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Good Value Series - Part 3 What factors impact a property’s value? In Part 1 of the Good Value series, we explained what a property valuation is and why you would need one. In Part 2, we covered “Market Value”, the most common basis of value used by property valuers. In Part 3, we look at the key factors that influence a property’s market value. The factors that influence a property’s market value can generally be grouped into two main categories. The first relates to the property itself. This includes factors such as location, type of construction, zoning, building size, and the overall condition of the property. To assess these, the valuer conducts a physical inspection, which is a key part of the valuation process and, unless otherwise stated, is taken as the valuation date. During this inspection, the valuer notes the property’s features, fixtures, fittings, condition, and overall appeal to the market. This allows the valuer to fully understand the property before comparing it to similar properties that have recently sold, referred to as comparable sales, which is essential in determining market value. The second category relates to external market factors. These include market conditions, economic activity, and any relevant laws or regulations. Valuers consider these when analysing the market, particularly by reviewing recent sales and assessing how active the market is within that specific property segment. Where there is consistent market activity, determining value is generally more straightforward, as there is more reliable sales evidence. However, where activity is limited, valuers must rely more on their experience, local market knowledge, and professional judgement to make appropriate adjustments. This distinction is particularly important in Papua New Guinea, where the level of market activity can vary significantly between locations. For example, data from the Office of the Valuer General of PNG, shows that the National Capital District (NCD) generally has more property transactions each year compared to other regions. This provides valuers with a larger pool of market evidence, allowing for more supported and defendable valuations. In contrast, regions with limited market activity require a deeper understanding of the local market. Valuers may need to rely on older sales or comparable properties from similar locations, applying their professional judgement to arrive at a market value which may take longer to determine. Cost does not equal market value A common misconception in property value is the misconception that cost equals market value. Property owners will often point out how much they spent building or renovating their property, expecting that this amount directly reflects its value. For example, if K500,000 is spent on construction, there may be an expectation that the property is worth K500,000. Similarly, a K100,000 renovation may be expected to increase the value by the same amount. However, this is rarely the case. The cost of building or renovating simply reflects the amount spent. Market value, on the other hand, is determined by what the market is willing to pay for the property at a given point in time. In practice, this is assessed by analysing the sale of comparable properties. As a result, a property’s market value is based on market evidence at the valuation date, not on the cost incurred to build or improve it. That said, improvements can still influence value when they align with what the market finds desirable. When considering renovations or extensions, it is important to maintain key elements such as plumbing, electrical systems, and general upkeep, as these help preserve value. Beyond this, additional improvements should focus on features that enhance overall market appeal. In Papua New Guinea, for residential properties, this may include a self-contained unit for visiting relatives, proper landscaping, or outdoor entertainment areas, reflecting the importance of family and social gatherings. For non-residential properties, improvements such as better car parking or support staff accommodation can add value, particularly given local housing and transport constraints. Ultimately, understanding what truly drives property value comes down to interpreting market evidence and applying informed judgement. This is where the role of a qualified, local property valuer becomes critical. At LandPros Limited, our team combines deep local market knowledge with practical valuation experience, supported by over 25 years of combined experience in the Papua New Guinea property market. We are proud panel valuers for Bank of South Pacific, Kina Bank, FinCorp, National Banking Corporation, and the National Development Bank. Contact us on [email protected] for an obligation free quote today!