admincommon factors that justify normal price increases are not evident in our market.
It is critical that I list some of the factors that commonly influence an increase in property prices.
In some markets, to justify general property increases there normally has to be a significant increase in the potential purchaser’s ability to buy the available properties through a notable upward review of wages and salaries across the board.
This is cemented by a general increase in mortgage finance that permeates across all income grades, plus the ability to borrow money from financial institutions supported by a reasonable cost to the borrowing of money.
When businesses or entrepreneurs can borrow money to finance profit-making projects this vicariously affects the general property prices in a given market. The next question is how property prices are calculated. Generally, property pricing is a reflection of the property valuation that involves the use of values of comparable properties.
Other factors include the capitalisation rate with similar income producing properties and discounted present value of expected future cash flows.
The actual pricing of the individual property will be influenced by the median price of the property’s location coupled with its salient features.
It is here that confusion arises because questions arise why two properties with similar features in areas of similar affluence might have varying values with some experiencing increased asking prices while others decreasing asking prices.
This in most instances result from demand from potential buyers and the rate at which properties are placed on the market.
It is paradoxical that pricing can be increased in our market because of access to essential services while other areas experience a decrease because of the distance from essential services.
It becomes critical that one focuses on a particular area and analyse why varying price movements are prevalent against other similar areas which in some cases might represent a distortion to the common market movement.
The number of dilapidated or unattended properties in one area also affects the median price of the area inevitably affecting the actual price of the particular property on sale regardless of how beautiful or well maintained the property might be.
Where the property price is not drastically affected or surrounding properties are not factored in when determining pricing, the general demand of the property is affected resulting in increased time of listing before property is sold unless good fortune avails itself or aggressive marketing techniques are implemented.
The reverse of this circumstance is also possible.
It is best kept in mind that the crux of a property price is juxtaposed between the seller’s ability to fully benefit monetarily and the buyer’s ability to derive satisfaction from paying the least amount possible to secure a property.
When one considers the least amount payable, several factors are taken into account with the most common being the general performance of the economy, the availability of other cheaper options and the potential short- to long-term return the property is projected to give to the investor.
An investigation on the demand for particular properties is crucial as some asking prices on our market are influenced by sentiment.
It is demand not time that sell properties on our market. So when one is analysing whether the asking is justifiable, it is imperative to weigh the potential demand the property is likely to fetch against the actual selling price listed while also considering its monetary return potential.
l Vengai Madzima is a property investment consultant and analyst with Wisdom Properties Real Estate. He can be contacted on 0772468093 email: [email protected]
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