Like any industry, real Like in industry real estate has its own disadvantages and advantages. there are different factors that affects the real estate industry. Some of these factors include;
· Demographics
· Government policies
· Economy
· Interest rates
Real estate industry accumulates one of the highest industry in terms of wealth. The industry in itself is huge and that’s a lot of profits which makes it easier to be attractive to people.
The demographics
On demographic of real estate buyers,there is provision of age, income and preferences. It shows the percentage of buyers in terms of the youthful buyers as well as the aged buyers. Older People tend to buy or rather invest in real estate industry in comparison to younger generation. On the same note, the type of real estate investments can be determined since the younger generation will work and focus on the investment that brings back and generates more income. The older generation will be looking for type of investments that suits their vacation needs. They are more focused on luxury type of investments. The higher the percentage of retirees that can afford a certain type off real estate investment, the higher the likelihood off the industry increasing the prices.
Government policies
Legislation is one of the factors that can also affect the real estate investments. High taxes on residents can consequently affect the investment. Imposing too much costs on real estate industry, can lead to the demand of the property lowering. However, the government can equally ease the burden of such problem by reducing taxes, offering subsidies to property as well as giving tax credits. The government can also offer deductions on the raw materials that are involved in the real estate industry. This will therefore increase the demand of the investment and encourage wider the margins of profits.
The economy
Another factor that determines the value of real estate investment is the economy; that is the state of the economy. The economy is defined by the gross domestic product, the price of goods as well as the accessibility of raw materials. Different types of real estate investment as discussed in our previous blog, can be influenced by the economy differently. A recent example, is when COVID-19 did hit the economy the hardest. The investors that had hotels as well as renting out had the low demand because the tourism industry was as well affected. On the other hand, real estate investment in terms of commercial property and industrial property were less affected because normally these types of investments have a longer lease time had residential type of property investment. In short, when the economy is ailing so is the real estate investment.
Interest rates
Interest rates can also in a bigger margin affect the real estate investments. For example, if you’re considering to buy a property using mortgage, then it is advisable for you to research on the different rates of interest that would be accumulated by the mortgages. Any change in interest rates can determine the ability of a buyer to purchase a certain property. For example, when the interest rates are lower so is the cost of acquiring the mortgage which leads to higher prices and higher demand in housing as well as other real estate investments. In the same way if the interest rates are higher the cost of acquiring a mortgage is higher which therefore reduces the gap in real estate investment and lowers the demand of such investments. Therefore, if there is a need to invest in real estate industry, it is necessary to understand the different types of markets that would favor your investment. All these markets are determined by the interest rate and may favor either the buyer, the seller or maybe a neutral market.
Advice; Check on these factors and how they affect value and pricing of property before entering the real estate industry.