One question that every prospective property owner has wondered at some point or the other is ‘What are the factors that determine property prices?’ Individuals looking to buy a property would benefit greatly from this information so that they can identify localities or projects that require less investment and promise high returns in the years to come.
We’ve put together a list of factors that you can examine before you decide on a particular property.
Demand and Supply
This one’s a no-brainer. We all know how the economic forces of demand and supply drive prices – high demand with low supply equals high prices whereas low demand with high supply equals low prices. While we usually speak of it in terms of commodities, it holds good for real estate as well.
Sustained job growth
One important price driver in real estate is sustained job growth. Locations where plenty of offices from diverse industries are established will have surging prices. For instance, the booming IT job market in the Outer Ring Road (ORR) area in Bangalore continues to boost both the commercial and residential property markets in the region. The more varied the job opportunities, the more resilient it makes the real estate market in that area.
Office space demand is often considered an indicator of the job market. The higher the office space taken up in a region, the stronger the residential and commercial market will be.
Infrastructure development
Infrastructure is a major consideration for home seekers. A location that has reasonably good infrastructure has a higher perceived value to a buyer. Accordingly the property prices also increase. Facilities such as accessible road and rail transport are known to increase real estate prices significantly. For instance, when metro rail projects are announced, the localities along the route benefit immensely.
Social infrastructure such as proximity to schools, hospitals and retail stores also has a tendency to increase property rates.
Home loan rates
Prevailing home loan rates have an interesting effect on property prices via demand. When interest rates for home loans are high, it reduces the demand for property since it makes borrowers reluctant to spend extra money over the high interest rate. Similarly, when loan interest rates are low, buyers boost the demand for real estate. Demand then has a bearing on the price that property sellers quote.
Zoning regulations
It has also been noticed that certain regulatory factors such as zoning regulations can also have an impact on real estate prices. If zoning regulations restrict the amount of construction in an area, the overall allure of properties there rise because of open spaces, greenery and so on.
Being aware of these factors can help you determine whether prices being quoted for properties are fair. It can also help you predict with reasonable certainty as to which areas are likely to see good growth rates in the coming years.