What makes up the value of a property?
Where’s the value in your home, and what should you be looking for when buying?
The old saying; “Location, Location, Location”, certainly plays a major part in valuing a property, but once we get past this point, and look at the property itself, where does the greatest proportion of its value lie?
Is it that new kitchen, the upgraded bathroom, the three bedrooms and two living areas, or the extensive landscaping?
In boom times we watched people decide on a location (which sets the underlying level of value), and then rush in and buy anything that vaguely met their needs. But given that the property decision is a major investment, are we too superficial in our choices?
There are two main factors that drive the value of a property:
Components that will increase in value over the term of the investment, or depreciate only slowly ie, land and buildings.
Components that add saleability (emotional triggers or magpie factors); bright, shiny, trendy objects that get our attention, or those that are soft and comforting and create a comfortable nest.
It is typically the latter that tip the scales as to whether we purchase or not. However, while these factors have a value associated with them, they will not necessarily provide long term investment growth. In fact, many of these features are like your car, losing appeal as the years roll by, requiring maintenance and going out of style.
If you are really serious about your home being a long term asset, deeper thought is required.
When valuing a property you must take care of the biggest chunk of the value equation first. That is determining the land area, and then the tenure. In many areas of Auckland, and especially along the coast, the land component can be half to two-thirds of the total property value. This is where the biggest investment is.
So, why do so many real estate advertisements fail to mention size and tenure? Lot sizes tend to vary from area to area, so it is a relative quantity.
Tenure refers to whether you own a property alone, or are co-owners of the land (Leasehold, Cross-lease, Unit Titles), in which case any future decisions you make about the property may involve others. Freehold is the most valuable tenure as it comes with the most rights. Other types of tenure (cross-lease, unit titles and leasehold) have fewer rights, involving various styles of hierarchical and communal ownership structures.
So be careful about paying for more than you are getting. Land inflation, or as we are currently experiencing, deflation, is quite different from the likes of CPI inflation, or even building cost inflation.
This is typically where people make their true capital gains.
The next big chunk of value is the dwelling. Is it a solid home, or a lightweight duplex that will need significant maintenance in the future? For example, if it is a ‘leaker’, it will be more of a liability than an asset.
The quality of building materials and construction are very important.
Even solidly built homes, such as villas and State built homes, command differing value levels. Both have good bones, but villas have extra panache and will always command a premium price over State housing.
Components such as layout and services can also affect whether or not you will have substantial costs in the future, to ensure the building meets your needs. At present, the cost of renovating may or may not add more value than it costs. You should take the time to buy sensibly, or at least know possible fixing costs which could arise.
Décor, fittings and fixtures (such as kitchens, bathrooms, and landscaping) all add value, but proportionally less than the actual land and building structure. They are what typically attract us to the property, and in some cases why people pay a premium. Of these, kitchens and bathrooms typically sway buying decisions more, perhaps because they are costly to fix and the process can be painful.
Landscaping helps to create a desirable living environment, and if done well, adds value significantly.
But care is required, as the cost of a swimming pool may be more than the next buyer is willing to pay, especially if they are not swimmers and don’t like the maintenance involved to keep it looking good.
Ensuring you have good indoor/outdoor flow to an area suitable for socialising and entertaining is likely to pay more dividends.
Buying a property, whether as a home or as an investment, is still an investment. Getting a property with the right grounding is critical for long term gain. It is here that QV can support you with a range of reports that provide key information to help you make a more informed decision.
For all your real estate needs, whether buying, selling, property management or rentals, contact me for a no obligation consultation.
Dil.Shroff
Mobile: 021 143 9679
Office: 09 n6232700
After Hours: 09 6257678
Harcourts - OCI Realty Ltd MREINZ
373 - 375 Dominion Road, Mt. Eden, Auckland.
Where’s the value in your home, and what should you be looking for when buying?
