Factors That Influence Real Estate

Significant portion of most people's wealth is invested in real estate. This is quite high for young working professionals in IT and Business Operations sectors. An average of 60 lakhs is required to buy a decent condominium in any major city. This article will look at some of the main factors that influence real estate market.(A)

Interest Rates: RBI controls lending rates and banks pass it on to end consumers. Often we've seen high interest rates due to high inflation. Interest rates have a direct impact on the real estate markets. Change in interest rates can influence a persons ability to invest in real estate and the demand increases. On the flip side, builders tend to increase prices as they foresee more demand. (A-N)

Demographics:It's the data that describes the composition of a population such as race, age, income, migration patterns and population growth. These trends are often overlooked but it's a significant factor that determines how real estate is priced and the type of properties that are launched. For example, if you look at the Bangalore east belt, suburbs like Whitefield, Sarjapur road and Outer ring road have seen a boom and grown faster than expected due to demographic factors, you'd also find most of ultra luxury projects in these suburbs.

Government Policies: Subsidies and government policies play a major role with real estate trends. Tax exemptions, subsidies on raw materials, duty alterations are some of the ways the government can temporarily boost demand for real estate. In 2012, the maximum tax deductions available for a single owner is 1.5 lakh, if the government can change it to 2.5 lakh for 2013, this will spike the demand for entry level homes.

Economy: Economic indicators such as GDP, employment data, manufacturing activity, inflation, account deficits etc. affect the value of real estate. Broadly speaking, when economy lags, so does real estate. A downgrade or upgrade in any sector or the economy can directly impact real estate demand.

These are some high level factors that play a significant role in real estate market. There could be more complex factors that come into play. However, understanding the key factors that drive the real estate market is essential to evaluate a potential investment.