Owning a home is a dream for many, so what affects how much that goal costs?
The latter half of 2019 saw the Australian property market record a sharp turnaround, with prices skyrocketing, particularly in Sydney and Melbourne. This was tipped to continue into 2020, but the summer of bushfires and the coronavirus pandemic has skewed any predictions property experts may have made.
Currently, there is a ban on open houses and auctions and non-essential activities. The Reserve Bank (RBA) had also cut Australia’s cash rate to a record low of 0.25%, making home loan rates the lowest they’ve ever been.
Factors that affect property value
What causes property values to rise and fall? There are plenty of factors that can influence property values from supply and demand through to location, facilities, and planned infrastructure projects.
The location of a property is the most obvious factor that affects how much a property is worth. Is it close to the city centre? Is it in a sought-after waterfront location? Is it close to public transport, shops, schools and restaurants? People generally want to live close to where they work and enjoy their free time, so properties in these areas will be more expensive. Then, some suburbs have a better reputation than others due to factors such as unemployment or crime rates. Two homes just streets apart can differ substantially in value if they’re located in different postcodes.
Your property’s location is arguably as important, if not more so than the property itself. Proximity to a CBD, affluent neighbourhoods, or desirable landmarks like shopping centres or the beach is all factors that can increase a property’s value. In contrast, proximity to a jail or an airport or residing in a low-socio-economic area will drive a property price down.
The population and demographic of the suburb a property is in can significantly affect its value. For example, if you live in suburbia, family-dominated, three and four-bedroom homes will be more expensive. While in CBD areas, one and two-bedroom apartments will be more in demand from workers and students.
The more people who want to live in a particular suburb, the greater the demand for properties. At the same time, the type of people living in the area will also influence property values. For example, if young families are the dominant demographic group in the area, multi-bedroom houses will be more sought-after than small apartments.
Size and facilities
One of the main things buyers, sellers, and investors are all interested in is how many bedrooms and bathrooms there are, quite simply because the more there are, the more expensive the property will be. In addition to this, things like garages, pools, backyards, air-conditioning, patios, balconies, the list is endless, and it all factors into a property’s value. Facilities are also essential when considering location: a city apartment will add value if it has a parking space. A suburban home with a large backyard is perfect for families and again adds value.
The features and overall size of a property will also influence its worth. A four-bedroom house is likely to fetch more than a two-bedroom house in the same area. Simultaneously, features such as extra bathrooms, garages, swimming pools, and entertaining outdoor regions can all impact property value. In busy cities, the absence or abundance of parking opportunities is another critical factor, while the functionality of a home’s layout is always essential.
The street appeal of a property should never be underestimated. First impressions are crucial in real estate, so the way a house looks from the outside can instantly add or subtract tens of thousands of dollars from its value.
Appearance and age
You should never judge a book by its cover, but we all believe a property by its aesthetic and exterior. And while we should respect our elders, an old home is typically less valuable. Very few people want to live in a home that looks run down on the outside, even if it is lovely on the inside.
Potential for renovations
When buying a home, many people want to make it their own, sometimes in the form of a minor or major investment. If there’s space to add a pool, another bedroom or even another storey, the property becomes more attractive and valuable.
The growth potential is essential for both homebuyers and investors — the possibility to add an extra bedroom or extra storey, increase the floor space, or add a pool or outdoor patio. If there’s a buyer’s scope to improve and personalise a property through a home renovation, the re-sale value of that property will increase. Check out a wide range of laundry renovations Melbourne services at Hitch Property Constructions.
Potential for investment
The potential also influences the value of a property it presents to investors. Factors such as the rental income an investor can expect from a property and the capital growth they will enjoy when they later sell the property all play their part.
If a home can be renovated to add value and later sell, it becomes attractive to an investor. Similarly, investors will be drawn into properties in an area tipped to expand or rise in value or popular among renters.
