Determinants of Demand of Real Estate

Topics: Real estate, Money, Property Pages: 3 (879 words) Published: November 11, 2011
Determinants of Demand of Residential Real Estate

Demographics are the data that describes the composition of a population, such as age, race, gender, income, migration patterns and population growth. It is obvious that as the population increases, so will the demand for housing. As the income increases, so does the demand of real estate as people would be willing to pay higher prices. These statistics are an often overlooked but significant factor that affects how real estate is priced and what types of properties are in demand. Major shifts in the demographics of a nation can have a large impact on real estate trends for several decades.

Interest Rates

Interest rates also have a major impact on the real estate markets. Changes in interest rates can greatly influence a person's ability to purchase a residential property. That is because as the interest rates fall, the cost to obtain a mortgage to buy a home decreases, which creates a higher demand for real estate, which pushes prices up. Conversely, as interest rates rise, the cost to obtain a mortgage increases, thus lowering demand and prices of real estate. The consolidated net profit of India’s largest real estate company, DLF Ltd, dropped 11 per cent to Rs 372 crore during the second quarter ended September 2011 from Rs 418 crore in the corresponding period last year due to the high prevalent interest rates. The origins of Indian Property Market Bubble can be traced to the interest rate reductions made by the NDA coalition government in the years following 2001. Home Loan Rates fell to a (then) historical low of 7.5% in early 2004. This prepared the basis for the increase in real estate property prices across India. Low interest rates triggered interest in individuals to borrow to own their own homes and this triggered an increase in demand for real estate across India. The Indian Property Market has been growing fast since March 2005, when the current UPA government decided to open...
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