Property prices have become a common topic of conversation for Indians. Having a home of our own is an instinctive need and hence, discussions on property has turned mainstream. There are many factors that influence prices including demographics and location as well as intangible reasons like growth expectations from a locality.
Let’s break down the factors responsible for influencing property prices:
Demographics
With major cities becoming huge business hubs, they attract large numbers of people to them. Growing population means an increase in demand for residential properties. Demographics are an important statistic that affect property prices as well as types of property in demand. Major demographic changes can influence real estate trends for a long time. Keeping one eye on shifting demographics will help investors and buyers to predict desirable real estate investments before they become trends.
Location, Location, Location
The most crucial element in buying property is also a key influencer of property prices. Neighbourhoods with good transport connectivity, better infrastructure, or with proximity to central business districts will have higher prices compared to others.
Supply & Demand (or Economy)
Better economic indicators like better wages push up property demand thereby increasing prices. This is simple mathematics – if the housing market is witnessing a rise in demand, prices will go up and for prices to fall, demand needs to fall as well. It is important to be cognizant of real estate’s sensitivity to the economy.
Interest Rates
A change in interest rates affects a person‘s ability to buy property. Falling interest rates can create high demand for real estate which can raise property prices. On the other hand, increasing interest rates can result in falling demand, consequently reducing property prices.
Better infrastructure
Improved road and rail connectivity will naturally raise property prices. For example, announcement of metro rail projects will see a price appreciation in those localities. Social infrastructure like access to schools, hospitals and retail outlets will also raise prices.
Legislation
Government regulations and subsidies can go a long way in helping real estate demand. In India, first time home buyers have been given the benefit of an additional deduction of Rs. 50,000 on home loan interest for loans not exceeding Rs. 35 lakh, where the value of the house is no more than Rs. 50 lakh. This is expected to improve home buying sentiment in smaller cities.
Jobs creation
Sometimes, when new office developments are announced, those localities will see an increase in property prices. But only sustained growth can support the surge in demand and prices in these localities. And in case, the expected growth does not materialise, real estate will witness a downturn.