Are you wondering about how to determine the right property price? If yes, then this detailed article can help you! Here, we will discuss some of the top factors that can help you determine the right property price without any hassle. As a real estate investor, the valuation of real estate property is one of the most challenging yet crucial things that matter. As an investor, you need to determine the property valuation, how much it will sell for, and how much profit you can expect. While this can be quite challenging, making the right property valuation will surely help you make better investment decisions and increase the overall profit margin.
So, to assist you with property valuation, we have mentioned the top factors below that will help you determine the right price for your real estate property.
Factor 1: Demand and supply analysis
One of the most important factors that play a critical role in determining the right real estate property price are demand and supply. These economic forces significantly drive property prices. Specifically, in a changing market, demand and supply analysis is crucial to making a sound investment decision. This involves the ability of the real estate investor to understand the market trends and their impact on the value of the property. Low demand with high supply equals low prices, whereas high demand with low supply equals high prices. Well, we generally speak of demand and supply in terms of commodities, but it holds perfect for the real estate segment as well.
Factor 2: Sustained job growth
Another important factor that acts as a real estate price driver is sustained job growth. The locations where a large number of offices from multiple industries are being established will have surging prices. For example, the thriving IT job market in Outer Ring Road in Bengaluru continues to boost both the residential and commercial property markets in the area. This indicates that the more varied the job opportunities are, the more resilient it makes the real estate market in that region.
Besides this, the office space demand is often considered an indicator of the job market. Therefore, the more office space is taken up in an area, the more powerful the commercial and residential market will be.
Also Read: Factors Affecting Property Value
Factor 3: Infrastructural Development
Infrastructural development also plays a big role in determining the right price of a real estate property. Infrastructure is one of the major considerations for home seekers these days. A location that has possibly excellent infrastructure has a higher perceived property value to a homebuyer. Accordingly, the prices of the property also increase.
Additionally, the facilities like accessible rail and road transport are also known to increase real estate prices significantly. For example, when Metro rail projects are announced in any city, the localities along the route benefit extraordinarily.
Factor 4: Location of the property
As discussed above, the location of the real estate property plays an important role in property valuation. For example, if the real estate property is located near all amenities like hospitals, transportation, medical facilities, schools, etc., it will be valued at a high price. On the other hand, if the property is located far away from all the basic amenities, then there are chances that the property will be valued at a lower price. So, in short, the better the location, the high will be the value of the property, and vice-versa.
Also Read: How To Ensure Investment In The Right Property Within A Decided Budget
Factor 5: Physical conditions of the property
A property with a sound physical condition always attracts a large number of homebuyers. Not only this but a physically attractive property is valued at a high price. So, whenever it comes to determining the right property price, it’s important for you to perform a formal sue diligence exercise that involves demographics, physical conditions, and past performance. This will provide expenses associated with repairs and maintenance, the potential of its use in the location, and what amount of money can be expected as a return on investment.
Factor 6: Average Capitalisation Rate
A real estate investor needs to know the average capitalisation rate of the area or region they are planning to buy the property in. If the rate of return of the subject real estate property is more than the average and it is located in an area with excellent upside potential, then it will definitely be a solid investment. Also, while examining the competitors, make sure the trend in the area is in an upward direction to minimise risk.
Factor 7: Replacement cost and capitalisation rate
Most real estate investors use capitalisation rates to value real estate property. For your information, the capitalisation rate is the real estate valuation measure used to compare multiple real estate investments. The capitalisation rate is calculated as the ratio between the annual rental income produced by a real estate asset to its current market value. However, other investors take more of a replacement cost approach because they are value-add investors, and obviously, higher risk often equals to higher return.
Factor 8: Zoning Regulations
The last factor that helps in the right property valuation is zoning regulation. It is noticed that certain regulatory factors like zoning regulations can have a great impact on real estate prices. In case the zoning regulations restrict the amount of certification in a particular area, the overall allure of the properties located there rises because of greenery, open spaces, and much more.
To conclude, we would like to say that being aware of all the factors stated above can help you determine whether or not the prices being quoted for the properties are fair. Moreover, it will offer you the ability to predict with certainty as to which areas or regions are likely to see excellent growth rates in the future.
Also Read: What is Property Price Appreciation?