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    Saturday, 27 August 2016

    Factors that influence property value

    MODERN marketing is aimed at the value a product may have for the consumer. Everyone is, however, also looking for value for money. Because developing or purchasing property can be such a risky and expensive undertaking, the certainty that value is obtained is so important. Property must meet the following requirements inorder for it to be of any value to the owner:
    •    It must have utility;
    •    It must be scarce;
    •    There must be a demand for         it, and
    •    It must be transferable.
    The utility of a property for the owner is probably the most important reason for acquiring a particular property. Utility can be any of the three main categories:
    •    The place utility of a favourable location in terms of the particular land use category.
    •    Property has time utility. In case of a dwelling, it has time utility during a certain life cycle. After this period, an apartment or retirement village has more time utility.
    •    Property also has form utility. An example of this is that a family dwelling requires more space, a tennis court and a swimming pool, while a consumer oriented lifestyle has other form utility requirements, such as low maintenance gardens and all kind of electrical appliances to facilitate house work
    The value of property is further determined by the scarcity of the specific type of property.
    Property must also be transferable. Something which is not transferable is only of value to heirs.
    Property investors must also understand the following principles  of property valuation:
    SUPPLY AND DEMAND: If the supply of a specific property exceeds the demand, the value of the property will tend to decrease. The same principle applies if the demand exceeds the supply, which will result in an increase in value.
    OPTIMAL AND BEST UTILISATION: Any piece of land has a maximum utilisation at any give time. If a  residential property is erected on an office site, it is contrary to this principle, because of lower function is erected on a high order stand. This also applies when the rights of a stand are only partially utilised,  for example a stand has a right to have 8 storeys/floors and only two floors are built.
    SUBSTITUTION: This principle applies when there are equal opportunities and advantages for a number of properties. It usually occurs, and, if all aspects are equal, the least expensive option is preferred.
    COMPETITION: It gives value to property. If no one wants a particular property, it has no utility and is worthless. The stronger the competition, the higher the value of a particular property.
    DECREASING AND INCREASIN RETURNS: The stand can be improved up to a certain level. At this level, the property reaches its highest value. Successive value additions will add proportionally less to the value of the property. This is informally referred to as over capitalisation.
    Ref: Property Economics in South Africa, Dirk and Louis Prinsloo, SAPET, 2004
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