Scarcity Value – Not Just in the Land

Statistical evidence shows us that when it comes to property  the land portion is the portion that historically appreciates in value.  This is a result of the scarcity of the land combined with the demand for that land, as once a lot of land is allocated and built on , the amount of available land decreases and the lot of land can’t be re-used once occupied.

It’s clear that this is evident right across the world and in most capital cities land is very highly valued for both commercial and domestic use. As you move further away from these city centres, the land value starts to decrease as the scarcity is less with more land being available.

Technically speaking, the other component that makes up value apart from the land, is called the ’improvements’ (the building). This is the component that actually depreciates in value. (Depreciation relates to the wear and tear of the asset and its practical use).

Just like a car or any other valuable and usable item, once they are purchased their value decreases in almost all cases.

When the first cars rolled off the assembly line and as they still do today, they initially lost their value, but as many years passed only a few of these remained and the ones that were kept in great order have become so scarce that they now have actually appreciated in value as they got older.

When it comes to property, sometimes, over a long period of time the actual asset changes from a depreciating asset to an asset that begins to hold intrinsic value because it starts to become scarce or rare (or using car terminology, ‘vintage’). I call these types of properties, character homes.

Over the many years they are maintained they too start to attract a level of demand from buyers because they offer unique and some would claim timeless appeal, and there are less of them available now.

Furthermore, they were built with materials that have stood the test of time and are no longer used, like hardwood timbers for framing to floorboards, to ornate staircases, bluestone, marble, wrought iron, lead lighting windows, metal stamped roofing etc, etc.  The craftsmanship is on show and to pay for the replacement of these items today would cost a fortune.

These types of properties carry the ‘X’ Factor that sees them outperform other styles of properties in the same area over the long term in a capital gains sense and that’s why they make for great buying. So make sure you get your asset selection right before signing on any dotted lines.