Value… it’s such a tricky concept to unpack and define.
We all know that gold, diamonds, oil and even saffron are high-value commodities
thanks to their scarcity, desirability, or the fact that we need them to go about our
lives.
.
But what makes real estate so valuable?
We live in a country with vast expanses of space, yet we cling to the major coastal
cities for dear life and treat the inner-ring suburbs of Sydney, Melbourne, and
Brisbane like hallowed turf that we can only hope to be worthy of residing on.
Property taps into some of our strongest needs and desires – security, safety,
prestige, status, a sense of success, and something to leave behind for our children.
We all need somewhere to live, or somewhere to operate a business, and as with
any asset, when demand outstrips supply, prices go up – as we’ve clearly seen over
the past few months.
Having said this, there are several key factors that will always play a part in the value
of property, in the most buoyant or subdued of markets.
So, let's look at why some properties are more valuable than others…
1. Where we want to live
Prior to Covid Australia's population grew by around 1.4 per cent a year - we were
adding the equivalent of one new Darwin every 20 weeks, or a new Tasmania must
be squeezed in somewhere every 18 months.
Sure, population growth has stopped at present, but once the borders reopen and
the government allows immigrants back into the country to help bolster our economy,
it's likely that population growth is going to surge once again.
And it is likely that the bulk of the new immigrants will come where the jobs are – to
Melbourne Sydney and Brisbane making property more valuable there.
But there's another significant trend that will make some properties much more
valuable than others. The fact is that in the new Coronavirus normal world the ability
to work, live and play all within 20 minutes reach is the new desirable lifestyle.
2. It turns out size does matter, after all
The value of a property is driven primarily by the worth of the land it’s situated on,
meaning in any given location larger blocks will be worth more than smaller plots.
But that’s not the whole story - it really matters where the land is located because not
all land is created equal.
In general, land closer to the CBD or the water, or locations within short walking
distance of public transport or train stations is more sought after and therefore more
valuable.
Just look at your own neighbourhood – not all spots are considered equal, are they?
Some locations will be sought after, some streets will be more attractive and even
one end of a street can be more desirable and therefore valuable than the other.
3. The character, style, and appeal of homes
Period, Federation, and art-deco style homes, bursting with architectural features
and charm, are both harder to come by and more sought-after than new builds.
Homebuyers are usually willing to pay more for a home that has character, a level of
scarcity or a twist – something special about it.
4. Infrastructure
Improving infrastructure around a property can make it more accessible and liveable
and therefore more valuable.
Think freeways giving easier access to the CBD or workplaces or improved public
transport, shopping centres or workplaces.
5. Gentrification
One of the significant changes to occur in Australian cities over the past 50 years,
which has pushed up inner- and middle-ring suburb property values, is gentrification
– the shift in the socioeconomic demographic of a suburb.
Areas undergoing gentrification are suburbs where more affluent residents move in
renovating older houses or building new ones pulling up the value of neighbouring
properties.
6. Solid returns on investment
There's no doubt that increased investor demand for properties in prime locations is
part of what has been helping to drive prices in many locations around Australia.
And with minimal returns from many other asset classes, more investors are turning
their minds to property with interest rates being at historic lows.
The bottom line:
Like most things in life – supply and demand for a property determine its
value.
(Extract from article by Brett Warren- 1 st November 2022)
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