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“Location, location, location” What does it mean in practical terms?

Posted on: February 12th, 2018

We have heard the phrase “location, location, location” and it has been around forever. But what does it mean in practical terms and what impact does it have on property prices and how should we care when buying a property.

In the hedonic model, used to determine a property’s price, location is usually considered the most important characteristic. While the preferences vary for home buyers, investors and businesses, off-plan and ready property, location plays an important role in pricing for all real estate.

Residential real estate:

Proximity to amenities, views from the properties and closeness to transport infrastructure are major factors influencing the price for residential property. Quality of schools within a reachable radius is an important factor for families with school going children, for the young,  social, shopping and recreational centers is valued the most . Areas with all these will make the perfect location for a residential community and we generally see the highest price and a high demand in these areas.

Commercial real estate:

Proximity to markets, warehouses, transport hubs and ports generally play an important role for commercial property valuations. While businesses have unique dynamics and not all need to have these in a close proximity but on a general scale these will contribute majorly to the property price.

Real estate prices are cyclical in nature and fluctuate based on economic, global and political conditions. During an up cycle, well located properties have the maximum appreciation, at a higher velocity, and maintain the momentum over a longer period of time compared to property in a bad location. In a down cycle, these properties are also the last to take the hit and generally sustain the worth compared to weaker locations.

A good location creates desirability that gives rise to demand and as the basic principle of economics, the more the demand, the higher and the price.