With more people working from home and workplaces seeing the benefits, this may be the new norm even when the coronavirus pandemic has subsided. That means more of a strain on utilities and, as a result, higher bills. Solar panels add value to a property, as do energy-efficient light bulbs and appliances. In addition to this, high-quality materials will make a property easier to heat and cool, adding additional value.
A property made of high-quality materials is likely to have a higher value, in part because this makes the property easier to heat and cool. Given the high price of electricity and gas bills, items like solar panels, insulation and double-glazed windows can add value and appeal.
When the Reserve Bank changes monetary policy, this can affect the value of the property. If the Reserve Bank raises the official cash rate and lenders worldwide follow suit with their home loan interest rates, the average monthly mortgage repayment goes up. This has a massive impact on property affordability, so there’s less likely competition in the real estate market, and prices will drop. Conversely, an interest rate cut means it’s more affordable to buy, and property prices might increase.
Historically, cheaper interest rates and easy credit availability (how easy it is to borrow money) tend to boost property prices.
The property market has been the bright spot of the economy in the last 12 months, which is partly due to RBA cash rate cuts. When the RBA cuts, home loan interest rates tend to fall, making it more affordable to buy a home. This incites demand which can push property prices up. By contrast, when the RBA raises rates, mortgages become less affordable.
The economy is another factor for fluctuating property prices. Things like unemployment, wages, population growth and the Aussie dollar affect how much money everyone has and, consequently, how many people can afford to buy a home.
The overall performance of the economy can also have an impact on the property market. If the economy is experiencing strong growth, employment and labour conditions, more Australians can afford to purchase a property, which leads to rising property values.
Demand and market performance
If demand exceeds supply in a given market, property prices will increase. This is because more people in the market for a smaller number of properties, and the competition to secure a home drives prices up.
‘Supply and demand’ drives prices in any market. If there’s a high demand for homes in a location, then expect the values to increase. If a particular area has an oversupply of properties but not enough buyers, prices tend to go down.
The real estate market’s performance in your local area can also affect how much your property is worth. If there’s little demand for houses in the neighbourhood and the properties listed are selling well below the asking price, expect values to fall.
All of the factors above typically affect property prices, but we’re living in unprecedented times, and no one can confidently predict what will happen in the next six months.
Although many lenders have tightened lending restrictions, if you’re in a secure job and looking for a home, you’re in a good position. The current property prices, coupled with low market activity, give buyers a great deal of negotiating power.
Important factors that can lower your property’s value
From a poor renovation job to a brothel up the road to being located in a bushfire zone, there are also plenty of factors that can detract from the value of your property.
Whether you’re selling a home or investment property, you’ll want to maximise the value and achieve the highest possible sale price. While there’s plenty you can do as a homeowner to increase your home’s value, there are also several external elements that could be driving down your property price.
The general state of disrepair
This might seem like an obvious issue that can drive your house price down, but it’s still worth pointing out. If you’ve ever attended an open-house inspection at a property that’s chaos, you’ll know that some homeowners fail to grasp the importance of keeping a property neat and tidy when trying to sell.
Overgrown lawns and gardens, doors that don’t close properly, mould on the walls and cracked or broken windows can all influence a prospective buyer’s opinion of your property. Not only will it make your home seem undesirable, but buyers will also be counting the cost of any repairs they will have to make if they decide to make an offer and lowering their bid accordingly.
Taking care of all maintenance jobs, applying a fresh coat of paint or replacing old fittings or fixtures can make a big difference to your property’s appearance, and hence to the price.
Bad kerb appeal
The first impression that your property makes on potential buyers is crucial to the price you’ll achieve. If your house needs a fresh coat of paint, if the trees need pruning, or the side fence is falling, the asking price drops immediately.
Some factors you think add kerb appeal can detract from a potential buyer’s perception of your property. For example, you might love garden gnomes and have them dotted in every square inch of your front garden, but buyers may have a different view.
With this in mind, your home must be in an appropriate state before you put it on the market. Ensure that the garden is well-manicured, that the fence is painted and that the letterbox is modern and clean.
