Real Estate is believed to be best traditional investment so far and the most lucrative. We have also heard that it’s the safest investment. The real Estate Market is cyclical in nature and there is always an opportunity whether the market is going up or going down. There a number of factors that influence the real estate market and let’s look at some of the important ones.
Economy
Property is a static commodity; it’s the market around it that grows. The current state of the economy plays an important role in influencing the real estate market. The economy is the indicator of how much money people have to spend on buying properties. Because property is an expensive item and only in a better growing economy people will have money to invest in real estate or in a sluggish economy real estate demand will drop and so will the demand and the prices.
Economy is generally measured by economic indicators such as the country’s GDP, oil production, employment levels and patterns, exports competitiveness, the purchasing power of a country’s currency, inflation rate, debt levels to other countries and politics. These factors are an indication of economic health and there maybe a few other indicators as well but these are the major ones.
Interest rates
Interest rates also have a significant influence on the real estate market. The lower the interest rates become the easier it gets to acquire a mortgage to buy a property resulting in more people becoming home owners, thus increasing demand and prices. On the other hand if interest rates rise the price to obtain a mortgage increases, lowering demand and a fall in prices. Low interest rates are not always good for the real estate market and need to be regulated with a broader strategy. Low mortgage interest rates, low short-term interest rates, relaxed standards for mortgage loans were the main factors of the 2007 U.S housing bubble.
Demographics
Demographics are factors that describe the composition of a population such as their income, migration, population growth and gender. This is one of the big factors having a direct influence on the real estate market. Population growth combined with improved economic performance can lead to an increased demand, which leads to a boom in the real estate market.
Confidence
Both investor and business confidence can impact real estate prices, especially in a property market like Dubai where foreign investment has always dominated the sector. Investor confidence is important to keep the market going upwards. Business confidence results in more job creation and hiring that spikes the demand for residential units.
Construction costs
The cost of construction is an important factor that can influence real estate prices. Cost of the building material, labor and machinery being the major ones, there are other costs permit fees, cost on importing skilled and unskilled labor, accommodation labor and transportation. Any major change in these metrics can increase or decrease price of construction, however small changes don’t have an impact are adjusted by real estate developers.
While these some high level factors that influence real estate markets, there are more complex assessments for real estate investors to make an investment decision. We have helped investors to make prolific decisions and to take advantage of our experience call us on + 971 4 392 8831.
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