Is property an asset or expense? At first glance, the question seems to be simple to answer, of course, property is an asset. However, there is more to it than initially meets the eye.
Adrian Goslett, Regional Director and CEO of RE/MAX of Southern Africa, says 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. He notes that there are several factors that will have an influence on the property’s value such as 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.
So how can property buyers ensure that they are purchasing an asset and not an expense? According to Goslett, buyers need to do their research and make the right decision upfront. When selecting a property, there are some aspects that need to be taken into consideration, such as location, which is a key element in the home’s potential for growth in value. “Buyers also need to look at the price of homes in the area and how they have grown over the last few years, as well as any future development plans that may be happening in the area that could have an impact on the property’s value,” he adds.
Goslett says that a great way to assess an area’s potential for future appreciation is by looking at the past and the history of the area. “By looking back, it is possible to some degree to look ahead. Useless 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,” Goslett explains.
He adds that upgrades to infrastructure or the development of new amenities will positively impact the appreciation potential of the 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 the residents. However, the shopping mall will only add value to an area if it is a well-run establishment that attracts the right kind of foot traffic,” says Goslett. “That said, I would say schools have a greater influence on property values than shopping malls. Many potential buyers look for a property with education in mind, whether they currently have children or not. Again, 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 property prices up.”
The success of a property investment is based on the decisions made at the start of the purchasing process – not when the property is sold. “To purchase an asset that grows in value over time, buyers need to do their homework and an make informed decision before they put pen to paper,” Goslett concludes.