A lot of people we have worked with up until now have not been certain in their response when we have asked them, “What causes property value to rise?” This is surprising, because understanding what drives property value growth is fundamental to long-term property investment success.
This article addresses that question and explains the key principles behind real estate value growth to help buyers make more informed decisions.
Understanding Real Estate Components That Affect Property Value
Generally, real estate consists of two main components, a land component and a building component. For example, in residential real estate, a house sits on its own block of land, a townhouse sits on a smaller parcel of land, and even a unit has a small component of land included in its purchase price, regardless of how many units exist within the same complex.
Understanding these components is essential when assessing overall property value and future growth potential.
Land vs Building Value: How Different Property Types Perform
When purchasing a property, you are paying for both the land and the building, for example a house, townhouse, or unit. Generally, the larger the block of land, the greater proportion of the purchase price is attributed to land value.
Acreage properties are a good example, as their value is driven primarily by land content, with far less emphasis placed on improvements such as the dwelling itself.
In contrast, units and apartments typically have a much smaller land component. As a result, a greater portion of the purchase price is usually attributed to the building rather than the land, especially in high-density or multi-storey developments.
What Actually Determines Property Value Growth Over Time?
Property value growth is primarily driven by land appreciation. While land can increase in value over time, buildings generally depreciate as they age and require maintenance or replacement.
This distinction is key to understanding what causes real estate to rise in value over the long term.
The Role of Land and Building in Property Value
You may still be wondering what ultimately causes property value to rise, as the explanation has not yet been fully revealed.
Why Land Is the Key Driver of Property Value Appreciation
It is extremely important to understand what portion of a property’s purchase price is made up by the land component, and the reason for this is simple.
It is only the land component of a property that appreciates or increases in value over time. The building component, on the other hand, depreciates as it gets older, wears out, and eventually requires repairs, renovations, or replacement.
This principle sits at the core of long-term property value appreciation and capital growth property strategies.
Do Renovations Increase Property Value Long Term?
Renovations and developments can temporarily increase property value, but they add value mostly to the building component, which begins depreciating again once the renovation is complete.
Of course, it is possible to manufacture value by renovating or redeveloping a property, which increases the building’s worth in the short term. However, once the work is finished, depreciation on the building starts again, limiting its long-term contribution to overall property value growth.
Why Land Quality Matters for Long-Term Property Value
When buying a brand-new property, you are typically paying more for the building component, which depreciates, and less for the land component, which appreciates. This is a distinction that Buyers Agent Services help buyers understand and navigate.
If a property is not located in an area that demonstrates strong capital growth, its property value may stagnate or even decline because building depreciation can outpace land appreciation. This is a lesser-known but critical factor when assessing long-term performance.
It is also important to note that not all land is equal. Land value varies significantly depending on factors such as zoning, permissible use, infrastructure, and location. These elements heavily influence why land increases property value over time.
Key Factors That Increase Property Value Over Time
You should now have a clearer understanding of what causes property value to increase over time. Always consider the land component and how much it contributes to the overall purchase price of a property.
Brand-new properties with smaller land sizes may not always perform as strongly in the short term, particularly when capital growth is the primary objective. Understanding the balance between land value, building depreciation, and location is essential for making sound property investment decisions. Keeping up with the Brisbane property market update is also a great way to stay informed on trends, capital growth areas, and opportunities that affect long-term property value.
How Streamline Property Buyers Help You Maximise Property Value
Understanding what drives property value is one thing, applying it correctly when buying is another. Many buyers unknowingly overpay for depreciating assets or choose locations that lack long-term capital growth potential.
At Streamline Property Buyers, our experienced and award winning buyers agents help you identify properties where land value plays a greater role in long-term performance. We assess factors such as land size, zoning, location fundamentals, and future infrastructure to ensure the property you buy is positioned for sustainable property value growth over time.
Whether you are purchasing a family home or an investment property, our role is to protect your interests, remove emotion from the buying process, and guide you toward smarter decisions that align with your long-term goals. By focusing on land quality and growth drivers rather than short-term appeal, we help clients avoid costly mistakes and secure properties with stronger long-term potential.
If maximising property value and making informed buying decisions matters to you, working with a professional buyers agent can make a significant difference.
Connect with us today
To book a FREE discovery call ~ Click Here
Follow us on LinkedIn | YouTube | Instagram | TikTok
Tune into our podcast ~ Brisbane Property Podcast
