4 latest trends of real estate industry in 2016
Real estate represents a significant fraction of most people’s wealth and the statement fits perfectly with affluent markets such as the UAE, the U.S. and U.K.A survey revealed that more or less 65 percent families within the mentioned regions are property owners. Market size and scale makes it an attractive and worthwhile niche for many investors. Here, we’ll look at some primary factors along with a variety of investments affecting property management.
Demographically refers to the data describing the population composition such as age, gender, race, migration patterns, income,and population growth. It’s most unfortunate we ignore these factors but they’ve significant impact in driving the real estate cost and type of properties in demand. Demographic drifts of a nation loom large over real estate trends that last for decades to come.
Take the example of baby boomers; a generation born between 1945 and 1964 are potentially important to influence the property management and market. The evolution of this generation towards retirement is another interesting trend that started in 2010 and is bound to become evident in the future timeline.
There are numerous ways in which such type of demographic shifts affects real estate market however for an investor, some queries to ask can be;
- How would this affect the demand for second homes especially in vacation hotspots with increased number of retirees?
- What about demand for large homes if income is fewer and children all moved out; someplace other than the property boundaries?
The answer to these questions can definitely help investors limit the very type and location of desirable property investments, even long before the trend flourished.
- Interest rates
Yet another factor that impacts property management is interest rates and fluctuations hugely influences buying or investing ability of a person. This is because of the lower the interest rates, the lesser cost of obtaining a mortgage to purchase a home.
The situation creates a higher real estate demand which pushes the price up again and hence the cycle continues. On the contrary, the imminent rise in interest rate also increases acquiring cost of mortgage which in return lowers the demand and price of real estate.
When considering interest rate impact on equity investment such as on RETI (Real Estate Investment Trust) instead of residential units, the relationship is deemed similar to that of a bond and interest rates.
Likewise, when interest rates decline, bond value pushes up due to desirable coupon rate. And when interest rates sink, so as the bond value!
Another prominent factor affecting real estate value is overall health of a country’s economy which is measured by economic indicators namely employment data, GDP, commodity prices and production activities. In short, real estate is sluggish in a flimsy economy,however, in the long-run, fiscal cycles of the economy have varying effects over real estate type.
For instance, if REIT has a higher proportion of investment in hotels, it would be hugely affected by the economic downturn as compared to REITs investment in office buildings.Since hotels are a major type of property, sensitive to economic activities such as tourist inflow and others, any fluctuation brings forth imminent change.
- Government policies/subsidies
The legislation also adds to the many factors having a direct and prominent impact over property demand, supply and cost. Tax credits, subsidies and deductions are a few strategies through which government can temporarily boost property demand for as long as they’re in place. Having awareness over recent government incentives helps in determining supply and demand fluctuations and determines false trends (if they’re any).
Take the example of the U.S. government which in 2009 introduced first-time homebuyer’s tax credit to homeowners. The plan was to jump-start home sales in a slow moving economy and only those who bought homes between 2008 and 2010 were eligible. Though temporary, it was quite a substantial increase and one might end up thinking that house values are actually shooting up.
The article introduced some higher-level factors that play a significant role in driving real estate market however, there’re other more complex things that come into play. Understanding the key aspects defined above are essential to evaluate industry as a whole and potential investments.