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Saturday, 1 February 2014

In Depth Analysis of Real Estate Appreciation

When it comes to real estate appreciation, a question pops up as to what are the reasons behind the rise in property prices in certain areas. The whole procedure of augmentation of a property’s market value over time is a prime idea behind real estate investment. This procedure is known as appreciation. There are basically various causes to real estate appreciation which includes: Inflationary pressures; the supply and demand dynamics of a particular location; Arrival of new real estate market drivers in a location; Population growth and Home loan interest rates (cost of borrowing).


Inflation: Inflation results due to an excessive amount of money in circulation. What else happens in this procedure is that there is over-abundance of money which leads to a situation wherein its value falls. During the course of this action the prices go up for a number of things which includes construction materials, the prices of land, legal building permits, number of other things and labor.

Demand and Supply: When there arises a situation wherein there is a noticeable increase in demand for homes in a certain area, then if in case the amount of residential real estate projects is not catching up fast enough, the property prices shoot up. To put in other context, self-use buyers are more than ready to pay extra for a property as they tend to find living in that area extremely favorable.

As a resultant factor, when this demand brings in real estate investors, who eventually buy properties there to sell them at a profit when supply slows down again. As a result what happen is that the property prices in that particular location tend to shoot even further.

Home Loan Rates: There is a direct bearing on property appreciation of behavior of home loan interest rates. When there is an increase in the home loan interest rates, then the demand for property also slows down owing to lesser buyers as they can afford to shell out the extra money required by the banks. On the same facet, what leads to an upbeat in the demand for properties is that a sufficient decrease in home loan interest rates which leads to an increase in affordability.

Population Growth: On the same note, the growth in population in area such as PCMC obviously shots up the demand for residential properties there. This eventually, transforms directly into appreciation in real estate rates.

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