4 Key Factors That Drive The Real Estate Market
Real estate form a significant fraction of the wealth of most prosperous Indians. This is especially true of homeowners. The size and scale of the real estate market makes it an attractive asset class for investors. Let us look at some of the important factors that influence the real estate market.
Demographics are data that sheds light on the composition of population in a certain geographical area. Demographic data looks at aspects like age, gender, race, income, migration patterns and population growth. Such data may tell you why real estate prices are rising or falling in a certain neighbourhood. Migration or major shifts in the demographics of a country can have a large impact on fluctuations in real estate prices.
Investors should ask two important questions before investing in any property:
- When incomes decline and children move out, how would this influence the demand for larger homes?
- When more people start retiring, how would this influence the demand for second homes in proper vacation areas?
Such questions can help investors narrow down the type and locality of potentially desirable real estate investments long before it becomes a trend.
Interest rates play a major role in the economy. Interest rates also have a major impact on real estate markets. The ability of homebuyers to buy largely depends on interest rates. Even a moderate change in interest rates can greatly influence a buyer's ability. That is because as the interest rates decline, the cost of borrowing declines, which creates a higher demand for real estate. This raises housing prices. On the other hand, when interest rates go up, the cost to get a loan increases hence lowering the demand and real estate prices.
The overall economic strength of a country influences real estate markets too. Economic indicators like the GDP, employment data, manufacturing activity, and the prices of goods are indicative of the health of the economy. So, if the economy is sluggish, so is real estate, in countries where real estate markets are efficient.
Investors need to be extra cautious before taking any major decision. It is important to understand how the whole economy performs. The fact that the real estate sector is so dependent on the economy shows how vast the sector is.
Government policies and subsidies also have a huge impact on the real estate sector. Tax credits, deductions and subsidies are some of the ways in which the government can briefly raise the demand for real estate. Being aware of the incentive offered by the government can help investor gauge changes in supply and demand, and identify possibly false trends.
The factors mentioned above play a significant role in influencing the real estate market, but there are many other complex factors too. It is important to understand the key factors that drive the real estate market to comprehensively evaluate a potential investment.