Real estate is known to be one of the most abundant assets for a person’s investment profile, for the long term and short term as well. Properties are considered to be one of those assets that can offer you returns that are larger than the inflation rate.
However, only a fair part of the population holds an investment in real estate, out of which only several people can learn how the property market operates and what actually adds up to the value increase of the property market.
With that being said, here are some of the factors and reasons why a property’s value increases over time:
Development in infrastructure
Infrastructure development has an important role in price appreciation. When a particular place has a new transport, road, connectivity, or transit hub which are considered growth drivers, they are expected to bring more population and eventually more demand. Investors who are skilled in timing the market right can acquire the most out of their real estate investment.
Application of the law of supply and demand
Do you still remember the lessons you’ve learned in Economics 101 when you were in school? Remember the supply and demand part? This law actually plays a very important role in the movements of home value. A value of a property increases when a low supply of homes for sale encounters strong buyer demand
as homebuyers fight in bidding battles to be able to secure a home from the tight inventory.
Due to comparable sales
Appraisers and real estate agents do the same thing when it comes to valuing homes based on the sale price of comparable homes in the area also called “comps.” When bidding wars happen in the neighbourhood, homes are marketed for higher prices than their forerunners, allowing new listings to arrange higher list prices and even meet higher sale prices if bidding wars continue to occur.
Current available and future amenities
Can you imagine a property not having a parking space? After that, think of the same property with a parking space. This type of extra amenity can produce a price difference of 10%-15%, particularly in metro cities where it’s hard to have a parking space in residential colonies. Property owners who want to upgrade their property can receive a better rate than the rampant market rates. This can be a basement garage or a little terrace garden or even a kitchen backyard. Aside from that, the design of the architecture, interiors, and upkeep of the property will also have a crucial role in price appreciation.
Economic aspects (jobs, population, mortgage)
The housing market doesn’t immediately get compatible with the strength of the economy, as we saw how strong the 2020’s housing market was in spite of the economic battles carried by the COVID-19 pandemic. Nevertheless, these economic factors firmly brought an impact to property values, increasing or reducing buyer demand and the awareness of value.
Jobs market. Creating more jobs usually result in an increase in buyer demand as potential home buyers receive financial strength and stability from new jobs to purchase. Property values expand in regions that have job growth and development as incoming workers compete for the housing supply near the business centres.
Population growth. Most of the time it goes hand in hand with job development. As the population increases the buyer demand, which leads property values in profitable neighbourhoods to rise.
Price of borrowing. If the rates of mortgage are cheap, a lot of buyers will step into the market, looking for ways to save thousands of tens of thousands of dollars during the lifespan of their mortgage. If the housing listing in a market falls behind the increase in demand, then the property value increases in the affected area.
Changes in Policy
Lending rates are usually the one major policy that directly influences real estate appreciation. The more affordable cost of borrowing attracts more buyers to the market, generating more demand and admiration. Correspondingly, depletion in circle rates, stamp duty rates, income tax benefits, GST rates, and etc., directly influence demand.