Posted on october 15, 2014

Sentiment driven real estate – Part II

Investor sentiment plays a crucial role in defining the real estate market. The investors decide sequentially whether to invest or not based on some signals. Socio-economic factors influence the investor behaviour which in turn rationally triggers the buying and selling of houses in the real estate industry. They are the factors that drive the sentiments in the real estate markets. Some of them are:

Interest Rates –

The biggest risk for real estate today is interest rates. Interest rates triggers inflation which further fluctuates the real estate prices. When inflation is high, the cost of buying a home increases as lenders raise interest rates to curb inflation. As the currency loses some of its purchasing power with a rise in inflation, any savings you have put aside for a down payment devalues as well. If you are thinking about buying a house when the inflation rate is high, chances are you will be facing rising home prices and higher interest rates, which increase the cost of borrowing. On the other hand, real estate is a great investment at any time, and it is even better during times of rising inflation. Limited availability of land and growing population growth will increase the demand for houses and hence real estate in general has the potential to beat inflation easily.

Inflation –

Inflation is a slow, silent killer, which gradually erodes the value of money, and in turn the value of accumulated savings. Inflation and property market are correlated. Inflationary environment triggers volatility in the real estate market. The housing prices will either rise or fall in an inflationary environment. The divergence between inflation and the housing prices can make people struggle. Inflation affects housing prices, particularly over the long term. Although rising home prices can make it look like the real estate market is improving, prices, generally, rise due to the impact of inflation.

Effect of Supply and Demand –

When the Reserve Bank of India lowers the funds rate, it in turn drops interest rates down, making it cheaper for consumers to borrow money. This makes things easier and smoother. Low interest rates make purchasing home more affordable, attracting buyers. As an example, competition for a limited supply of homes on the housing market due to low interest rates increases home prices. But as homes get higher prices; more sellers are in turn putting their homes up on the market, increasing the supply. Historically, as market inventory increases, housing prices tend to level off and remain steady. Thus supply and demand too are interrelated.

HNI –

Real estate is certainly the most preferred asset class among the rich. The impact of high net worth individuals on global property markets has long been recognised with number of high-net worth individuals increasing. The result has been a wide number of people eyeing properties overseas. Indian property market remains a worldwide player among them. Indians living overseas always invest on a property in their home land thus bringing in foreign money and boosting the market. When there is an upsurge in the HNIs, there emerges a demand for luxury homes in the market. As a result, more ultra-luxurious and high standard properties are built to satiate the demand.

Investor sentiment plays a significant role in the property market. They help in the determination of the asset prices. External elements like economy, Government, funds and Inflation hold the key to the changes in the real estate markets. With several years of serving in this industry, the team at Saran Developers share a good understanding of the effects of the various factors in the real estate market. After careful thought, Saran Developers have built Mulberry Woods which are 4 bedroom condos located off Sarjapur Road. The exclusivity and the efficiency shown by Saran Developers make it a market leader in the property market.

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