4 key Factors That Drive the Real Estate Sector
Real estate represents significant investment of every family’s wealth. There are a number of driving factors which leave impact on the availability, price difference and investment potential in a property.
Here are the four major factors which dominates the real estate sector:
- The Economy : The overall health of economy influences the real estate segment big time. The impact is measured by factors like employment data, GDP, Goods prices, manufacturing activity etc. Though it leaves varying impact on different types of real estate sectors. For example, luxury properties like hotels are very sensitive to the economic downturn since they have short term lease. On the other hand, movement in economy can least affect the industrial properties like office spaces as they usually have long-term leases that can’t be changed midway.
- Interest rates : Interest rates are proportionally related to the demand in real estate market. The shifts in interest rate influence people’s ability to invest into a property. Lower interest rates create higher property demand which eventually pushes the prices up. Likewise higher interest rates lower the price and demand in real estate.
- Government policies : Legislations plays key role in real estate. By making small changes in the lending rates, deductions, subsidies, tax credits etc government can temporarily boost demand and pricings. Being aware of recent government incentives helps on identifying demands and false trends.
- Demographics : Demographical factors like gender, age, race, income, population growth, migration patterns etc have a direct impact on real estate sector. Major shifts in national demographics often leads to huge impact on real estate trend for the next few decades. For example, demands for affordable residential properties, surge in migration rate to the tier 2 and tier 3 cities etc leave impact on the price and availability on properties.
Apart from these high-level factors, there are more complex parts which play very significant role in moving the real estate segment. Though these factors reflect a first-hand relationship between the factors and the market, the result can differ in practice. However, a clear understanding of the driving factors of real estate market is important for both buyers and sellers for a potential investment.