According to financial experts, real estate is the single most important investment in the portfolio of every investor across the world. Many middle-class families choose to invest a lump sum amount of money in various real estate options such as residential homes. In different regions of the world, this belief is reinforced by the fact that homes continue to increase in value. There is also a simple story of 100 times appreciation of homes of a period of five decades.
It’s worth mentioning that extra-ordinary rate of return of real estate investments cannot be underestimated. Even when a home’s value has increased a hundred times in just five decades, the yearly rate of growth might be less than 10%. That means it is illiteracy and lack of understanding of the real estate market and its compound in power that makes people chase real estate investments blindly.
It is recommended to analyze historical data about the performance of properties and expect that trend to continue. If you have always wanted to purchase a good home, you may want to check Movoto.com and other home listing property platforms. Here are the underlying factors that drive real estate growth.
1. Zoning laws
Zoning of land is one of the main reasons for the increase in prices of real estate assets. For example, five decades earlier, the population wasn’t as much as it is currently. That means a lot of lands which were spared for agricultural use. Generally, agricultural land doesn’t have much commercial use compared to real estate. Therefore, the prices of land were significantly lower.
When zoning laws change many decades later, the land is allowed to be used for residential purposes and other real estate uses. This could lead to a significant increase in the value of the land. That means much of appreciation of real estate assets over the past five decades has been due to various changing in land zoning laws.
This is especially true regarding different locations adjoining major metropolitan areas. These cities grow in size, and that means the nearby agricultural land tends to become valuable as the cities continue to absorb such areas.
2. Infrastructure development
If commercial and residential construction is allowed on a specific part of land infrastructural improvements should begin accordingly. The residents will need better odds and other social amenities.
The general livability will increase when hospitals, schools and markets are constructed nearby. Though these infrastructural changes might take up to a decade or more, the value of the real estate in that region will keep on increasing as the infrastructure become better each year.
3. Workplace connectivity
No one wants to travel 10 km or more daily to go to work. This is the reason millennials prefer to stay near their workplace. If a specific location is well connected to a nearby workplace such as industrial areas, the residential properties, and other types of real estate in that region are likely to increase in value.
The relocation of CBD to the outskirts of a city can create the possibility of value appreciation of homes and other real estates in those regions. Keep in mind that most workers don’t buy plots of land. Instead, they choose to purchase already developed homes and other properties. That means that much of the real estate appreciation associated with workplace connectivity goes to the developers themselves.
The cost of an apartment accounts for different factors in the development phase management of the apartments and profit margin for the investor. That means the property buyers may not have much to profit from increased workplace connectivity, but the construction investors all property sellers may have much to benefit from such connectivity.
4. Inflation
The cost of land and construction residential and commercial properties continue to increase annually. This is because the costs of inputs such as steel cement, skilled labor and more tends to increase with time. As a result, economic inflation makes purchasing of land and property construction expensive. In case the nominal price of a home isn’t increased by 2% or 3% annually, it means that the owner is losing money in real terms. That means inflation drives the value of properties directly or indirectly.
5. Externalities
If a specific location is becoming popular with residents, it is likely to become a hotbed for various social activities. These include restaurants, hobby classes multiplexers shopping malls and more. These social activities and amenities are likely to open this area for further investments. As the area becomes more developed, more people will prefer to live in this area, and the value of properties will continue to increase.
Now that you know the specific factors that are likely to increase property prices, it’s time to make sound investment decisions. You may want to consult with an experienced investment expert.
