What is the most important aspect in determining the value of the property?

Today, we are going to discuss the 5 factors that help you determine the right price to purchase a resale private property. As real estate agents, we get asked these questions on the ground a lot by clients, or by friends and relatives. So these are the exact steps we take in the PropertyLimBrothers team before listing a property for sale.

Now, the first one we’re going to talk about is to look at the asking price of a property.

Asking Price

Almost everyone has access to the internet now. You can simply go on Property Portals. You search for properties that are listed in this development right now, and you can check out what is the asking price of similar units that are in that property itself. All right, so that is the very first stage to get a good sense of what are other sellers asking for. Are they asking for high prices? Is it because their unit is more renovated? Is it on a higher floor? Is it a penthouse? Is there a better view? Things like that. Also when you’re doing your research, you also can look at the photos.

Recent Transacted Prices

The second thing that we’re going to look at is actually the last transacted prices or recent transacted prices in the last 6 to 12 months. Why do we look at transacted prices? Number one, this is actually what the banks will look at when they are going to loan you the money for you to purchase a property. They’ll base the valuation of your property on the last transacted or recent transacted prices. So if you see that a unit that you are looking at in the same block or in the same stack but on a higher floor, transacting at a lower price, or the unit that you are actually considering to purchase has a higher asking price than the norm in the development, then sometimes the banks might not be able to match this valuation. So the last recent transacted prices are very important to consider when you are actually thinking about buying resale properties. Now let’s move on to the third thing.

What is the most important aspect in determining the value of the property?
What is the most important aspect in determining the value of the property?

Highest Transacted Price

All right. The third thing is actually the highest transacted price in the development itself. All right, so what this means is that in the last maybe three to five years of the property’s lifespan, what was the highest ever transacted price for this development? Because that will give you a good understanding of the ceiling of what is the possible price that this development can actually achieve even during the peak stages of the property cycle in Singapore.

Peak Price

Now, the fourth thing is the peak price of the property. The difference of this vis-a-vis the Highest Transacted Price is that this takes into consideration the entire lifespan of the development versus the last couple of years. What this means is that during the lifespan of the property cycle in Singapore for this property development X, what was the highest ever peak price that was achieved before? It might be in the recent six months. It could be in the last three years even. Because if you, today you buy this property and you make that peak price, then the question to ask yourself is, would you be confident that it will rise any further than what you have just purchased the property at?

Below Market Value

The last point is the market price. Are you able to buy this resale private property below market value today? So if let’s say you check with your banker, “Hey Mr Banker, can you tell me for property X, what price can I get for the valuation for?” If he tells you this property is only worth $800,000 today, but you can buy it at let’s say 750,000, then that’s probably a good indication that you are getting it below market price. Because as an investor you want to be able to buy things below so that eventually there is a potential for gains to happen in the next maybe three to five years. It’ll be a bonus if you can get it below market price.

These are the five things that our team usually looks at whether as a property investor or when we’re advising our clients or friends/family.

Feel free to drop our team a message if you’re starting on your first private property journey or have any queries.

There has been huge success in developing the property valuation market, the greatest being the registration and operationalisation of the Real Estate Institute of Botswana (REIB). Despite that success certain challenges still remain and these are discussed below;

Lack of Adequate Data: One main factor which is a constraint in the use of the open market value is the lack of data. The structural mechanism for collating property data in the country is weak and does not provide adequate information on which a valuer can rely to make an informed opinion about property values. This makes it difficult to make critical analysis and achieve a sound base for valuations using the open markets values. Apart from a few well established property firms and organizations who keep some form of data, it is difficult to find formally organized data for property valuation.

The effect of social elements which form an important component of the value arrived at cannot be quantified but depends on the discretion of the valuer. This makes such data less reliable and subjective. Many valuations do not portray the true open market value of the property. The lack or absence of a Land Valuation Board within the government institution which will be mandated to collate research, manage and record all data on properties means that government has not been able to efficiently carry out this function.

