Growth Potential is UOWN’s estimate of how much a property’s price may change over a one year horizon. We estimate this by taking an average of the house price change in that area over the immediately preceding five year period.
To understand the importance of the growth potential, you need to understand the factors that influence the value of a property and why careful research and the timing of a purchase is important in terms of realising the full growth potential of a property.
The property market is influenced by a range of factors that combine to determine whether a property price goes up or down. Loosely defined, these are factors that affect demand or affect supply. But although these factors are in constant flux, the market is reasonably predictable as a result. For example, where there is rising demand, but a limited supply of housing, prices will go up, and vice versa. Rent prices will also behave accordingly.
Factors that influence demand include economic growth, unemployment, interest rates, consumer confidence and availability of mortgages. Factors that influence supply are generally limited to the number of people selling, availability of new-build properties and the demographic of an area.
So, growth potential is used to give an indication of how a property value is expected to behave, which can then be used – perhaps alongside the rental yield - to assess the viability of a potential investment.
As an example, a property was valued over a five-year period:
The property started with a value of £100,000
At the end of Year 1, it was valued at £120,000
Year 2: £125,000
Year 3: £130,000
Year 4: £140,000
Year 5: £150,000
Taking this five-year period into account and working out an average of how the price has changed, this property would have a growth potential over one year of £10,000.
Growth Potential is our estimate of how much a property’s price may change over a one year horizon. We estimate this by taking an average of the house price change in that area over a five year period.