What is property price appreciation?

A property is among the most used assets in India from the point of view of investment. Property investments have become even more lucrative in the aftermath of the Coronavirus pandemic, which prompted people to be more inclined towards immovable assets for wealth generation.

As all investments are made keeping profit generation in mind, it is important to understand the chances of value appreciation in terms of land and property.

 

What is property/land price appreciation?

Any positive change in the value of land or property from the time of its purchase till a started period is known as price appreciation. An opposite situation can also happen, resulting in price depreciation. While an investor will make profits in the wake of value appreciation, he would suffer losses in case of price depreciation.

 

Which factors impact the property price appreciation?

The value of a property can either appreciate or dip based on the following factors.

Locality: Location is the single biggest factor behind a property’s value. It might sound like a cliché, but it remains a valid point. All other factors remain constant, a property at a specific location in a city costs crores while you can get a similar property for less amount in the other part of the same city. In big cities like Mumbai, Delhi, Bangalore, and Chennai, the difference in the value is too big to ignore.

One often hears about multi-million property deals happening in affluent areas of India’s financial capital Mumbai. The same city offers properties in affordable rates in developing areas. In Mumbai, you can buy a flat for Rs 50 Lakh, while a property of similar configuration in areas like Malabar Hills, Bandra, Juhu, etc., would cost you crores.

Location: Within a high-profile locality, the exact location of the property plays a major role in determining its value. Rates of a corner plot, for instance, would increase a faster rate as compared to a plot in the middle. Similarly, properties closer to the main road would always have a value advantage over properties anywhere in the locality.

Amenities: Amenities and facilities add tremendous value to properties. In the post-pandemic world, these are viewed more positively than before, and thus becoming an influencer for value appreciation of properties. In the same locality, a home with a private swimming pool, private elevator, and commercial establishments would see more value appreciation in future than a house with no such amenities.

Infrastructure: The chances of a property witnessing more value appreciation becomes imminent with an infrastructure update announcement. Rates of land in Ayodhya, the birthplace of Lord Ram where a grand temple was inaugurated on January 22, 2024, have shown astronomical growth in the past decade. Private estimates show, rates have increased in the range of 12 to 20 times. The same is true for land rates along the areas adjoining the Jewar Airport in Greater Noida.

Demand and supply: This is a major metric affecting property value appreciation. During a phase when the demand was muted, a good property at a good location with superb amenities will see negligible value appreciation. The same is true if the supply of such houses is more than the demand. Amid huge demand for properties in Bangalore, their prices in India’s Silicon Valley have shown greater appreciation than prices in New Delhi.

Interest rates: The interest a borrower pays to buy properties directly affects its price. In case the cost of borrowing is high due to high interest rates, the demand for properties in a country would be affected, adversely affecting buyers’ sentiments. In a scenario like this, a property would fail to reach its potential in terms of value. Banking regulators across the world use this tool to propel growth and control inflation.

Time: Real estate investment help investors generate profits in the long run. This is one of the biggest factors adding to the position value appreciation of a property. Value of a property is more likely to increase in a long term than a short term.

 

Formula to calculate property price appreciation

If you know the initial value and the current value of a property, you can arrive at the value increase of a property using the following formula:

Value appreciation = Current value minus purchase price

This means, if a property was bought for Rs 50 Lakh 5 years back and its current value is Rs 75 Lakh, it has shown value appreciation of Rs 25 Lakh.

 

Formula to calculate property price appreciation in percentage

(Change in value/purchase price) 100 = appreciation percentage

If a property was bought for Rs 50 Lakh 5 years back and its current value is Rs 75 Lakh, it has shown 50% value appreciation.

(7500000/5000000) 100 = 50%

 

Price appreciation versus price depreciation

A decline in the value of a property is known as price depreciation. Falling property prices lead to value depreciation for properties.

 

Conclusion

Property investments are fraught with risks, it requires due diligence, or you may end up losing all your money in such investments. Apart from monetary considerations, one must also pay attention to make safe investment. To ensure this, invest in properties of established market value with a proven track record. Make sure the project is registered with state authorities. Don’t fall for the tricks applied by fly-by-the-night players that offer unbelievable returns on investment.

Additional care must be taken when investing in lands. While they have a great potential for value appreciation as compared to flats and apartments, the risk involved is also higher.

 

FAQs

What is price appreciation?

Price appreciation is the difference between the value of an asset in the past compared to its current or future value.

What is the formula for calculating value appreciation?

The formula for calculating appreciation is: Value appreciation = Current value - purchase price

What is the relationship between price appreciation and inflation?

Inflation tends to drive property prices upwards, resulting in their value appreciation. An opposite action would lead to a contrary result.

How to calculate future valuation of a property?

You can calculate the estimated future appreciation value of a property if you know the average annual appreciation rate and the current value.

Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com