The old saying; “Location, Location, Location”, certainly plays a major part in valuing a property, but once we get past this point, and look at the property itself, where does the greatest proportion of its value lie?
Where’s the value in your home, and what should you be looking for when buying?
The old saying; “Location, Location, Location”, certainly plays a major part in valuing a property, but once we get past this point, and look at the property itself, where does the greatest proportion of its value lie?
Is it that new kitchen, the upgraded bathroom, the three bedrooms and two living areas, or the extensive landscaping?
In boom times we watched people decide on a location (which sets the underlying level of value), and then rush in and buy anything that vaguely met their needs. But given that the property decision is a major investment, are we too superficial in our choices?
There are two main factors that drive the value of a property:
Components that will increase in value over the term of the investment, or depreciate only slowly ie, land and buildings.
Components that add saleability (emotional triggers or magpie factors); bright, shiny, trendy objects that get our attention, or those that are soft and comforting and create a comfortable nest.
It is typically the latter that tip the scales as to whether we purchase or not. However, while these factors have a value associated with them, they will not necessarily provide long term investment growth. In fact, many of these features are like your car, losing appeal as the years roll by, requiring maintenance and going out of style.
If you are really serious about your home being a long term asset, deeper thought is required.
When valuing a property you must take care of the biggest chunk of the value equation first. That is determining the land area, and then the tenure. In many areas of Auckland, and especially along the coast, the land component can be half to two-thirds of the total property value. This is where the biggest investment is.
So, why do so many real estate advertisements fail to mention size and tenure? Lot sizes tend to vary from area to area, so it is a relative quantity.
Tenure refers to whether you own a property alone, or are co-owners of the land (Leasehold, Cross-lease, Unit Titles), in which case any future decisions you make about the property may involve others. Freehold is the most valuable tenure as it comes with the most rights. Other types of tenure (cross-lease, unit titles and leasehold) have fewer rights, involving various styles of hierarchical and communal ownership structures.
So be careful about paying for more than you are getting. Land inflation, or as we are currently experiencing, deflation, is quite different from the likes of CPI inflation, or even building cost inflation.
This is typically where people make their true capital gains.
The next big chunk of value is the dwelling. Is it a solid home, or a lightweight duplex that will need significant maintenance in the future? For example, if it is a ‘leaker’, it will be more of a liability than an asset.
The quality of building materials and construction are very important.
Even solidly built homes, such as villas and State built homes, command differing value levels. Both have good bones, but villas have extra panache and will always command a premium price over State housing.
Components such as layout and services can also affect whether or not you will have substantial costs in the future, to ensure the building meets your needs. At present, the cost of renovating may or may not add more value than it costs. You should take the time to buy sensibly, or at least know possible fixing costs which could arise.
Décor, fittings and fixtures (such as kitchens, bathrooms, and landscaping) all add value, but proportionally less than the actual land and building structure. They are what typically attract us to the property, and in some cases why people pay a premium. Of these, kitchens and bathrooms typically sway buying decisions more, perhaps because they are costly to fix and the process can be painful.
Landscaping helps to create a desirable living environment, and if done well, adds value significantly.
But care is required, as the cost of a swimming pool may be more than the next buyer is willing to pay, especially if they are not swimmers and don’t like the maintenance involved to keep it looking good.
Ensuring you have good indoor/outdoor flow to an area suitable for socialising and entertaining is likely to pay more dividends.
Buying a property, whether as a home or as an investment, is still an investment. Getting a property with the right grounding is critical for long term gain. It is here that QV can support you with a range of reports that provide key information to help you make a more informed decision.
For all your real estate needs, whether buying, selling, property management or rentals, contact me for a no obligation consultation.
Dil.Shroff
Mobile: 021 143 9679
Office: 09 n6232700
After Hours: 09 6257678
Harcourts - OCI Realty Ltd MREINZ
373 - 375 Dominion Road, Mt. Eden, Auckland.
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