Forgetting to de-personalise
When a potential buyer is inspecting your house, they’re walking through each room, trying to picture themselves living there. If it’s hard for them to do that, they may be less likely to put in an offer. No-one wants to be continuously reminded about a house’s past owners, so features like a brightly-coloured kids’ room (including the child’s name and choice of artwork) can detract from value.
Low kitchen and bathroom aesthetics
While every house is vital to potential buyers, the kitchen and bathroom are two areas that will receive incredibly close attention. The kitchen is one of the most-used rooms of the house, and potential buyers will want to quickly and easily prepare meals there every day. At the same time, they’ll wish the bathroom to be a place where they can unwind and relax after a long day.
So if your kitchen is impractical with limited food preparation space, and if your bathroom has mosaic tiles and a poor layout, this can have a significant impact on the overall appeal of your home. Take time to fix those issues.
A DIY renovation can be a great way to save money and achieve the perfect look for your home – but only if you know what you’re doing. A patchy paint job, uneven tiles or joins that don’t line up will stand out to potential buyers.
It’s essential to ensure that your renovation fits in with the rest of your home and the surrounding area. For example, suppose buyers are attracted to a particular area because of many homes’ heritage architecture. In that case, they probably won’t be thrilled by your ultra-modern man cave extension out the back.
If you’re renovating, extending or improving your home, make sure you get all the necessary approvals from the council before commencing any work. When a building inspection reveals that one of your bedrooms is not standard height or that the pergola in your backyard breaches council regulations and will need to be demolished, the value of your property will suffer. We have a wide range of Melbourne laundry renovations services at Hitch Property Constructions.
Sight isn’t the only sense people use when inspecting a house; smell can also play a big part in how much a buyer thinks your property is worth. So if your carpet has several years worth of unpleasant pet odours living in the carpet, get the carpet professionally cleaned before opening your doors for an inspection.
Location and market factors
If there are a high number of similar properties listed on the market simultaneously, this may harm the perceived value of your property.
Suppose there are only a limited number of buyers, and they’ve got a long list of similar properties to choose from. In that case, you’ll have to compete with several comparable properties that may have better draw cards than yours, and this may translate to a lower sales price.
Property prices in your suburb and your street can influence how much you’ll be able to sell your property for. If the area is a highly desirable area to live or invest in, that’s good news for your sale price. Being close to public amenities and businesses such as restaurants, schools, shopping centres and public transport can positively affect.
On the flip side, there are plenty of neighbourhood factors that can devalue your property. For instance, if there’s a high level of people defaulting on their mortgages in your area, this will detract from the amount buyers are willing to offer. Similarly, if you’re located on a congested road, are under a busy flight path, or your property is located near a sewage treatment plant, this will drive prices down.
Living within proximity to undesirable amenities such as a cemetery, a brothel, or a hostel may discourage some buyers.
Rowdy tenants living next door may also play a part in dragging your property prices down. They never mow their lawn, they have car wrecks sitting in their front yard, they throw raging parties every other night, and it’s not uncommon for them to receive visits from the police. Many prospective buyers will take one look at these undesirable neighbours and run a mile.
Alternatively, maybe you and your neighbour are locked in an ongoing dispute about property boundaries, overhanging trees or some other neighbourhood matter. New buyers will again be reluctant to inherit your problems, which will only serve to push prices down.
Schools with a bad reputation
Do the schools in your local area have a bad reputation? Would parents be reluctant to send their kids to your local primary or high school? If so, your home is going to be less desirable to young families. On the flip side, if you’re in the right school catchment area for one or more particularly hot schools, you can ask for a little more when you put your house on the market.
Flood or bushfire risk
Is your house located in a flood zone or an area prone to devastating bushfires? If so, this will impact the price many people would be willing to pay to live there. Studying flood maps before you buy is always a good idea, while it’s also essential to make sure your home meets any requirements for buildings in bushfire areas.