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What factors affect property value?

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

No matter where you look, house prices have been booming despite initial concerns the COVID pandemic would lower them.

Much of this has been fueled by record low interest rates, a fear of missing out (FOMO) from first home buyers, low levels of supply on the market, and government incentives for home buyers.

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

What’s the difference between a market versus bank valuation?

A market valuation is an estimate of the current price of the property in the market and is often completed by a real estate agent. The value of the property is based on market trends and recent sales of similar properties in the area. It often reflects the base case scenario - the value of a property when sold at the right time and under the right conditions.

A lender valuation is performed by a certified valuer who considers the value of a property over a longer period of time. Lender valuations are often a more conservative estimate of how much a home is worth. They are used to assess the value of the property in order to calculate how much money a lender can responsibly lend to you.

Factors that can affect your property's market value

Factors influencing residential property include:

1. Location

The location of your property is arguably as important, if not more so than the property itself. Environmental factors affecting property value includes proximity to a CBD, affluent neighbourhoods or desirable landmarks like shopping centres or the beach are all factors that can increase a property’s value.

In contrast, if your property is located in a street with a bad reputation, is in a flood prone area or if you have difficult neighbours then these can seriously devalue your home. Other factors that can have an effect are close proximity to a jail or an airport, or residing in a low-socio-economic area, which will drive a property’s price down.

Find out more about researching a neighbourhood before buying

2. Suburb’s track record

Properties in suburbs with high crime or unemployment rates are typically cheaper than properties in good suburbs. While this can be a good thing if you’re looking for an affordable entry level property, it also means your property is less likely to rise in value over time - not to mention you could be living in an unsafe area.

If a publicised crime has recently happened in your area (like a homicide) the value of your property can be impacted. A study by the University of Technology Sydney (UTS) found that property prices can be hit by as much as 3.9% in the year after a murder. If a murder were to happen on the premises, it’s likely the value of your property could fall further still or just not sell.

The performance of the market in your suburb also has an impact on values. If there’s a lot of stock on the market and little demand, you can expect properties will sell for well under the asking price causing values to fall as a result.

Looking for more info on a particular area? Download a free suburb report.

3. School zones

It is not a secret that school catchment areas (where you must live to have your children automatically enrolled) can have a huge influence on property prices. For many parents looking for a family home, it can be worth paying a higher price if it means they can be within a catchment area of a top local school. If you are not within that school catchment area, you can still apply for that school but you are not guaranteed a place, which is why properties in good school zones often fetch a higher asking price.

4. Access to public transport

Proximity (or lack thereof) to public transport is another important factor that impacts a property’s value. Properties that are closer to bus, tram and train stations will be more in demand from workers, families and students, therefore driving up the price.

5. 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.

6. Size and facilities

One of the main factors 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.

7. Street appeal 

Your mum may have taught you never to judge a book by its cover, but most people do judge a house by its street appeal, so you can bet this will have an impact on the value of the property. 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.

So what adds value to your house? Luckily even the most simple fixes like a fresh coat of paint, a new fence or a nicely maintained garden can help drive up the value.

8. 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.

Upgrading the looks of your home and its functionality through a well thought out home renovation will increase the value of the property. Some renovations can cost a lot, so going DIY is a cheaper alternative. 

However, if the renovation doesn’t go as planned or if it looks unappealing because the paint work is patchy, the corner kitchen cupboard won’t open, or the new fixtures don’t fit the new look of the home, then a renovation fail can quickly repel buyers.

9. Potential for investment

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

10. Energy efficiency

Although the coronavirus has subsided, more people are still working from home with many workplaces seeing the benefits. That means a larger 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.

11. Interest rates

When the RBA cuts the cash rate, home loan interest rates tend to fall, which makes it more affordable to buy a home. This creates demand which can push property prices up. By contrast, when the RBA raises rates, hundreds of dollars can be added to monthly mortgage repayments which leads to mortgages becoming less affordable. This typically equates to a decrease in property values.

Find out more about how interest rates work.

12. The economy

There are many economic factors affecting real estate. 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.

13. 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.

How have Australian property values fared over the last few years?

The COVID-19 pandemic had a profound impact on the Australian property market - it caused a housing boom. Many people took advantage of low interest rates and the extra financial support coming from government stimulus packages designed to buoy the economy.

According to CoreLogic, housing values rose 24.6% between the end of March 2020 and February 2022. In that period, the median Australian dwelling value increased $173,805, to $728,034.

However, the RBA’s consecutive interest rate hikes through 2022/23 have seen national home values tumble since April 2022. Rising mortgage rates have been the biggest driver of the decline alongside cost of living pressures and poor homebuyer confidence. Despite the slump, average home prices remain above pre-pandemic levels.

You shouldn’t try and ‘time’ the property market when you’re ready to sell - the best time to sell simply relies on when you’re ready to do so. However, that being said, keeping an eye on market trends can be important. Knowing how the current market is performing can give you a clearer picture of your property’s value.

Why is it important to understand the factors that impact property values?

Understanding what affects the value of your investment property means you’re better placed to make the best financial decisions when it comes to selling your home, or even making renovations. Equally, the information also helps you to buy the best investment-grade property available to suit your needs.

Studying the factors that impact property values can provide valuable insights for a number of different stakeholders such as:

  1. Real Estate Professionals - Real estate agents, brokers, and appraisers can use the findings from these studies to better understand the factors that drive property values in a given market. This information can help them make more informed decisions when buying, selling, or valuing properties for their clients.
  2. Homeowners - Homeowners can use this information to make decisions about home improvement projects, when to sell their property, and how to negotiate with potential buyers.
  3. Investors - Investors can identify areas with strong growth potential and use this to inform their investment decisions.

How do I check my property value? 

A property report will provide you with extensive information about the property you are planning to buy or sell. Apply for a free property report.

Get free property report


Do solar panels devalue your house? 

A home that is energy efficient is actually likely to have higher value, so items like solar panels, insulation, double glazed windows, solar hot water systems and so on will add value to a home.

Does capital value include land value? 

Capital value includes the value of a parcel of land as well as any improvements on that land, such as the property.

What causes house prices to rise?

There are many factors that can cause house prices to rise, such as the performance of the economy, housing demand and market performance, and what’s happening with interest rates.

About the article

As Australia's leading online lender, loans.com.au has been helping people into their dream homes and cars for more than 10 years. Our content is written and reviewed by experienced financial experts. The information we provide is general in nature and does not take into account your personal objectives or needs. If you'd like to chat to one of our lending specialists about a home or car loan, contact us on Live Chat or by calling 13 10 90.

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