Unqualified Estate and Land Agents; Due to the demand in property, there has been a huge shift towards real estate business. The emergence of block 10 and Gaborone North saw an influx of such characters. Most of these agents are not qualified and do not understand the factors that are necessary to be considered to determine property values, to a large extent they are currently responsible for the marketing (buying and selling) of property. Their activities are having a negative effect on property valuation because they do not seek professional advice on the property’s value but determine it themselves. Due to the scarcity of knowledge of the property market and lack of adequate data, they do not assess the property values based on any sound economic analysis. They also charge commission for their services based on the income to be derived or expended on the property and some inflate such values in order to increase their earnings regardless of the effect this might have on the general level of property values. I’ve had dealings with about four valuation companies and the prices I got on one property were quite interesting. They ranged from P0.535 million to P0.95 million. This lack of standardisation and analytical tools in property valuation has if anything escalated the cost of property taking away affordability.

Variances in Demand: Another factor which is a constraint in the valuation of properties is the current changes in the character and variation of demand for properties especially residential properties. The setting up of Diamond Trade Centre led to perceived prices mainly driven by the known and perceived purchasing power of the foreign nationals that were seen as a huge market. This indeed worked in their favour and most of the property prices were arbitrarily decided between the parties and the money paid for the property was not necessarily subject to any valuation method or principle. This will obviously lead to arbitrarily high capital and rental values for residential properties especially in the urban areas.

High Inflation and Interest Rates: High inflation rates lead to unstable prices of products on the property market. This has created the tendency for property owners and the land/estate agents to quote high property values above what prevails on the open market without any economic analysis. This phenomenon results in an unstable property valuation environment making it difficult to determine with certainty the interest rate to adopt in valuations especially for investment purposes. High inflation also causes an unstable cost of building materials and makes it difficult to analyse and use the cost method of valuations with any degree of certainty. Even when inflation and interest rates decline, it usually does not lead to a reduction on the cost of building materials and property values on the property market because demand is high.

Land Tenure : Land tenure under the communal landownership system is often difficult to determine and current conflicts of land ownership has led to unclear titles to land. This becomes particularly difficult when valuation must be carried out for mortgages or compensation for land expropriated where the valuation for such purpose must be based on clear legal titles.

Other factors which are a constraint on the use of the methods of valuation are inadequate knowledge of planning regulations and laws. This leads to a minimal recognition of planning laws on the value of properties though it should form an important aspect of it. It is therefore always necessary to compare properties from similar neighborhoods. This is difficult to achieve because there are many variations in neighborhoods and many buildings are unique because they are constructed according to the taste and requirements of the owner and not according to a statutory building plan.

As a way forward to reduce user costs and encourage home ownership, property valuations should be covered by the financing institutions. One of the commercial banks is already playing in that space and it’s just for the rest to take cue. Mortgage loans increased by 43.3% in 2013. From January 2014 till June 2014, the mortgages credit increased from P6.8bn to P7.5bn reflecting a further 10% increment in demand for mortgages. Considering that home ownership is still at less than 10% this also presents a business opportunity for banks, it’s about time they focus on 100% coverage of mortgages and efforts to property ownership. Property valuation is very important to growth of the economy and to ensure efficiency within the financial system.

What is the most important factor that determines the value of real estate?

Location. Ask any Realtor what the most important factor is when it comes to a home's value, and they'll likely tell you: “location, location, location.” Your property's proximity to everything from local amenities to local highways will all dramatically affect the value of your home.

What determines the value of property?

Bigger homes with more bedrooms, bathrooms, and usable living spaces command higher prices. The age and condition of the home are important too. New homes generally appraise and sell for more than older homes because they're in better condition and require fewer repairs.

What are the 3 most important factors in real estate?

 If you have been involved in real estate for any length of time, you've heard it said that the three most important things when it comes to real estate are “location, location, location.” I've heard nationally-recognized experts say that over and over on national media.

Why is it important to know the value of your property?

Knowing the value of a property can help guide you in making the right renovations to avoid spending on areas that may not change the value of the property. A detailed valuation that breaks down the condition of each area of a place can help you spend money where it matters.