2 min read

Real value

What is the real value of a property and what does it comprise?

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There are various reasons why you might be looking at the value of a property. What can sometimes cause misunderstandings is the difference between the real value, the new value and the sales/market value. We give you the lowdown.

Table of Content

Property – popular as both an investment and a place to live
Maintain, lose or increase value?
Real value vs earnings value vs fair market value
Real value in summary

Property – popular as both an investment and a place to live

In Switzerland, property is one of the most popular forms of investment and serves as an excellent way to save for retirement. Because of low mortgage rates, owning a property also makes for cheaper living than renting over the long term.

Market development over the last few years has also caused property purchase prices to rise considerably and steadily in the urban areas around Basel, Geneva and Zurich. Residential property in rural areas has also increased in value because of the rising acceptance of working from home and the travel restrictions that were imposed during the pandemic.

Because of this, anyone wanting to look at the value of their property now can’t refer to the purchase price or the new value and instead needs to consider several factors.

Maintain, lose or increase value?

Whether the value of a property goes up or not depends on several factors. As a property owner, however, you can only have an impact on one of them after you’ve bought the property.

These factors trigger growth or stability in value:

Real value vs earnings value vs fair market value

Where does the real value fit into this overview?

Real value

Real value denotes the substantial value of a property at a given point in time, calculated from the current state value (all drafting, neighbourhood and construction costs that make up the new value, plus depreciation) and the value of the land.

But if you value your property in view of the investment potential or from the point of view of the landlord, you’ll generally come across the earnings value.

Earnings value

The earnings value is calculated by experts and gives the effective or potential earnings from renting out the property, taking other factors into consideration (increase in value, operating expenses, risks, market environment, etc.).

If the plan is to sell the property, the real value is often only partially meaningful. When it comes to selling, we refer to the fair market value.

The fair market value is also known as the market value and describes the price that can be achieved through a sale. It is heavily dependent on market developments and the effect of supply and demand.

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Real value in summary

Real value is a variable that’s subject to certain developments (see above), but indicates the actual value of a property at a given point in time. As such, the real value also helps to determine a possible sales price.

And although the real value, market value and earnings value of a property can certainly fluctuate, real estate is still a stable investment. This is the very nature of the matter – not only is real estate a more valuable asset than art or shares, it is also a living space. Property owners can also keep an eye on value movements through influences like the location and the market and therefore react flexibly to the situation.