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Throughout history, property appreciation has occurred severally. properties which were once selling for as low as 1 MILLION appreciated to more than 35M.
What causes these bumps in the price?
If you own a property or are considering buying one, you might be wondering what causes the value of properties to increase. Many believe that property value increases based on demand and supply. This concept is not wrong. However, the real estate industry is dynamic, and as such Many factors can result in an appreciation in the price of properties.
In this article, we will discuss the factors that cause property values to increase over time.
So, Let’s dive in
Before we start analyzing the factors, let’s look at why this appreciation matters. For example, to acquire landed property in ibeju lekki for 800k and in less than 5 years, sell the property for more than 10M is every investor’s dream. This means that the property has actual liquidity and can be converted to spendable cash. Depending on the title, the property can be used as collateral to acquire a loan from banks, the property can also keep appreciating more over time.
Appreciation is the goal of every investor, especially in land banking. It marks the success of that venture and determines when investors can reap their ROI ( return on investment)
When we talk about real estate, we often loop in building and land together, and rightly so because they are both forms of real estate assets. However, this is a unique case and we will be discussing each asset differently.
Commercial real estate investors are often concerned about having property in locations that can guarantee tenant inflow and good pricing. while land bankers are concerned about reselling their property at a bigger ROI. Factors that guarantee both favorable situations are sometimes similar, In other instances, they might differ.
We would be starting with land and factors that affect property value
population has been a major driver in price, not necessarily in real estate but for virtually everything. It’s no longer a secret that Population determines demand and supply. The higher the number of people bidding for any asset, the higher the price the asset can sell. One factor that can skyrocket the price of any landed property in any location is the inflow of people.
More people means more accommodation, infrastructures ( light, roads, schools), developments, investments, etc. The need to cater to the rising population leads to scarcity. This scarcity results in an appreciation in property prices which generates returns for investors.
Another factor that can cause property to increase in value in any location is infrastructural developments. Rural areas are characterized by low or non-existent infrastructures such as lack of street lights, bad road network, drainage, lack of constant power supply, etc. When these factors are made available, it encourages population Migration into these locations which leads to an appreciation of landed properties.
Take, for instance, the city of EPE. The construction of the 36km 6 lane expressway is bound to attract both huge migration and investors to the region. In a few years times, properties owners would be able to generate massive ROI from their investment
This might not be the same in other locations because Lagos already has a massive population. It might take a few years before this is replicated in some other states.
A clear example of how a policy change can affect real estate and property prices was during the tenure of the Lagos state government, His excellency Governor Akinwunmi Ambode. During his tenure, a huge infrastructure budget was allocated to epe, this resulted in massive development in the region. This development attracted big investors like banks, supermarkets, malls, and other companies to the region. Property within the developed area experienced a lot of value appreciation on their landed properties.
Another factors that affect property value location is the economic situation of the country. A country performing well Economically gives the Government availability of funds to invest in the development of projects. These projects are mostly seen in developing areas which will lead to an increase in the value of property in those areas. e.g. the construction of the Umueri airport in Anambra state will lead to an appreciation of property in that location due to the airport. An economy performing in its optimal state also means citizen has enough money to carry out private projects which also translate into development, the opening of business, and migration which all directly or indirectly affect the price of properties
When the Dangote project was announced in ibeju lekki, a lot of investors and buyers flew to ibeju lekki to acquire properties. in the same way, the announcement of major amenities, projects, or inflow of major investors in any given location can attract major attention in those areas which lead to a rise in the value of properties
Further reading: Real estate investment for beginners in Nigeria
We have discussed previously the effects of population on the value of landed property. These same effects also play an even bigger role in the value of the commercial real estate sector. With more people/businesses searching for homes/offices in a particular area means the landlords can charge more. The prime example of this is Lagos. Lagos is synonymous with overpopulation, which is why Lagosians pay the most rent compared to other states.
Because the physical characteristics of your home depreciate, a newer home will have a higher value than an older home. Provided the funds are available most people will prefer to live in a newer apartment over an old one. One of the first questions you encounter from home buyers is mainly ” when was this house built”. You can watch the excitement drain out of their face once you mention the 90s. Buyers in particular should take note of your home’s age based on the quality and design of materials and fixtures, such as hardware, tile, and energy-efficient features. When you maintain your home from a structural and aesthetic standpoint, you improve your property value.
Simple renovations like painting, screening, and landscaping can massively increase how much you can charge for a particular property. Many buildings in the 90s might look undesirable to buyers in today’s market. However, a little touch-up can bring out the beauty changing people’s notions of it. This can attract new buyers and the landlord can charge more for the property. Renovation is a prime factors that affect property value
The phenomenon of capital value appreciation or growth of a property’s market value over time happens because of various factors, including The supply and demand dynamics of a particular location. How fiscal inflation is behaving. The interest rates banks charge for home loans, meaning the cost of borrowing
Property value can decrease. factors such as natural disasters, war, and emigration can massively reduce the price of real estate in a particular location
We have gone through the factors that can affect the value of a property in any given location both lands and buildings. This is an indication that real estate is everlasting and no matter where a property is located its value will eventually increase with time. Let us know which factor you agree with the most and suggest other factors of your own.