One of the reasons why people invest in real estate is the scope of price appreciation. Property prices tend to appreciate over a period, and investors can expect to generate profits from their property by selling or renting it. The top metropolitan cities and several tier-2 and tier-3 cities see a high demand for properties due to rapid urbanisation and the availability of career opportunities that attract people from different parts of the country. This demand leads to increased real estate activities, with several developers coming up with projects. One should have a fair understanding of property price appreciation and the factors influencing it since it can help a buyer make a sound investment decision. Typically, when the demand for properties exceeds the supply, the prices tend to rise. While the supply and demand dynamics are the main factors that determine property prices, there are several other factors that result in property price appreciation.
What is property price appreciation?
In real estate, price appreciation refers to the increase in the property value over time. This rise in property value may be influenced by different factors, including the supply and demand for properties.
Factors that cause property price appreciation
#1. Market dynamics
Demand and supply imbalances: The growth of population and urbanisation creates demand for properties when more people migrate to a city looking for jobs and homes. Such factors, including migration patterns, can create an imbalance between supply and demand, thus impacting property prices. Typically, in high-growth areas and bustling neighbourhoods where, the demand for properties is high and the supply is limited, which leads to a rise in property values.
Seasonal market trends: In India, certain months around the festive season and tax season witnessed increased real estate activities as people start looking for homes. Thus, the market tends to become more competitive around this time, which can lead to high prices.
Market conditions: If it is a seller’s market, when there is a limited inventory of homes, the prices tend to rise. The property values could be impacted with evolving buyer preferences. For example, it is possible that more buyers start preferring certain types of properties or specific features in a property, such as sustainability or smart home technology. These factors could drive the demand and prices of such properties.
#2. Location factors
Livability index: Location is a major driving for rising property values. Generally, properties in localities with well-developed social infrastructure and access to top-rated schools, renowned hospitals, and other amenities tend to appreciate faster than other developing neighbourhoods.
Infrastructure development: The growth of upcoming infrastructure projects, such as metro railway, highways, etc. can drive property values. With enhanced connectivity and easy accessibility to a particular area, home seekers can expect more convenience and a better quality of life. This would result in increased demand for properties in that area, leading to a rise in prices.
Regional economic activities: Areas with robust economic growth and growing job markets tend to witness a higher property appreciation. For example, the growth of IT hubs in a locality will draw more working professionals. The demand for homes will increase, as a result, and this increased demand could eventually boost the property prices in the area.
#3. Economic conditions
A thriving economy and a favourable business environment tend to attract investors, thus driving the demand for real estate and price appreciation.
Inflation: Inflation refers to the rate at which prices of goods and services increase over time. The rising inflation can result in increased cost of supplies and construction. This can directly impact property values and cause them to rise.
Interest rates: Low interest rates by lenders can make loans more affordable for home seekers. This can positively impact the real estate market, with rise in demand from buyers and leading to an increase in prices. On the other hand, high interest rates can slow down the market due to lower demand and slow price growth.
Government policies: Favourable government policies can influence the prices of properties. The government can come up with policies, including tax incentives or subsidies, to make real estate purchases easier. It can ultimately influence property values.
Employment opportunities: The presence of offices and commercial hubs in an area tends to draw home seekers in the region. The presence of offices, retail spaces, etc., can make the neighbourhood more desirable owing to its ease of accessibility. This can lead to an increased demand for properties and rise in property values over time.
Demographic trends: The changes see in the population of a neighbourhood can impact the demand and prices of properties. For example, if an area sees an influx of young working professionals, the demand for modern properties with new-age amenities like a clubhouse could increase. Besides, the cost of living, the shifts in income levels and lifestyle preferences in the community may impact the demand and values of property in the long term.
Housing.com News Viewpoint
Real estate value increases over time, which enables investors to generate profits in the long run. Understanding the different factors that lead to the appreciation of property values can help a buyer make an informed decision and maximise their returns. Among these are factors such as location, market trends and economic conditions. Thus, staying informed about the latest developments in the real estate market is essential.
FAQs
What are the different factors influencing property prices?
Several factors influence property prices. These include economic activities, interest rates, supply-demand dynamics, infrastructure development, government policies, etc. Such factors vary based on the location and property types.
What types of properties appreciate the most?
Properties in prime neighbourhoods, such as those near bustling urban centres or located near metro stations, highways, schools and other amenities, tend to appreciate more faster than those in less desirable locations. Similarly, certain type of properties, such as those equipped with smart home features, may also see high demand, resulting in rise in their values.
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