The value of real estate is a complex quantity that is made up of a wide variety of variables. Not only material factors such as the building structure and furnishings play a role, but also external aspects such as the legal situation and location development. This is particularly relevant given that changes in these areas can lead to losses in value, which quickly become financial emergencies for owners. It is therefore important to know the main causes of loss of value in real estate and to prevent them effectively.
Poor energy balance
According to a current analysis by the real estate specialists at Jones Lang LaSalle (JLL), properties with poor energy performance are increasingly losing value. Responsible for this are, among other things, the planned law on heating replacement, the persistently high energy costs and the upward trend in interest rates. Due to current developments, properties with poor energy efficiency can be expected to have lower rental income and poorer marketability in the long term.
As the JLL study shows, apartment buildings in the worst energy classes G and H were sometimes up to 28 percent cheaper in the first quarter than properties with the highest energy efficiency. This means that the price difference has increased by almost 7 percent compared to the previous year. It therefore makes sense for owners to invest in energy-efficient renovation. Measures here include multi-glazed windows with high-quality sealing lips, decentralized ventilation systems with heat recovery, photovoltaic systems, efficient heating systems and insulation in the facade, roof and basement ceiling.
Decay of the building structure
Real estate is subject to a constant process of deterioration, which requires regular maintenance. The key word here is age discount. This is the annual loss of value as a result of habitation and component wear. Basically, the older the building, the higher the deduction is. For normal use, the rate is one percent per year. On average, a total useful life of 80 to 100 years is expected – but this value can be increased with regular renovations. Four factors in particular play a role here.
Inspection
Important components are checked as part of regular inspections. For example, the chimney sweep looks at stoves and heating systems and takes maintenance measures if there are functional problems. Damage to the facade and plaster are also typical problems that can lead to loss of value. For example, increased moisture entry can lead to serious damage such as the formation of dry rot. Another important inspection measure is legionella testing for hot water tanks.
maintenance
During maintenance, necessary measures against wear are carried out, which were determined during the inspection. In the case of the heating system, this could be, for example, replacing rubber seals. Further measures include the maintenance of the smoke extraction systems and the maintenance of the elevators.
Repair
Repairs include all types of repairs – for example, to rusted pipes or damaged power lines. They play a particularly important role in empty houses that have lost value.
improvement
Improvements are repairs that create a condition that is better than the previous one. This could be, for example, re-plastering and a new coat of paint with more resistant colors. Measures in this category not only help prevent loss of value, but also make a decisive contribution Increase in the value of real estate at.
Negative location development
Just because a location is attractive at the time of purchase does not mean that it will be so in the long term. Especially if the economic situation in a region deteriorates, this can lead to a downward spiral. For example, if large companies withdraw from an otherwise structurally weak region, this can lead to an increase in unemployment, a reduction in purchasing power, the extinction of inner cities and thus a loss of attractiveness for the region. This in turn can result in property prices falling.
Legal framework
Legal aspects can also cause the market value of a property to fall below its actual value. Typical examples here are regulations such as residential, right of way and usufruct rights. For example, if a right of way is recorded in the land register that allows another person to enter the property, this reduces the value of the property. In addition, there are numerous other legal restrictions in the areas of tenant and monument protection that can lead to loss of value. You should take a close look here, especially if you want to generate rental income from your building.
Conclusion
In times when real estate is becoming a lucrative investment option for more and more people, loss of value represents a significant risk. You should pay close attention, especially to the issues of energy balance, building structure, location development and legal situation. By regularly checking the critical factors that influence value and regularly calculating the loss in property value, you can ensure that your real estate investment develops solidly in the long term and that you are not surprised by sudden negative developments. Owners and interested parties can receive support and advice from the experts at BETTERHOMES, for example.
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