Real estate sector growth would be driven due to a large unmet demand for housing and commercial spaces in the country. Demand side factors are unlikely to act as a key risk to real estate growth, unless serious economic downturn occurs. The factors that may hinder the pace of development would most likely be supply side related. Rising construction costs, skilled labor, shortages, project delays and excessive speculation resulting in demand destruction may result in revaluating the positive outlook on this sector.
Country Risk and macroeconomic factors - Such risks pertain to the effect of government policies and other country risk factors, such as: the extent to which the economy is subject to volatile cycles that can affect real estate prices, leasing activity, and rental rates; the tax treatment of real estate-related earnings; the legal and commercial framework for property ownership lease contracts; government regulations pertaining to rental rates; the availability of mortgages and other forms of financing; ease of obtaining building permits and issues in respect to clean property titles; tax incentives pertaining to real estate development activities; the permitting/licensing process related to real estate development; and transparency and availability of reliable market data.
Location – location is the basic key for a business to bloom and to boom. Excellent zoning plan – geographically/geologically and accessibility are some of the major reasons a prospective client will rent or acquire a property. Aggressive development or re-development activity can heighten business risk for a real estate company. This is particularly the case if the company constructs sizeable new facilities in new geographic markets and/or in new subsectors and if these are not preleased in advance of construction. Similar risks can be taken on through acquisitions of properties that are under development or less than fully occupied.
Economic Cycles- some projects are overbuilt leading to depressed occupancy rates, rental rates, and property values. Competition for tenants can be intense. Some property subsectors like retail, multifamily and storage are also subject to seasonality. The business is somewhat capital intensive because of the significant investment required to develop new properties and maintain existing properties so the sector is subject to capital markets conditions and to changes in general interest rates.
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