Real estate appreciation is the increase in the value of a property over a period of time. The increase can occur for a number of reasons, including a high demand for properties and a relatively low or fixed supply.
Because appreciation is the single most important way to make a profit in real estate, understanding it fully and completely is crucial. This is especially true for property investors looking to make a lucrative venture. Appreciation, after all, makes an investment profitable.
What causes appreciation?
Demand and supply
As previously mentioned, where the demand is high and the supply is low or fixed, the cost of properties will appreciate. This is especially true in emerging and growing markets.
When the cost of construction and land acquisition goes up and salaries increase, property prices will also go up.
Properties with a view overlooking the beach, hill, or the ocean are likely to be more expensive than those without a view. Why do you think waterfront properties are more expensive than those in inner suburbs?
In anticipation of future demand, properties in areas where commercial developments, industrial zones, IT parks, and road and infrastructure projects are announced and implemented are sure to appreciate.
Connectivity and proximity
Properties that are more accessible via airport or railways are often sold at a higher price and investors would not hesitate to snap them up, what with the appreciation guaranteed.
Nature of locality
If a neighborhood is a fully residential area and is equipped with all the facilities needed by the residents, expect the properties to fetch a higher price.
Understanding Appreciated Value
A property is usually made up of a land and a building. Between the two, the former becomes valuable over time while the latter wears out and depreciates.
You would think that the building would become worthless as it gets old. But because the land where the buildings stands keeps increasing in value, the decreasing value of the structure is counteracted. This is why a condominium that was built in 1969 could appreciate in value by up to 300% over time because of the land it sits on.