Real estate investors are keen to buy a property when they know that it will gain in capital thankfulness but it is not only property investors who are attracted. There is also greater interest from end-users for buying rather than renting homes since real estate appreciation means that their asset becomes a more significant source of financial security going forward. Gratitude also opens up the possibility of selling the first property & buying a bigger and even better one should the need arise, which does typically as the family expands.

Factors causing property prices to relish

So, what is it that makes house prices increase? The phenomenon of growth of a property’s market value over time happens as a result of various circumstances, including:

• The demand and supply dynamics of a particular location.
• How monetary inflation is acting.
• The interest rates lenders charge for home loans.
• The development or other new real estates market drivers such as schools, shopping malls in a particular area.
• Growth in the local population, leading to increased demand.

1. Demand and supply

When there is an increasing demand for homes in a particular area, estate prices go up if the amount of residential estate projects being built to meet the market is not catching up fast enough. In other words, people buying homes for their use (end-users) are willing to pay more for a house as living in that area is desirable and attractive. End-user demand also attracts the attention of estate investors, who purchase homes with the view of selling them again when the supply in the location reduces, and prices consequently increase.

2. Financial inflation

Inflation is caused by excess money in circulation, which primarily causes the value of money to reduce. When this happens, the prices for several input items like the cost of land, construction materials, construction labor and legal building permits, also increase. Of course, inflation may not result in increased estate prices in an area if the location itself has poor accessibility and social and civic infrastructure, or if it has seen an oversupply of residential projects already.

3. Interest rates on house loans

The upward or downward movement of house loan interest rates has a direct relation to real estate appreciation. When the interest rates increase, the demand for homes slows down because fewer buyers can afford the higher EMIs.

4. Property market drivers

These can include:

• The construction of new office complexes in the area.
• The arrival of a shopping mall or hypermarket.
• The proximity of educational institutes and hospitals which reduce traveling time to such vital establishments.
• Zoning regulations in an area that prevent too much development from happening to cause further densification, thereby, preserving the available open spaces, greenery and the overall ambiance of the location.
• Public transport amenities which ensure that the location is accessed by road, rail or even air.
• Any new projects which boost the overall quality of living, such as overbridges to reduce traffic congestion, water reservoirs, etc.

5. Population Hike

Finally, the growth of population in a location results in increasing demand for housing there. Increased demand directly translates into faster appreciation in real estate prices.

See Also: Should you invest in a retirement home