We buy property for various reasons based on our individual needs and requirements. However, what every buyer universally considers before buying is “Will the price of this property appreciate in future and by how much?”
Price appreciation is not just a lucrative deal for investors but is of interest even to home-buyers. Appreciating property prices can open up fresh opportunities for home buyers in the future for sale/rent purposes. But do we really know what makes prices go up? Like any other commodity, many factors can impact real estate prices.
Here is a handy guide for you to consider before you invest in buying a house.
- Location matters
The location of a property is probably one of the most important factors in deciding it’s appreciation potential. Is it a sought after neighbourhood? Is it a safe locality? Is it closer to the city centre? How are the facilities nearby – shopping malls, parks, schools and hospitals, office complexes? What is the potential of infrastructural growth? Are there any flyovers? Is there metro connectivity? The key is to look for a property that is located in an upcoming neighbourhood to enjoy greater appreciation in prices.
- Street appeal
First impressions matter. How the property looks from the outside can affect how much people are willing to pay for it. Think the right colors, landscaping, entryway etc. Even the look and feel of the surrounding area can impact your sale price. No one wants to pay a premium for a place in the middle of a slum. If you are investing in an under construction property, take a good look at the proposed façade. If you are picking up a ready to move in place, evaluate the street appeal.
- Property type
The size, features, and amenities of a place also impact the price. For instance, due to lifestyle choices people often prefer gated communities because of the amenities they provide – safety, maintenance, clubhouse etc. due to higher buyer preference, opting for a property in a gated community may fetch you higher returns than an independent house in the same locality. The number of rooms, balconies, ventilation, vastu compliance, how functional the layout is, and availability of parking spaces are also some of the factors to consider.
- Renovation potential
What is the scope of customization for a future buyer? Can they add extra rooms or modify living spaces? The more there is scope for personalization, the more you can attach a premium to it. If you are willing to do the customization yourself, it can boost the property value by up to 20%.
- Demand vs Supply
Rapid urbanisation and population growth can skyrocket demand for housing. Slow supply cycle, unable to meet immediate demands, then drives up prices exponentially. If you are looking to buy a property for investment purposes, developing Tier II and Tier III cities could offer you great returns. These cities are becoming a hub of development post RERA and the Smart City initiatives. According to Knight Frank Global House Price Index Q2 2017, “residential prices in a few tier II cities increased more last year, compared to the low appreciation in metros and tier I cities. For instance, residential prices in Kochi appreciated by about 27% year-on-year last year. Similarly, prices in Lucknow and Kanpur appreciated 15-18% during the same period”. Even as a home buyer, picking up a place in a developing area will boost future returns.
- Interest rates
Fluctuating bank interest rate on home loans has an immediate effect on the purchasing decisions of the community. In a study conducted by India Mortgage Guarantee Corporation (IMGC)-Kantar IMRB, high interest rates (38%), unwillingness to borrow, and insufficient loan availability (32%) came out as key constraints to owning a house.
As the cost of borrowing rises, the demand for homes takes a hit because the bracket of buyers who can afford higher EMIs is lesser. Similarly, as rates dip, it’s easier for buyers to afford EMIs, which in turn acts as a catalyst to create extra demand and hence, property prices appreciate. As a buyer, try and pick up a property when interest rates are low.
Inflation happens when the rupee value falls, resulting in a price rise for many household commodities, even affecting real estate because the expenditure of procuring raw materials, services and land prices also goes up. It also impacts real estate prices by increasing the cost of borrowing. The impact of inflation is more prominent when supply is limited.
In summary, when buying a property:
- Choose a good neighbourhood in an upcoming city/area
- Consider the aesthetics of the locality and the property and the amenities offered
- Invest when the economic conditions are favorable