News & Views on Indian Real Estate

Tuesday, April 15, 2008

Factors affecting Property Prices

We are off late witnessing Indian realty prices touching the sky. Learning to know what precedes property price increases can be challenging for any investor. There are some well-recognized factors that drive the market. I have discussed few of them below:

1. Demand & Supply- Population change is the key driver of demand. When an area becomes popular more people want to live there. Given there are fewer dwellings than interested parties, prices increase and vice-versa. The other driver is availability of land.

2. Affordability and availability of money-Affordability is the relationship between housing prices, interest rates and wages. It's the cost to the owner or investor to retain and enjoy a property. When prices, interest rates and wages reach a ceiling in a particular area, residents often realise they can have a better lifestyle elsewhere.

3. Infrastructure-Infrastructure is always a major driver for price growth when it increases the attractiveness and amenities of an area. The benefits of infrastructure are generally recognized after the changes.

4. The resources boom-The demand for skilled and unskilled workers is increasing day by day.And with an increase in their salary scale, these workers seek to improve their lifestyle by buying bigger and better homes, or maybe an investment property or two.

Put a number of these drivers together and you have an extremely good understanding of what's going to drive price growth. Having identified these areas, careful homework may reveal good cash-flow returns as well.