knowledge is essential when making property buying decisions, whether it be a residential property, commercial property, land, apartment, villa, or even an independent house.
Investment in the best real estate market can give you maximum return if the factors that boost the value of the property are in your support.
Location: The Basis of the Value of Property
Location is among the factors that contribute significantly to the value of property. Properties having similar dimensions and features will have totally different values because they are in different locations.
Property in a locality where there is easy connectivity and facilities, jobs, and good demand will have more value than a similar property located in an isolated area.
A valuable location is not always the most costly location. A valuable location is where there is easy access and convenience and good demand.
Connectivity and Accessibility
Connectivity may have a very significant impact on price and demand for properties. Properties that are situated in close proximity to roads, highways, expressways, metro stations, transportation routes, and key business centers will be highly valued by potential buyers or tenants.
The width of the road, its accessibility, entrance and exit points, traffic and travel time to key destinations may have an impact on the price of the property as well.
This phenomenon is called a “connectivity premium.”
Schools, Hospitals, Markets and other Amenities
People purchase not just the structure but the kind of life-style and convenience that goes with it.
Having schools, hospitals, malls, grocery stores, restaurants, banks, parks, gyms, and other facilities in the vicinity of the property may add to its attraction.
Properties with all the necessary amenities can make life convenient and this may lead to both buyer and rental demands.
Infrastructure and Future Development
Existing infrastructure is a key component, however, future infrastructure could also play a role in the value of the land.
Future road development, new metro lines, highways, airports, industrial zones, business zones, universities, logistics zones, and planned towns will all add to the potential for future development in an area.
Nonetheless, buyers need to understand that there is a difference between future development that has been planned and future development that has been approved, is currently being built or is functional.
Property Size, Shape, and Usability
It is also pertinent to consider the actual physical attributes of the property. The mere fact of the size of the property is not enough; rather, it is also important how usable this space is.
Carpet area, built up area, plot size, room sizes, sunlight, ventilation, parking, and layout are some of the parameters which may influence the appeal of a property.
Sometimes a smaller well-planned property can be more attractive than a larger ill-planned one.
Quality of Construction, Age and Condition of Property
Quality of construction has a direct effect on the long-term utility and attractiveness of the property.
Quality of construction, maintenance of the building, structural condition, age of the property, quality of electricals and plumbing, lifts, security, back-up power, parking facilities, common area facilities and many more could affect both the value and resale potential.
For flats and developments, the history and reputation of the developer could also add to the brand premium effect.
Demand, Supply and Market Situation
Moreover, the property’s value is also contingent upon some basic principles of supply and demand in the market.
If the demand from buyers is high but the inventory level is low, then prices may go up. But where there is excess of supply and not enough demand, it may be difficult for prices to go up.
Population, jobs, migrations, leasing, development, and land supply can have impacts on the supply and demand situation.
Therefore, the situation in the market should be considered during valuation of the property.
Rental Potential and Income Generation
For investors, rental potential is one of the elements that can contribute to the value of real estate.
Real estate that is close to office complexes, industrial sites, educational institutions, hospitals, transport facilities, and existing residential areas is likely to have high demand from tenants.
Instead of focusing on the purchase price alone, investors should take into account rental yield, occupancy rate, rent, vacancy risk, maintenance costs, and even appreciation.
Rental potential can offer the investor additional source of income in the long run.
Legal Status and Documentation
A property may be attractive in terms of its location and amenities but there could be legal or documentation issues that may greatly affect its value.
Prior to purchase, buyers should be aware of the ownership, title, applicable approvals, encumbrances, land use, tax history, mutation of land and house , registry chain and other documentation of the property.
For applicable projects, buyers should also check the necessary regulatory registrations and project documentation. Appropriate due diligence can help uncover any risks that cannot be uncovered during the visit of the property.
Identifying Overvalued and Undervalued Properties
The asking price of a property does not automatically imply its actual market value.
Buyers can compare similar properties in the same locality, price per square foot, age and condition of property, amenities, connectivity, rental potential and future development possibilities.
It will also help to know the difference between the asking price, market rate, transaction price, and the government's benchmark values. These figures need not always match.
Property Value vs. Investment Value
One of the important advanced concepts in real estate is the fact that property value and investment value are not always the same.
An expensive property with excellent amenities and great location may not necessarily provide the best investment potential.
Investment analysis should consider purchase price, rental income, rental yield, capital appreciation potential, holding period, maintenance expenses, transaction costs, financing costs, vacancy risk, and market conditions.
Therefore, a smart investor looks beyond the current price and asks:
What makes this property valuable today, and what could influence its value in the future?
Comparative Analysis
Significance of Comparable Property Prices in Deciding Value
Comparable property prices are significant in deciding the market value of any piece of property as these act as a benchmark based on similar properties available in the area. This is important as various parameters, including size, locality, facilities, amenities of gated community, etc., help to decide the market value of a property. Analysing prices of sold properties helps in understanding trends prevailing in the market.
Examples of Pricing of Properties in Similar Areas
A 2BHK apartment in Whitefield, which is a very good locality in Bangalore that acts as an IT hub, with good facilities including proximity to tech parks, reputed schools, hospitals, malls, metro connectivity, transport connectivity, highways, etc., would cost â‚ą90 lakhs. On the other hand, a similarly sized 2BHK apartment in Hoskote, an emerging locality, with lesser number of facilities, developing infrastructure and fewer transport facilities, could cost around â‚ą55-60 lakh.
This is because of the established reputation of Whitefield, metro connectivity and high demand among professionals for buying a property here. Although cheaper than Whitefield, Hoskote attracts investors looking for investment potential in the near future due to gradual development in the area.
Conclusion
One thing determines the value of property – a combination of various factors, and not only one particular attribute. Location, accessibility, infrastructure development, amenities, the property’s quality, demand and supply, renting potential, future growth, legal documentation, and market trends are some of the traits that add value to the property.
The most important thing that every buyer of real estate should understand is that the property’s value should not be estimated by only its price or appearance, but rather by the traits that make it valuable.
18homes is not only about finding you properties that match your criteria, but we also strive to educate our clients so that they can have a realistic perception of real estate and all the factors that affect its price. Whether you are looking for a residential house, a plot of land, an apartment, or a commercial building, we will assist you in making a beneficial and well-thought decision.