What factors affect value for property in the purchase/sales market Flashcards
What influencing factors affect property value?
THINK PESTLE!!!
Supply and demand
Location, Accessibility (transport) and Aspect (south-facing garden)
Property Type, Style and Age
Property Size
Planning / Building Regulations
Condition of repair inside and outside
Method of construction
Ownership status – owning the freehold or leasehold is an important factor in value
Environmental factors – susceptibility to flooding = checked with the EA
Energy performance and sustainability - think MEES
Other social, economic and political factors
How does Supply and Demand affect property value?
Economic market principles determine value any commodity will have at particular time
Supply of property = relatively fixed at any one time
Demand, however, can change quickly thus influencing property values
If demand increases and supply = fixed, price of the commodity will rise as more people try to buy
Increases in demand for property stimulate supply (the builders of property) to create more, which takes time meaning prices will rise in the short term
Demand may also be increased by changes in the economic situation of buyers: if they have more income, demand is likely to be stimulated
How does Property Type, Style and Age affect property value?
Type of house (detached, terraced, semi-detached etc),
Style (e.g. does the house have a ‘wow’ factor or particular kerb appeal)
Age, such as an older property with historical connections or a newer property with up-to-date fittings, will also affect value
How does Planning / Building Regulations affect property value?
Requirement for planning permission (which covers size, shape, design and siting aspects of the property)
Requirement for building regulations (which covers the technical aspects relating to the construction process) approval
Without these, a property may have to be demolished
What other social, economic and political factors affect property value?
Demographics = age, income, and regional preferences of buyers, what percentage are retirees, and what percentage might buy a vacation or second home
Interest rates impact price and demand of real estate: lower rates = more buyers, reflecting lower cost of mortgage, but also expand demand for real estate, which can then drive up prices
Prices often follow cycles of economy, but investors can mitigate risk by buying REITs / other diversified holdings = not tied to economic cycles / can withstand downturns
Government policies and legislation, including tax incentives, deductions, and subsidies can boost / hinder demand for real estate
How might a valuation be undertaken for a private individual in a sale, purchase or transfer?
Proposed sale / purchase (particularly where no mortgage is required) / in relation to transfers of property within a family and/or on divorce
Unless requested otherwise, default position = provide market value (VPS 4 paragraph 1.2) in accordance with Red Book
Where property = transferred between connected parties the transfer may be at an agreed rate above or below MV = likely to have tax implications
What tax should be considered with selling UK land?
Capital Gains Tax
Income Tax
VAT Liabilities
What is Capital Gains Tax?
Individuals = to pay CGT on the value of gains that exceed their annual exemption (£11,300)
Gains above this = subject to CGT at max rate of 20% for non-residential property
Finance Act 2016 introduced an upper rate maximum of 28% = applies to gains realised on residential properties.
What is income tax?
Profits realised from a trade that deals in / develops land = chargeable to income tax at rates up to 45%
(CGT rate up to 28% therefore seems more appealing)
What are VAT liabilities?
If landowner = VAT-registered, supply of land and buildings as a freehold sale = generally exempt from VAT; therefore no output VAT would be charged on sale cost.
What is stamp duty land tax (SDLT)?
If one buys a property or land over a certain price, one must pay SDLT = a tax that is levied on single property purchases or documents
What is SDLT for non-residential properties?
For non-residential properties – over £150,000
Up to £150,000 – Zero SDLT
£150,001-£250,000 – 2% SDLT
Above £250,000 – 5% SDLT
What is SDLT for residential properties?
For residential properties – over £500k (CURRENTLY) Up to £500,000 – Zero SDLT £500,001-£925,000 – 5% SDLT £925,001-£1.5 million - 10% SDLT Portion above £1.5 million -12% SDLT
