Blog 10 factors that affect property value

10 factors that affect property value

08 May 2020

Owning a home is a dream for many, so what affects how much that goal costs?

The latter half of 2019 saw the Australian property market record a sharp turnaround, with prices skyrocketing, particularly in Sydney and Melbourne.

This was tipped to continue into 2020 but the summer of bushfires and the coronavirus pandemic has skewed any predictions property experts may have made.

Currently, there is a ban on open houses and auctions and non-essential activities.

The Reserve Bank (RBA) had also cut Australia’s cash rate to a record low of 0.25%, making home loan rates the lowest they’ve ever been.

So how does all this affect property prices? And what other factors drive property prices?

Factors that affect property value

1. Location

The location of your property is arguably as important, if not more so than the property itself. Proximity to a CBD, affluent neighborhoods or desirable landmarks like shopping centres or the beach are all factors that can increase a property’s value. In contrast, proximity to a jail or an airport, or residing in a low-socio-economic area will drive a property price down.

2. Demographics

The population and demographic of the suburb a property is in can greatly affect its value. For example, if you live in suburbia which is family dominated, three and four-bedroom homes will be more expensive. While in CBD areas, one and two-bedroom apartments will be more in demand from workers and students.

3. Size and facilities

One of the main things buyers, sellers, and investors are all interested in is how many bedrooms and bathrooms there are; quite simply because the more there are, the more expensive the property will be. In addition to this, things like garages, pools, backyards, air-conditioning, patios, balconies, the list is endless, and it all factors into a property’s value. Facilities are also important when considering location: a city apartment will add value if it has a parking space, while a suburban home with a large backyard is perfect for families, and again adds value.

4. Appearance and age

You should never judge a book by its cover but we all judge a property by its aesthetic and exterior. And while we should respect our elders, an old home is typically less valuable. Very few people want to live in a home that looks rundown on the outside, even if it is lovely on the inside.

5. Potential for renovations

When buying a home many people want to make it their own, sometimes in the form of a minor or major investment. If there’s space to add a pool, another bedroom or even another storey, the property becomes more attractive and valuable.

6. Potential for investment

If a home can be renovated to add value and later sell then that becomes attractive to an investor. Similarly, investors will be drawn into properties that are in an area tipped to expand or rise in value, or will be popular among renters.

7. Energy efficiency

With more people working from home and workplaces seeing the benefits, this may be the new norm even when the coronavirus pandemic has subsided. That means more of a strain on utilities and, as a result, higher bills. Solar panels add value to a property as do energy-efficient light bulbs and appliances. In addition to this, high-quality materials will make a property easier to heat and cool, adding further value.

8. Interest rates

The property market has been the bright spot of the economy in the last 12 months and this is in part, due to RBA cash rate cuts. When the RBA cuts, home loan interest rates tend to fall, which makes it more affordable to buy a home. This incites demand which can push property prices up. By contrast, when the RBA raises rates, mortgages become less affordable.

9. The economy

The economy is another factor for fluctuating property prices. Things like unemployment, wages, population growth and the Aussie dollar all affect how much money everyone has and consequently, how many people can afford to buy a home.

10. Demand and market performance

‘Supply and demand’ drives prices in any market. If there’s a high demand for homes in a location, then expect the values to increase. If a particular area has an oversupply of properties but not enough buyers, then prices tend to go down.

All of the factors above are what typically affect property prices but we’re living in unprecedented times and no one can confidently predict what will happen in the next six months.

Although many lenders have tightened lending restrictions, if you’re in a secure job and looking for a home, you’re in a good position. The current property prices coupled with low market activity give buyers a great deal of negotiating power.

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