The real estate market whether it is retail property sales, big-ticket investments projects, or the development of commercial hubs; all are dictated by the four major factors. Any inconsistency surrounding them will ail or boost the health of this sector. Knowing these factors into account is essential for property buyers and owners before making the trade. Let us dive a little deeper into each of the factors.
Demography is the root of the demand and instigator for the supply. In an open market, economic supply takes place only if there is a substantial demand. Demographics are directly co-related to the demand part of the Real estate market. Demographical mark-up change dictates the demand for real estate.
How do demographics influence the market?
Let’s assume that the market is dominated by the population that is 40plus, then such population (given that many of them fall into a high-income group); are most likely to opt for properties as an investment rather than first homes which are bought as residential spaces for self which are unlikely to exchange hands.
Whereas a decade younger population is more likely to invest in the first houses which are essential from a residential vis a vis family perspective. In India where the house is very important from the public perspective. The property is seen as an important asset and will always be given prime priority.
Interest rates are amongst the major factors which influence this sector. Traditionally the investment volume invested in a property is very high. Majority of the cases the external finance is involved which is subjected to interest rates and availability of credit. Lower interest rates encourage more consumers in the property market. A fraction of change in interest rates makes a lot of differences in the long run as the financial instruments are designed for the long term.
In the meantime looking at the impact of interest rates on an equity investment such as a real estate investment trust (REIT), rather than on residential real estate, the relationship can be thought of as similar to a bond’s relationship with interest rates. When interest rates decline, the value of a bond goes up because its coupon rate becomes more desirable, and when interest rates increase, the value of bonds decreases.
Similarly, when the interest rate decreases in the market, REITs’ high yields become more attractive and their value goes up. When interest rates increase, the yield on a REIT becomes less attractive and it pushes their value down.
The next key factor that affects the condition of the real estate market is the overall health of the economy. This is generally measured by economic indicators such as the GDP, employment data, manufacturing activity, the prices of goods, etc. Broadly speaking, when the economy is sluggish, so is real estate.
A booming economy equals faster development of the undeveloped land. It also brings in commercial infrastructures such as offices and factories. The supporting workforce demands the housing facilities in the vicinity, automatically sending the property prices up.
India since last year has seen a major upward trend. The household income has been steadily rising by 8% on average. That brings more money into investments while boosting the pace of urbanization.
Government policies and Subsidies
Legislation is also a factor that can have a sizable impact on property demand and prices. 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.
Post Covid-19 pandemic, the Indian government has taken very affirmative steps towards improving the sector. As per IBEF reports, Reserve bank kept its base interest rate stable at 4%. In July 2020, the Indian government also introduced a scheme to build houses for economically challenged sections under Awas Yojana.
The welcome move to invite FDI in construction projects has boosted the capital inflow in the economy, while the Land Bill ordinance passed in 2014 has eased the Land acquisition process for larger commercial projects. The overall sun is shining brightly when it comes to the Indian property market and we shall see positive growth for another decade.