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Appreciation

The appreciation rate is the percentage increase in the market value of a property over a given period. Appreciation occurs when a property becomes more attractive due to factors such as:

  • improvements
  • conversions
  • better management
  • desirable location
  • local urban infrastructure developments
  • lower mortgage rates
  • under supply of land
  • low taxes
  • population increases
  • favourable economic conditions
  • Appreciation is calculated as the difference of the value in one period from the value of the previous period, over the value of the previous period. The formula for appreciation is:

    A t = Px - Px-1/Px-1

    Where:

    At = Appreciation rate for year x
    Px = Property value in year x
    Px-1= Property value in the previous year (x-1)

    For example, in the previous year a property was worth 100,000 and now it is valued at 110,000. The appreciation rate is 10% representing an increase in capital of 10,000.


    Related topics:

  • Depreciation