Even in a completely balanced market where dwelling supplies consistently meet the demand, investors still need to consider the drivers that can affect the growth of their property in the long term, particularly the value of land. How does land value affect your property's worth?
While it could be easy to determine a selling price for a property based on a 'suburb average', or the value of similar dwellings in the same area given the right data, experts advised investors to consider the physical and market-specific factors that could affect the true value of a property.
As these factors are some of the main reasons why property value varies, they can help you identify unique qualities in an asset and ultimately determine which property will provide the best earning potential.
According to buyers' advocate Cate Bakos, determining the land value is one of the ways that can help investors arrive at an accurate calculation of their property's true value.
However, she said: "Land value is much harder to work through than just applying a suburb average."
The property professional shared the most common factors that influence the value of the land and, ultimately, the true value of a property:
This pertains to the immediate surroundings of the property, as well as the community where the future owner or tenants will belong.
Are there main roads, flight path or train lines that may cause discomfort to the future owner or tenants? This also factors in unsightly buildings within visibility, as well as the proximity of industrial institutions, schools, cemetery and other establishments — too close is unlikely to be good for anyone.
If any future planning activity will affect the property significantly, it may decrease the appeal of your asset. This could pertain to big town changes such as zoning changes, a high increase in surrounding dwellings that will lead to a high-density living, as well as road repairs that will cause traffic and noise pollution.
Having a block that is too large or too small may also affect the demand for your property. Ms Bakos recommended seeking properties that "comfortably fits the center of the bell curve" to avoid an inaccurate per-square-meter value.
Naturally, a 750 square meter-block that could be subdivided will not have the same value as the 800 square meter-block that cannot be subdivided — the former is likely to be worth more than the latter because of its potential for additional profit.
Aside from the physical factors that affect land value, investors are also advised to consider current market conditions and "potential rival buyer emotions" when determining the true value of a property, according to Ms Bakos.
Competition — similar properties on the market — plays a huge role in property appraisal. It can also help you identify the best way to navigate through the changing landscape brought by unpredictable market movements.
The buyers' advocate explained: "In many cases, we can uncover a micro-drought and we often suggest to an unemotional home buyer or investor that they may be better off waiting until the type of property they are chasing after is on offer in larger numbers."
"But for those rare properties and limited-genre houses, we can’t be so opportunistic about the market conditions. Recognising that a particular type of house may only come up every six months or so can enable a buyer to accept the rate of the day as opposed to holding out in a moving market for some five or six per cent growth.
"At the million-dollar-mark in a market that is tracking at 10 per cent per annum, waiting it out for another opportunity for six months down the track can account for $50,000 in lost opportunity," she added.
Moreover, the quality of the property will also influence its true value. A dwelling with state-of-the-art fixtures will naturally be worth more than an equivalent property with only a 'fast cosmetic detail' added to boost the sales campaign.
At the end of the day, there are a plethora of considerations to make when looking for the right investment property in the sea of dwellings across Australia.
To avoid feeling overwhelmed and delaying your wealth-creation journey, Ms Bakos strongly advised doing due diligence and engaging trusted property professionals to help you understand the ways to maximise your earning potential.
"Knowing what drivers affect price and how to identify unique properties will help you understand which properties are worth your investment," she concluded.