How infrastructure can enhance property valuation

Maduka Nweke

The importance of infrastructure in any human environment cannot be overemphasized. Infrastructure being the foundation or essential elements especially installations of a community include schools, hospitals, transportation facilities, power plants, roads and others are among the structures put on ground to increase the value of an estate.

Social and physical infrastructure are a major growth area for the real estate market. Changes in infrastructure in and around the property also add an established liveability quotient for the consumers.

On the other hand, market drivers can be defined as developments in an area that increase the value of living there.

Factors like new workspace, shopping malls, flyovers, schools and hospitals, all contribute in the appreciation.

Projects that interlink localities to the neighbourhood areas also influence the price of the property. The better the infrastructure, greater will be the value. Appreciation is a concept in real estate that defines the increase in property value because of certain factors that influence its rate.

Real estate appreciation takes place because of factors like economic trends, household finances and consumer confidence, which are major drivers for the appraisal in the property value.

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In real estate investment, appreciation is the increase in the value of the property over time. A lot of factors help to increase the value and most important of them all is land.

Just as you cannot develop your property in absolute, the land upon which you develop the land usually impacts on the value of the property.

Land does not decrease in value as it ages; on the contrary, it is the main factor that drives real estate appreciation.

As the population is constantly increasing, more people are looking for homes, more and more properties are getting built, and land becomes more limited and more expensive.

It is this difficulty in securing land that many a time add to the value of the Property built on it. The second factor that could determine real estate appreciation is closely related to land.

Real estate property value at any point is a function of supply and demand, while the appearance, the functionality, and the maintenance of the physical structure have a lesser impact. In as much as we believe that land determines more of property value, it is not land anywhere.

Land in Banana Island in Lagos cannot cost the same as land in Aguleri or Igbakwu. Population and demand is the key here.

It is there the location of the land that matters here. Location in this parlance refers to many aspects like; the state, the city, the neighborhood, the exact place within the neighborhood.

Locations within markets with higher population growths, better economies, more developed infrastructures, and off main roads are in higher demand and are also more likely to provoke real estate appreciation in the future.

Once the property is in an area that is already developed, has built infrastructure, you will see that it will attract people with affluence and as they come the cost increases. This is because, the people will like the infrastructure to be built to their taste.

The demand and supply is influential of human behaviour. Home buyers prefer locations which are sound in terms of infrastructure.

Sometimes consumers are willing to pay more for a property because they find living in that location desirable.

This demand again brings in the real estate investors, who buy properties to sell them at a profitable rate when supply slows down.

This causes the property prices in that location to rise even further. The time for end-users to make their purchase is before the investor activity starts in earnest at locations with high appreciation potential.

Inflation is caused due to an excessive amount of money in circulation, which causes its value to fall. This leads to increase in land prices, construction materials, labour, legal building permits and a number of other things.

This gives the builder a chance to cull out the invested value in a property, which is built or is under construction.

Another aspect of inflation can be positive for investors. Home buyers who invest in real estate can get good returns at the time of inflation.

There is direct correlation between inflation, demand and price appreciation. In the economic dynamics, each of them plays their role for a price appreciation of the property.

If there is increasing demand for homes in a certain area, property prices go up. Once demand generates, it brings the investors who buy properties in the area to sell them at a profit when supply slows down again. This causes property prices in that location to rise even further.

Among other factors, inflation could result in a rise in the price of property as the cost of a number of things including the prices of land, construction materials, labour and legal building permits, go up.

The currently existing infrastructure will significantly impact the market value of real estate property at the moment.

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In addition, though, one should also study the governmental and commercial plans for further development of the area in the future.

If you buy a decent house in a neighborhood which is scheduled to undergo major infrastructural and commercial developments (connection with the city, schools, hospitals, banks, restaurants, etc.) in the next 5-10 years, you are guaranteed to benefit from massive real estate appreciation.

Although the structure and functionality of the building are not the number one factor in real estate appreciation, yet they still do matter.

In general, smaller and less attractive properties tend to appreciate faster. There is a pretty simple explanation for that, once again related to land.

Let us say you have two houses on equal land parcels next to each other, one of the houses being twice bigger and thus more expensive than the other. Both land parcels will appreciate by the same amount over a certain amount of time.

So, while the bigger house will gain for example only 10 per cent in value, the market value of the second one will rise by 20 per cent. It turns out that the smaller, cheaper house provides a better return on investment.

This can be so in local economy, the national economy, and the global economy. Investment properties in more vibrant local economies will appreciate more over time.

Moreover, if the Nigeria economy is doing well and people are employed, the demand for housing will increase, which means that prices of both land and properties will go up.

Another important factor which will influence not only your property’s appreciation but the whole housing market is the interest rate and the related lending guidelines.

If interest rates are pushed up, people will be less able to afford loans, which means that real estate prices will go down.

In reverse, lower interest rates will push prices up as more people will look for homes. Similarly, tighter lending guidelines will disqualify any potential buyers. Loosening guidelines, on the other hand, will make it easier for more people to afford buying a home which will bring prices up.

The post How infrastructure can enhance property valuation appeared first on The Sun Nigeria.

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