How do urbanisation and demographics impact real estate?

Real estate growth in any region is influenced by several factors, such as economic conditions, infrastructure development, urbanisation, demographic shifts and demand-supply dynamics. The migration of people from rural areas to cities in search of jobs and a better lifestyle creates an increased demand for properties, resulting in urban agglomeration and expansion of cities. Further, the characteristics of the population, such as migration patterns, income levels, age, etc., can significantly impact the real estate trends in a region. In this article, we discuss how urbanisation and demographics impact real estate in an area.

Impact of urbanisation on real estate

What is urbanisation?

Urbanisation refers to the population shift from rural areas to urban areas, a decrease in the proportion of people living in rural areas compared to urban areas. This shift is influenced by several socio-economic factors, including job opportunities and better income levels, quality of life, etc.

Factors driving real estate growth as a result of urbanisation

The rapid migration of people from rural areas to urban centres, driven by socio-economic factors, has had a significant on the real estate market in India. Over the years, there has been rapid urbanisation and the urban population in cities is expected to increase. According to the United Nations, the urban population is expected to increase to 68% by 2050 from 55% in 2018, with 2.5 billion more people estimated to be residing in cities by 2050.

Let us discuss the various ways in which urbanisation drives real estate developments.

Increased employment opportunities

There is a correlation between urbanisation, employment, economic conditions and real estate trends in a region. When the economy grows, it results in the expansion of businesses, the creation of employment opportunities and a rise in income. As more and more people move to urban areas in search of jobs, the demand for housing also increases.

Further, when GDP growth is high, it positively influences real estate investment. According to the UN report, the urban population in India is expected to account for over 60% of the country’s GDP by 2030. This highlights that the migration from rural to urban will have a significant impact.

Infrastructure development

With an increase in population, the demand for better roads, water and sewage systems, public utilities and transportation increases. There is a need for social amenities such as schools, hospitals, shopping complexes, etc., which is also increasing. These locations attract real estate developers and drive real estate developments.

Infrastructure projects such as expressways and metro projects ease connectivity between cities, providing avenues for new developments in the surrounding region. An upcoming infrastructure project such as a metro network can also steer extensive urban expansion, and it provides connectivity to far-flung areas of a city. In addition, technological advancements and digitisation steer the urbanisation process with the rise of smart cities, impacting real estate trends.

Urbanisation and infrastructure development are closely interlinked. While urbanisation involving the expansion of cities creates an increased need for infrastructural facilities, infrastructure development can accelerate the urbanisation process in a region. Well-developed infrastructure in urban areas attracts more businesses. This results in further population growth due to migration of people and more investments in the region.

Scarcity of land and expansion of cities

Urbanisation fuels real estate growth in a region and this is a key factor driving the expansion of cities. As more and more people move towards urban areas, the demand for housing continues to increase. Moreover, land is required for residential, commercial and industrial developments. This leads to the expansion of cities, with areas surrounding the city emerging as new hotspots for real estate, attracting industries, investors and developers alike.

Vertical growth, rise of gated communities and integrated townships

A noticeable feature of urbanisation in key cities is the vertical growth. Owing to the scarcity of land and the need to meet the rising housing demand, cities witness the growth of high-rises. The development of gated communities is gaining momentum across cities. This is mainly influenced by the evolving needs of the population. People are now increasingly showing liking towards leading a modern lifestyle with access to high-end amenities like a clubhouse, swimming pool, gymnasium, entertainment and recreational spaces, etc. within the community. Therefore, real estate developers provide all these conveniences in housing projects to attract buyers. Further, the growth of population drives the demand for integrated townships that come with residential, commercial and retail spaces.

Rise in property values

Property prices in urban areas tend to be higher than in rural areas. Some of the key factors influencing this surge in prices are:

• High demand for properties: With the rise in housing needs, the demand for residential properties rises. When the demand surpasses the supply of properties in an area, the prices increase.
• Presence of business districts: Typically, Central Business Districts (CBD) in big cities, comprising a cluster of commercial, retail and business centres, are areas with maximum urban density. These are sought-after locations that drive property demand, leading to high prices.
• Infrastructure: A well-developed infrastructure is a key attraction for businesses, investors and end users. As infrastructure continues to be developed and upgraded, the area witnesses a high demand for property, and this leads to a rise in property values.

Impact of demographics on real estate

Demographic shifts, which relate to the age, income levels, education, and occupation of the population, are key factors that impact real estate developments in a region. Understanding the characteristics of a population and will provide useful insights into real estate trends and enable investors, buyers and developers to make an informed decision.

Let us discuss the various demographic factors that impact the real estate market:

Age of the population

The age of the people living in an area is a key factor influencing the housing preferences. Different age groups have their unique space needs, which define the property demand in the location. For example, it is mostly young people and working professionals who move to the urban areas for job opportunities. This section of the population also shows a keen interest in gated communities having various lifestyle amenities at their doorstep. On the other hand, the senior citizen population prefers retirement homes in smaller towns. Real estate developers assess these trends when launching their projects.

Income levels of people

Purchasing a property is a huge financial decision for many as it involves significant costs. The purchasing power of people shapes property preferences and locations. People with higher purchasing tend to invest more in luxury real estate. On the other hand, those belonging to the lower income groups look for affordable housing properties. The government has a key role to play in meeting this housing demand and launches specific housing schemes catering to these income groups.

Education of the population

It is interesting to note that education is a key factor that can drive the demand for specific types of properties and location preferences. Highly educated or wealthy individuals prefer to invest in premium neighbourhoods with access to top educational institutions. Similar preferences evolve for areas having vibrant culture and recreational amenities, impacting the real estate trends in the neighbourhood.

Lifestyle changes and cultural norms

Cultural norms, evolving lifestyles and household structures also contribute to real estate trends in an area. There is a growing trend of one-person households, especially among the young population. Students and single working professionals generally tend to look for residential properties close to college or workplace. Hence, the demand for budget-friendly and smaller housing units like 1 BHK or 2 BHK homes is likely to be higher in these areas.

Similarly, the culture of an area influences property preferences, including the increasing demand for Vastu-compliant homes in India. People believe that homes designed based on Vastu Shastra bring good luck and prosperity. Real estate developers study these unique demands and demographic segments when designing their projects.

Housing.com News Viewpoint

The real estate landscape of any region is shaped by several factors, of which urbanisation and demographic shifts are quite significant. Understanding these factors and how they influence the real estate market will help a homebuyer understand the evolving preference for specific types of properties and neighbourhoods and even price trends. It will provide sufficient insights into the cities or localities within a city that are expected to see real estate growth. For example, an upcoming airport on the city outskirts is likely to drive real estate developments in the surrounding areas. Businesses are likely to set up their operations, creating job opportunities. As a result, buyers can expect to find housing options as developers tend to capitalise on the increased demand and introduce new properties in the market.

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