Appreciation and Depreciation In Real Estate: Many people consider buying a home to be their biggest financial decision. Owning a home offers a number of benefits, such as stability, tax breaks, and the freedom to customize it however you like. The other great benefit of real estate is that it allows you to build equity and appreciation over time, thus allowing you to grow your wealth over time.
“Home ownership in India is an emotional experience,” says Pradeep from Pinewood Property Consultants. “It feels good to own your own house; you can feel like you are in a home and not just renting.”
We’ll explore everything you need to know about the crucial concept of appreciation and depreciation in real estate.
What is Appreciation?
An individual’s wealth can be increased by investing in or owning an appreciating asset. A number of factors can cause assets to appreciate, including increased demand, declining supply, or changes in inflation or interest rates. A rise in the value of an asset over time is known as appreciation. Aside from real estate, stocks, bonds, and savings accounts are the most common types of assets that appreciate.
The appreciation potential of real estate makes it such a valuable investment. Whether you decide to sell your home or rent it, you are likely to make a tidy profit with the increasing value.
How to Calculate Appreciation
You can calculate your home’s current appreciation rate by subtracting the initial value from the current value, dividing that by the original value, and multiplying by 100. For example, let’s say you bought a home for Rs 50,00,000, and after 5 years its fair market value is Rs.60,00,000.
60,00,000. – 50,00,000 = 10,00,000
(10,00,000/50,00,000) 100 = 20%
Future Value
Using the annual appreciation rate, you can also predict the value of an investment in the future.
Future growth = (1 + annual rate) years
Future value = (Future growth) x (Current value)
Taking the same example from above, let’s assume that 4% is the annual expected appreciation rate on the property for the next five years.
Calculations such as these can prove useful when determining the value of a property. Keep in mind, however, that no one can predict home values in advance. In general, historical appreciation rates tend to be pretty reliable, but they can include many ups and downs over time. You can determine a home’s potential profitability by estimating its future value.
What is Depreciation?
Depreciation is the process by which the value of an asset decreases over time. It can happen for a variety of reasons that are beyond the homeowner’s control. A decline in the market, for example, can decrease home values. A neighborhood that is growing and developing will see its value increase, while one that is declining in growth will see its value decrease. That is why you should carefully choose where you would like to buy your home.
Upkeep and maintenance can reduce depreciation and make your home look attractive when the time comes to sell.
Be aware of Rules & Regulations
The appreciation of a home over time cannot be predicted. When you purchase a property in a desirable and upcoming area and keep it in good condition, you can position yourself to maximize your appreciation. Buying a home is probably the biggest investment you’ll ever make. Therefore, you’ll want to make sure that everything is in order and in compliance with Govt Laws & Regulations.
How we can help you with property.
If you want to sell your property, or you have found a property you want to purchase, or if you want to build a custom-made property from the ground-up, it is essential you have a local professional and experienced real estate team in place to ensure all the requirements are met, and the due diligence checks are carried out thoroughly.
Our real estate team has vast local knowledge of the laws, regulations, governance, practices and continuous awareness of the challenging business environment in the real estate market in India. Complemented by the expertise of our consultants who are experts in their own fields, we advise sellers, buyers, developers, brokers, landlords and tenants on the end-to-end spectrum of real estate transactions including appreciation and depreciation in real estate.