Factors That Affect Capital Appreciation 

What Is Capital Appreciation?

What does capital appreciation mean? Capital appreciation, also referred to as capital growth, is the rise in the market price of an investment. With property, if the property value has increased over time, this would mean that there has been capital appreciation. 

How Do You Calculate Capital Appreciation?

Capital appreciation is the difference between the purchase price and the current market price. For example, if you bought a property for £120,000 and it is now worth £150,000, the property value will have appreciated by £30,000. 

Using the equation here, you can calculate the percentage of capital appreciation on your property.

Current value – purchase price = difference 

£150,000- £120,000 =£30,000

Difference/purchase price = growth

£30,000 /£120,000 =0.25

Growth x 100 = % increase

0.25  x 100 = 25%

Regeneration

A property within proximity to a large regeneration project is naturally going to access the benefits. Regeneration often brings new amenities and improvements in the quality of life for residents in the local areas. The creation of public parks, centres, or shopping facilities can enhance the attractiveness of an area. Consequently, the area becomes a more desired place to live and work leading to a drive up property values.

Businesses and tenants will be drawn to the regenerating areas, which boosts demand and feeds into the economy. Some key locations to benefit from regeneration are Liverpool, Manchester, and Leeds. Investors can look at city council websites in the areas where they want to purchase a property, this will show them all the regeneration plans to help determine where to invest for maximum future benefits.

Buyer Demand

The principle of demand and supply affects the value of any asset, if the demand for an asset is high and the supply is low, the price of the asset will increase. Alternatively, the price will decrease if the demand is low and the supply is high. Therefore, property investors should look to invest in areas that have a high and growing demand, and a low and limited supply. One of the factors that will influence demand is lower interest rates or borrowing costs. When interest rates are low, people may be more likely to finance the purchase of a home because the amount of interest they have to pay is not as high with low rates. However, it is important to consider other factors that could encourage a rise in demand and invest in an upcoming location to ensure the demand will grow. 

Employment

Young professionals tend to look to move to areas with better job opportunities. Therefore, areas that are attracting new businesses will also attract working professionals. More businesses that move to an area equals more money to the local economy. This means the area council will have a bigger budget to reinvest into the city to continue to develop, increasing the demand for housing in surrounding locations.

Areas with a higher employment rate and thriving economy are great for buy-to-let investors as more residents in these areas can afford higher rents. To simplify it, an area with growing employment opportunities is going to receive an increasing demand, boosting the economy, leading to an increase in property value.