Wednesday, October 17

Research to reduce risks

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Is property an asset or expense? At first glance, the question seems simple to answer: Of course property is an asset. However, there is more to it than initially meets the eye.

Is property an asset or expense? At first glance, the question seems simple to answer: Of course property is an asset. However, there is more to it than initially meets the eye.

When looking at a primary residence, the home being an asset will be determined by whether the value of the property is appreciating or depreciating, says Adrian Goslett, regional director and CEO of Re/Max of Southern Africa.

There are factors that will influence a property’s value, including: the market, growth in the area, and the demand for property in the area.

Regarding a second or investment property, whether or not it is an asset will be based on whether it is generating a profit from the income it receives.

“While some people may perceive higher-end homes as assets, it is less about price and more about growth in value. Regardless of what end of the scale the home is on, if the value of the home is showing growth, it is an asset,” says Goslett.

The success of a property investment is based on the decisions made at the start of the purchasing process and not when the property is sold. “To purchase an asset that grows in value over time, buyers need to do their homework and make an informed decision before they put pen to paper,” Goslett says.

How can property buyers ensure they purchase an asset, not an expense? According to Goslett:

1. Location is a key element in the home’s potential for growth in value.

2. You should research prices of homes in the area and how they have grown over the last few years, and any future development plans for the area that could have an impact on the property’s value.

3. Look at the past and the history of the area. “By looking back, it is possible to some degree to look ahead. Unless there are big changes happening in the area, it is a fairly safe bet to gauge the future appreciation potential of an area based on its past performance.”

4. Research upgrades to infrastructure or the development of new amenities in the area as these can positively impact the appreciation potential of homes in an area.

“While it depends on the facility, the introduction of a mall can boost property values in an area as it offers convenience to residents, but it needs to be well run.

“Schools have a greater influence on property values than shopping malls. Many potential buyers look for a property with education in mind, whether or not they currently have children. How the school impacts on the area is based on the school and its reputation. A good school that offers an exceptional education will increase demand for property surrounding it, which will push up property prices.”

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