A property’s market value is not merely determined by the seller’s perceived value of it. Before setting a price, sellers also conduct a thorough study of the industry, their potential market, and their competitors.
As a potential buyer, knowing what causes the appreciation and depreciation of house prices can help you decide whether now is the right time to purchase a house or not. Before delving deeper into the websites of real estate developers in the western suburbs of Melbourne, equip yourself with a better understanding of the market and its driving force.
So what are the key factors that affect a property’s market value?
Demand and Supply
Property prices go up when there’s an increasing buyer demand for houses in a specific location. Remember that “buyer” not only refers to end-users but investors as well. Real estate investors also rely on end-user insights to determine which houses to purchase and resell should there be a rise in demand again.
To continuously address buyers’ needs, sellers need to improve their machinery and increase human resources. This results in higher construction costs. Hence, it will be necessary to mark up their prices.
Nevertheless, there are also instances when sellers resort to price increases simply because people become willing to pay more for something that offers value for their money—especially when there’s a limited supply. Similarly, population growth is another factor that contributes to an increased demand for housing in an area.
Mortgage Interest Rates
As interest rates decrease, more people can afford a house. Lower interest rates equate to lower equated monthly installments (EMI). Thus, this will generate more demand. Conversely, higher interest rates bring about lower demand as it reduces the affordability of residential properties. Fluctuating mortgage rates also impact sellers. With higher interest rates, people will be required to pay more than what the house is worth. As such, people will regard the property as less valuable and less practical.
Inflation
Having excess money in circulation depreciates its value. When this happens, the costs of land, labor, materials, equipment, and building permits are also likely to increase. As a result, sellers will be left with no other choice but to take their prices a notch higher. This creates another problem for buyers. However, investors see inflation as an opportunity to reap their return on investment (ROI) finally. As price increases, they can also increase their property’s resale value or even rental fees.
Other Market Drivers
Development projects within the area can also contribute to a property’s marketability. Likewise, factors that add to the overall desirability of a location can justify a property’s high market value. For instance:
- proximity to relevant establishments like schools, offices, hospitals, and mall
- accessibility to public transport facilities
- presence of recreational parks within the area
- proneness to flood and earthquake hazards
- other infrastructure programs that enhance the location’s quality of living in general
While a property’s perceived value might also be relative and subjective sometimes, it still pays to know what drives the real estate market and what factors influence a property’s market value. Be a wise buyer and support your purchase decisions with concrete facts and figures. A smarter approach is to consider what an investor would do.
