Real estate represents a significant portion of most people’s wealth, and this is especially true for many homeowners in India and almost globally. Building a home is the first biggest and toughest investment one makes in life and they work hard to achieve this milestone in life.
The size and scale of the real estate market also make it an attractive and lucrative sector for many investors. This article will look at some of the main factors that affect the real estate market and the investments.
Prices, supply and investment possibilities for real estate are influenced by a number of factors.
Demographics reveal the age, income and preferred regions of actual or future purchasers, as well as the proportion of retirees and those who could purchase a second home or vacation property.
Interest rates have an effect on both the price and demand of real estate; lower rates attract more purchasers since obtaining a home loan is less expensive, but they also increase the demand for real estate, which can lead to an increase in prices.
Real estate values frequently fluctuate with the status of the economy, but buyers of EFTs/MFs or other diversified holdings who are either immune to economic cycles or resilient to downturns can reduce this risk.
Demographics are the data that describes the composition of a population such as age, race, gender, income, migration patterns and population growth. These statistics are an often overlooked but significant factor that affects how real estate is priced and what types of properties are in demand. Major shifts in the demographics of a nation can have a large impact on real estate trends for several decades.
Business driven demand:
In large cities like Delhi, Mumbai Bangalore, Chennai etc. the demand for real estate is driven by the economic activities of these cities. For example, a city like Bangalore where it is called the IT hub or the start up hub of the nation, there is a high demand of quality builder properties in the IT belt like Marathahalli, Bellandur, HSR layout, Electronic city, Sarjapur road etc. In fact, the buyers are finding it difficult to find the right property from the right builder which has increased the demand especially after Covid 19 where no new projects have been launched.
Interest rates also have a major impact on the real estate markets. If you’re considering buying a home with a mortgage it is beneficial to research interest rates using a mortgage calculator. Changes in interest rates can greatly influence a person’s ability to purchase a residential property. That is because the lower interest rates go, the lower the cost to obtain a mortgage to buy a home will be, which creates a higher demand for real estate, which again pushes prices up.
A recent cut in interest rate last year pushed the demand for homes as many of the families were also trying to upgrade their homes considering work from home and after the need of a home office.
The situation of the economy as a whole has a significant impact on the value of real estate. Economic metrics like the GDP, employment statistics, manufacturing activity, retail pricing, etc. are typically used to measure this. Generally speaking, real estate suffers when the economy is weak.
However, different types of real estate may be affected differently by the economy’s cyclicality.
Legislation is also another factor that can have a sizable impact on property demand and prices. GST, Tax credits, deductions, and subsidies are some of the ways the government can temporarily boost demand for real estate for as long as they are in place. Being aware of current government incentives can help you determine changes in supply and demand and identify potentially false trends.
What’s the Best Investment?
The size and scale of the real estate market make it an attractive and lucrative market for many investors. Investors can invest directly in physical real estate or choose to invest indirectly through managed funds. Investing directly in real estate involves purchasing the residential or commercial property to use as an income-producing property or for resale at a future time. Indirect ways to invest in the real estate market include investing in real estate equities, real estate exchange-traded funds (ETFs), infrastructure bonds etc. Due to the higher liquidity available in the market, the lower transaction costs, and lower capital requirements, average investors prefer to indirectly invest in real estate.
The Bottom Line
Real estate market is always a good vehicle of investment for the investors however extra care needs to be taken in all the above macro aspects and also the micro aspects like builder, location, quality, future demand, flood resilience, clear property documents etc.