What influences the price appreciation of your property?
“What elements impact the price appreciation of my property?” must have crossed every house buyer’s or owner’s thoughts at some point. Property has been one of the tangible assets to appreciate in the long term. Price appreciation is the increase in the fair market value of an asset. Price Appreciation is a source of passive income. Business Standard reports that India is ranked 54th out of 55 countries worldwide for residential property price appreciation. Price appreciation increases the worth of an asset without any actual contribution from the owner. Real estate properties have possessed this potential of price appreciation for a long time. Most investors find real estate properties have an intrinsic value that will provide ample benefits to the owner and his family. For this quality in properties, our ancestors were keen on accumulating wealth through buying familial properties that will be appreciated for the long-term and provide support to our future generation of ours.
But, firstly, what is price appreciation in real estate?
Price appreciation in real estate refers to how much a property’s value will improve over time. When purchasing a home, you should keep appreciation in mind. The level of appreciation gets determined by many factors and real estate trends, such as supply and demand and location.
Price appreciation might affect how much profit you can make when you sell it in the future. Some property investors acquire properties to sell them later when demand is strong and; supply is low to maximize their earnings.
Factors that influence the price appreciation of your property
Though the power of real estate investments is huge, have you ever wondered what factors contribute towards this appreciation power? There are several factors that work to appreciate a property. Putting a little thought behind the appreciation dynamics can fetch you higher returns by choosing the right property. For that, we bring to you the top factors that drive property prices to appreciate in the long term.
- Location Advantage: Most property prices highly depend on the location. Some locations have a natural advantage in terms of appealing factors like sea-view or mountain-view that attract prospective homebuyers in that area. Some examples of these could be the properties overlooking the Marine Drive in Mumbai or Gachibowli area in Hyderabad. Along with that, another location advantage could be the accessibility and the connectivity of a property from the city hub which allows prospective buyers to not hamper their work-life and ensure smoother connectivity and accessibility.
- Changes in Repo Rates: The monetary policy of the RBI decides the scope for price appreciation for the real estate sector. In the RBI’s meeting for monetary policy discussion, the increase or decrease in the benchmark repo rates eventually guides the lending capacity of commercial banks. An accommodative stance suggests lower repo rates thereby lowering the commercial lending rates. This stimulates the demand amongst the investors to grab the opportunity of lower interest rates and purchase a property. Thus, the property prices hype up and appreciate.
- Infrastructure Value-addition: When buying an apartment in Hyderabad or elsewhere, a homebuyer will carefully think of the area’s infrastructure. A location with a logically superior infrastructure appears to have a better possibility of a buyer. Similarly, the price appreciation of your real estate property increases. Any kind of value-addition to the existing location of the property is the boost for price appreciation within the area and in the vicinity. When the Government gives a nod to a landmark infrastructure project, the aim is to increase the connectivity, accessibility and ease the day-to-day hassles of people. This attracts a lot of home buyers to invest in real estate properties nearby for their own shelter or as an investment opportunity. These infrastructure projects can include a metro project, a fly-over connector, a new shopping mall, commercial business parks, and so on. Choosing a property that can attract the infrastructure value-addition is a must to taste the benefit of exponential appreciation within a short span of time.
- Employment Opportunities: There exists a direct correlation between price appreciation and the creation of employment opportunities within an area. The setting up of a new headquarter or office space of a mass recruiting firm or establishment of commercial office space in the vicinity attracts a large unemployed population to migrate for work. The rising demand from such employees for housing stimulates the property prices to appreciate. Thus, if any probable project is about to come in the future, investing in properties within such areas increases the chances of property appreciation within a short period.
- Life and Quality of the Property: The price appreciation also depends on the quality of construction of the property and the life since the year of construction. The weakening of the property structure over a large passage of time lowers its worth. Thus, properties in their premium age, which is generally between 0 to 10 years, are most preferred by home buyers. Moreover, properties that are carefully maintained from time to time rank higher on home buyers’ parameters. Such properties are quick to gain high appreciation.
- Architectural Renovations: Equipping the property with highly furnished items increases its worth and makes the buyers yearn for such property. These renovations could be interior or exterior. The interior renovations could include the likes of well-furnished home space with painted or tiled interior walls and flooring, modern kitchen counters and cabinets, bathroom fittings, closet spaces, and much more. In addition, a poshly designed exterior space of the property like entrance lobby, passage areas, well-lit spaces, among others, can add glam to the property. Prices of such well-kept properties tend to rise faster than bare properties. When developers customize residential units based on the requirements of the homebuyer, the price of real estate rises. For example, some buyers may want large porches or verandahs linked to their hall or bedrooms, modular kitchens, heat-resistant flooring, or other buyer-specific changes. It causes a price appreciation of your property. And the ultimate amount gets charged to the flat customer.
- Provision of Amenities: Provision of basic amenities like lifts, parking spaces, water and electricity supply, and so on, have become a necessity in today’s times. However, the provision of excess well-developed amenities like a swimming pool, garden area, gym facility, turfs for gaming, clubhouse, etc., attracts the attention of a larger set of buyers. Thus, properties having state-of-the-art amenities appreciate faster as compared to properties providing the basic amenities.
- Clear title and paperwork: The most preferred properties are those which have a clear title and are built within the regulations set by the local and state authorities. Illegal constructions or properties without land clearance are deemed as a headache for home buyers due to the negative future consequences of it. Thus, it is essential to have a property with a clear title and meet all the regulations. This will ensure a higher rank for the property in the prospective buyer’s eyes.
- Government Stimulus: The stimulus from the Government acts as a driver for steering up the demand of a particular sector. Similarly, the stimulus to the real estate sector in terms of stamp duty cuts, tax deductions, and so on increases the affordability of prospective home buyers and thus increases the demand for properties. This demand in turn appreciates the worth of the real estate properties.
- Property Developer Reputation: In major cities, the popularity of builders outweighs the rise in property prices. Residential and commercial structures constructed by known developers are of superior quality and design. As a result, their resale value is higher as well. Furthermore, the developer’s track record and reputation might increase demand for their projects, especially if they are in a favorable location and integrated with exceptional features. People take considerable caution while purchasing flats created by reputable real estate developers. If your property was built by a well-known developer, disposing of it becomes straightforward and quick.
With understanding the above factors that drive price appreciation in real estate properties, investors can optimize their property to accommodate at least some of the above factors. This will ensure a steady appreciation over the long term and can also fetch higher demand for sales. Real estate is a dynamic asset and price appreciation is the much-loved feature of it. Thus, investing in a wisely chosen property is a must. One should invest only after conducting due diligence from their side and foreseeing the potential upgrades that can raise the worth of your property in the future.
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Factors influencing appreciation of your property price FAQ's:
The property value is influenced by factors like location, Lending Rates, Infrastructure, Amenities, and so on.
The average appreciation per year for property in India is between 2 to 3 percent per annum. However, a property can appreciate more if it is optimized to suit the mentioned factors in the article.
Yes, appreciation on the property is a type of passive income which is earned due to the favorability of market factors that make the property appreciate over time.
Yes, commercial properties appreciate over time. The appreciation is higher in commercial properties as compared to residential properties.