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Neighborhood and Property Values

A neighborhood is more than just a group of houses and families living in the same area. A neighborhood actually shares a certain culture, way of life, and values. Insofar as real estate is concerned, the concept of neighborhood is important because it is a big factor for driving value of real estates up or down.

Some neighborhoods are planned while others just evolve by themselves. Natural physical boundaries, such as, hills, rivers, fences, and the like define the geographical limits of a neighborhood. But there are also invisible boundaries like social classes, cultures, lifestyle, and ethnicity which define a neighborhood.

Value vis-à-vis Neighborhood

The principle of regression says that the value of properties of a neighborhood would increase if a larger, more expensive house is built in it. This new big house raises the value of the other properties near it.  On the other hand, the principle of regression lowers the value of the over improved house in that neighborhood.

The implication of these principles is that if you build a house and make one above the value of those near it, you will most likely be unable to sell it at the value with which you think it would be worth given the materials, quality, and space that it has. While you have no plans of selling the house during the time that you build it, take into consideration the possibility of such in the future.

A case in point is a British living in one of the cities in Metro Cebu. He married a Cebuana several years ago and decided to build a nice house in a lot which her family already owned.  The house is several times bigger than those of its neighbors. Being in a small subdivision with few and small houses, the roads were badly maintained through the years. Now ready for retirement, the couple wants to live in a subdivision with a more appropriate atmosphere needed for a restful and peaceful lifestyle. Considering the amount they spent on the house, they would want a good return for it so that they can also have enough money to pay for a new house near a beach.  Unfortunately, they have been having difficulty selling their house at a price they had hoped it would fetch, because potential buyers say that if they were to pay for the house with the price that the couple asked, they would rather buy a house by the beach with that money.

Some say that exclusive upscale neighborhoods tend to keep people out. Poor urban communities trap people in.  While ideal for some families, this may slow down development, especially urban areas.  Good planning may address this by discouraging the formation of exclusive neighborhoods and helping promote diversity and stability.

According to real estate theory, mixed land use is generally better because it raises overall property values. This happens as smaller homes for start up families gain value for being close to big houses. This enables them to move up in value and buy more expensive houses later, creating more future home buyers. This has been proven to be true in some of the communities in the States.

There is such a subdivision in Cebu which has, rightly so, mixed their bigger expensive houses with those of smaller ones. According to Jun Contreras, one of the owners there, the subdivision looks and feels better compared to those who build the same house model in the same block.  Besides, he jokingly says that you might mistakenly go home to the wrong wife if the houses on a strip all look the same. As the owner of one of the smaller houses, he feels the value of his house might be more stable and may in fact increase through a reasonable amount of time.

Neighborhood Stages

Neighborhoods go through four main stages of development.  The first is that of growth where a certain area is being developed and market values increase. The second is stability, wherein the prices of the properties remain practically stable without big gains or losses. This usually happens after developments in the subdivision are completed. The third is the decline, perhaps due to the natural aging process of houses or the consequence of supply and demand. And the last is the revitalization where there is a renewed development and modernization of the neighborhood, thereby increasing its demand and consequent values.

Revitalization occurs in some cases where new affluent buyers rehabilitate or buy and build an expensive property in an otherwise old and run down neighborhood. Large commercial areas or vital infrastructure built near old and declining areas may also raise the value of properties there.


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