If you are thinking of buying, selling or investing in property in Malaysia, you need to know the concept of property valuation. Property valuation is the process in which a property is valued in the marketplace based on its probable market value at a particular period of time.
As a homeowner, a prospective buyer or an investor in real estate, it is beneficial understanding what impacts the worth of a property and how you as well can alter it.
This article will discuss the meaning of property valuation, its significance, some of the ways in which you are able to increase the worth of your property and the eight factors that affect property valuation in Malaysia.
What Is Property Valuation?
Property valuation is the act of estimating the value of a property by a property appraiser or valuation firm. The factors taken into consideration include the property’s location, condition, sales of comparable properties in the area, and market trends. Property valuation is done in order to give an honest and accurate appraisal of the worth of a property to banks, buyers and sellers when making decisions.
Please bear in mind that the property valuation is not the same as the asking price by the seller. The asking price is the seller’s best guess for what they want to get, and the valuation is a more objective, data based estimate of what the property is really worth on the market.
Why Should You Do a Property Valuation?
There are several reasons why a property valuation is beneficial, whether you’re planning to buy, sell, or invest in real estate:
- Selling Your Property: Selling any property is all about pricing the property right. When it comes to selling your house, a professional property valuation is important as it ensures you price your home properly and don’t overprice your home and scare off potential buyers or you underprice your home and you will miss out on profits.
- Buying a Property: A property valuation as a buyer means you do not pay more than you should for a property. It provides an objective measure of what an appraisal is worth; it tells you whether or not you should be spending your money on the asking price.
- Financing and Mortgages: When you apply for a mortgage, banks and financial institutions normally require a property valuation. We use the valuation to work out how much of the property you plan on buying is worth the loan you’re asking for (the loan to value or LTV ratio).
- Insurance: A property valuation is important for homeowners to know how much insurance coverage to have. It means that you’ll be protected for the full market value of your property in case of damage or loss, and not underinsured.
- Capital Gains Tax (CGT): If you intend to sell a property, you need to know what it is worth now in order to calculate CGT. If you bought and sold the property, you will owe tax on any profits you made based on the property’s value at the time of sale and purchase.
How to Add Value to Your Property
If you’re looking to increase the value of your property before getting it valued or selling it, there are several ways to make it more appealing to buyers and raise its market value. Here are some effective strategies to add value to your home:
- Renovations and Upgrades: Renovating your kitchen and bathroom can go a long way to add value to your property. If you install modern fixtures, change countertops or make the layout of these spaces more attractive, then your property will be more attractive to potential buyers.
- Maximize Space: You could add square footage, or turn underutilized space (like a basement or attic) into usable living spaces (like finishing a basement or converting an attic). If you’re selling a larger home, it’s typically worth more and provides more living space – both of which are good selling points.
- Improve Curb Appeal: Attracting buyers starts on the outside of the property, so improving curb appeal is one way to leave a good first impression. Small things like fresh landscaping, repainting the front door, adding outdoor lighting can have a huge impact.
- Energy Efficiency: With growing environmental concerns, more people want energy efficient homes. Upgrading insulation, installing energy efficient windows, installing solar panels, or any combination of those things will not only reduce future energy costs, but they will also attract buyers that value sustainability and will help to increase the value of the property.
- Modernize Fixtures and Finishes: Old and worn finishes and outdated fixtures can make a property seem old and less valuable. By upgrading to the latest finishes, such as new lighting, flooring and modern bathroom fittings, the home can look and feel instantly better and increase overall value.
8 Main Aspects That Affect Property Valuation in Malaysia
There are a few factors that will determine the market value of a property. Here are the 8 key factors that affect will the property valuation in Malaysia:
1. Economic Trends
Property values depend entirely on the general economic climate. But when the economy is growing and employment rates are high, wages are up, and consumer confidence is good, properties are in demand. As a result, property prices rise because more people are able to and willing to invest in real estate. On the other hand, when property and economic downturn will affect consumer spending slows.
Impact on Property Valuation: Property values increase, or at least grow faster, with economic growth and decrease or slow down with economic recessions.
2. Location of the Property
Probably more than any other factor, location is the deciding factor in determining the value of a property. In general, properties in areas where the property values are higher tend to be in desirable areas such as city centers, established neighborhoods, or close to key amenities like public transport, schools, hospitals, and shopping centers. Often in Malaysia, locations such as Kuala Lumpur, Penang, and Johor Bahru have higher property values because of their closeness to business districts, infrastructure and other main points of interest.
Impact on Property Valuation: Properties located in high demand, well connected locations, often have higher valuations than those located in less central, more remote locations..
3. Market Conditions
Being a real estate valuation company means we have to look at the property market and whether it is a seller’s or a buyer’s market. When there’s more demand than supply, property prices go up and the property market is a seller’s market. Whereas in a buyer’s market (where there are more properties for sale than buyers) property prices may fall, or stay the same. Factors such as supply and demand, economic cycles and government policies affect market conditions.
Impact on Property Valuation: Valuations are high when demand is strong versus supply, and prices fall when demand is weak.
4. Demographics of the Area
The demographic profile of an area also plays a key role in determining property value. Different types of buyers may be drawn to different property types. For example, young professionals or expatriates may prefer smaller apartments or condos with modern amenities and good public transport links. Families, on the other hand, may prioritize larger homes with multiple bedrooms and outdoor space. Understanding the local demographics can help determine what features will appeal most to potential buyers and influence property values.
Impact on Property Valuation: Areas with demographics that align with the type of property you own can increase demand and raise its value.
5. The Property Itself
The intrinsic attributes or aspects of the property as regards its magnitude, structure, style and other facilities play an important role in as much as pricing is concerned. For instance, larger buildings or those which come with extra features like swimming pools, gymnasiums, or perhaps even a parking lot are considered to be more valuable. Furthermore, whether a property is owned for an indefinite period of time or leased out affects an individual’s property valuation. The premium in respect of freehold properties compared to leasehold properties is due to the absence of time limit on possession.
6. Renovations and Improvements
Quite often, renovations or even upgrades to a property can greatly increase its value. Other areas such as the kitchen, bathrooms, or living spaces can be modernized to make the property more appealing and increase its overall market value. As small as fresh paint, new flooring, and landscaping can increase the value of the property.
Impact on Property Valuation: Renovations that increase a property’s functionality or aesthetical appeal usually raise its value.
7. Supply and Demand
The balance of supply and demand in the property market is another key determinant of property value. When demand for properties exceeds supply, prices tend to rise. However, if there is an oversupply of properties in a particular area, competition among sellers can drive prices down.
Impact on Property Valuation: High demand coupled with limited supply drives property values higher, while oversupply can lead to lower valuations.
8. Valuation Methodology
The final property value is also determined by the method that the appraiser or valuation firm used. Common methods in Malaysia are the Direct Comparison Method which compares the property to similar properties recently sold and the Discounted Cash Flow (DCF) Method, which is the estimation value of future incomes generated from the property.
Impact on Property Valuation: The approach and the assumptions made can lead to different values of the property using different valuation methods.
Conclusion
For those who have anything to do with real estate in Malaysia, it is important to understand property valuation. Factors like location, market conditions, the economic trend and property features, will help you to understand how much a property is worth and how to make it more valuable.
If you are buying, selling or investing in property, you want to know how to properly value property so that you are making informed decisions that get you the best returns on your investment. Check out also what are some property taxes that might arise when you buy a new house.
