How to determine the real value of real estate

But to capitalise in a dynamic marketplace one has to understand the meaning of value in this context and the key factors contributing to it.

When broadly defined, real estate is the value of the land plus the improvements on it, the resources beneath it – and the rights above it, without which the former has a basic, unenhanced intrinsic value with minimal benefit or yield.

In determining value, many people attribute a lot of weight to the rand per square metre ratio and, while it is certainly one factor, it’s much more significant to those who view real estate from a purely investment perspective.

A homeowner gains enhanced value over time while using the property as a place to live – the primary function, while the investor seeks only enhanced value or highest financial return over time as the primary function.

So what factors must one then take into consideration when determining the true value of real estate?

There are a number of steps to take to determine good value and minimise risk:

• Check (proposed) development plans in the area;
• Check actual selling prices in the area over the last 18 months to two years;
• Check the title deed (restrictions);
• Visit the area at different times of day plus late night;
• Talk to a reputable agent about current trends;
• Look at the proportion of houses under renovation versus the number of houses in poor state of repair;
• Aim for the worst house in the best area;
• Talk to locals. Real estate is essentially a medium to long-term investment, but if one has done one’s homework and researched the value of a property properly, try not to be swayed by fluctuations. Fluctuations are inevitable as real estate always has and always will work in cycles of boom times and correction periods.

Steve Thomas is a secure estate specialist for Lew Geffen Sotheby’s International Realty

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