How does land affect the cost of property?

Landscape with many houses and property by the bay

A property’s cost may be affected by the size, shape and location of the land it sits on. Having property with a lot of land doesn’t immediately equal having high property value though. There are several factors that come into play when assessing the land-to-asset ratio. But the most important is location. 

If you have two properties, both with the same land-to-asset ratio, but property A is located 15km from the CBD and property B is located 30km from CBD, then property A is probably worth more. Why? Location. Typically, there is a higher demand for properties closer to CBDs. 

And where there is little supply and high demand, the land’s value per square metre usually rises further.

Why your property location matters

When people are looking for a place to live, typically they want a location that comes with several nearby amenities. So, property A from the example above is closer to the CBD and its amenities, which makes it possibly a more attractive location compared to property B. 

While property on land that makes living ‘easy’ is more sought after, keep in mind that proximity to good amenities can also have a downside. There are things to consider like outside noise: if you find a property 50 metres away from a busy train line, for instance, you may find it is cheaper than a home that is 150 metres away. Why? Even though there is often a demand to be close to a train station, the noise factor might drive more people to not want the property.

Another thing to consider is the environmental conditions of the land. A property near bushland that is at higher risk of being caught in a bushfire is less valuable than those without. If the area of the property is prone to heavy corrosion, flooding and sinkholes then there will be less buyers interested. It also means your home insurance may be more expensive.

So while a property might have a beautiful and modern house, a location with potential problems may negatively impact its selling price. Of course this may be good for the buyer but bad for the seller.

What affects your land’s value

There are many factors that come to calculating the value of land. One way to look at it is the land-to-asset ratio, which is the percentage of the overall property value made up of the land component. For example, if the property costs $1 million, and the value of the land is $500,000 then the land-to-asset ratio is 50%.

Other important factors for assessing a property include:

  • Suburb’s track record - Places with high crime rates are typically cheaper, but it also means that the property is less likely to increase in value over time. 
  • School zones - School catchment areas can influence property prices, especially near top schools. Parents want to live near good schools to give their children a chance at a high quality education.
  • Access to public transport - How easy (or uneasy) access to buses, trams and train stations may drive up the price of the land due to its high demand for workers, families and students.
  • Size and facilities - The bigger the home or land space the higher the price. Homes with more rooms, garages, pools, and backyards tend to be factored into the property’s value. Depending on the location the more of these facilities there are (and their size) the more value it will add to the property.
  • Potential for renovations - Properties with enough land space to expand and renovate are typically more sought after, increasing demand and raising prices. 
  • Energy efficiency - Due to the ongoing climate crises, conscious buyers may seek property that has utilities like solar panels, energy-efficient light bulbs or appliances. Also, who wouldn’t want cheaper utility bills?

If you are looking to buy a new property, check out Mozo’s home loan comparison page to find the best way to finance your future home.

Home loan comparisons on Mozo - last updated 24 January 2022

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* WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years.

** Initial monthly repayment figures are estimates only, based on the advertised rate, loan amount and term entered. Rates, fees and charges and therefore the total cost of the loan may vary depending on your loan amount, loan term, and credit history. Actual repayments will depend on your individual circumstances and interest rate changes.

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