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What Factors Drive the Real Estate Market?

  • Published On 15-Aug-2022
What Factors Drive the Real Estate Market?

As they rightly say, about 90% of all millionaires are made out of real estate. The size and scale of the real estate industry and the opportunities offered by it make it a lucrative and attractive sector for many investors.

But what are the factors that drive the real estate market? Let’s have an overview.

Demographics in Real Estate:

Of a number of factors that affect the availability, prices, and investment potential of real estate, demographics are the most significant ones. Though it is quite an overlooked factor, it plays a significant role in determining the smooth flow of the real estate industry.

The composition of a population such as race, gender, age, migration patterns, income, and population growth make up the demographics of any region. Any shift in the demographics can leave significant impacts on the industry for decades.

The baby boom generation, for example, is a demographic trend that may have a significant impact on the real estate market. It is one of the most interesting generational trends in recent history to observe the retirement of these baby boomers, which began back in 2010. The impact of the retirement of these boomers is more likely to be seen for many decades to come.

Though the demographics can affect the real estate industry in numerous ways, investors can cope with these impacts by asking two questions;

  1. When more people start to retire, how would this affect the market for second homes in popular vacation areas?
  2. Would a smaller income and children moving out lead to a decreased demand for larger homes?

Pondering over such questions can help investors to determine a potentially desirable real estate investment before any real estate trend undergoes any change or revolution.

Economy and Real Estate:

Economic indicators such as manufacturing activity, prices of goods, employment data, and GDP affect the overall health of real estate. Any upgrade or downfall in the economy of a country leaves similar impacts on the real estate sector of the industry.

However, the impacts of the economy on real estate may vary according to the different types of real estate. Hotels are the most sensitive type of real estate property that is exposed to the impacts of the economy. The lease structure of the business is the primary reason behind it. For example, customers can avoid leasing a hotel room if the economy is doing poorly.

On the other hand, office tenants are more likely to suffer at the hands of an economic crisis. This is because they have long-term leases that cannot be breached in the middle of an economic crisis.

This emphasized enough the importance of being aware of an economic cycle as an investor.

Government Policies and Real Estate:

As an investor, it is quite obligatory for you to be aware of the updated government policies as they can help you to identify and stay safe from the wrong real estate trends. Moreover, it can also help you determine any change in the demand and supply chain in the industry.

Subsidies, deductions, and tax credits are some of the government-related factors that can greatly influence your real estate game.

What’s the Best Investment?

Real estate investments can be carried out in two ways; direct investment and indirect investment. Indirect investments are based on managed funds and can be carried out in the following ways;

  • Investing in real estate investment trusts (REITs)
  • Real estate exchange-traded funds (ETFs)
  • Commingled real estate funds (CREFs)

However, according to the studies conducted indirect investments are the best investments you can opt for.