To make the right decision when buying property, you need to have a basic understanding of the macro and micro factors that affect the real estate market. By understanding what makes the property tick, you will be able to establish the best property investment strategy for you.
There is one thing you need to be clear from the beginning. Property is a rather simple commodity whose value depends largely on the supply and demand. There are a lot of micro and macro factors that swing the supply and demand balance one way or another.
Let’s look at macro factors first.
Macro factors that affect real estate market
The butterfly effect. The term was coined by meteorology professor Edward Lorenz to denote small events that cause significant shifts relating to everything from pop culture to the global economy. In his study, Lorenz concluded that even the flapping of a single butterfly’s wings on one side of the globe can produce massive storm on the other side.
How can this affect the real estate market? The investment behavior and sentiments are largely affected by events in various parts of the globe.
This was vividly demonstrated in the past year when jitters in the Chinese economy rippled into US stock market correction in 2015 and 2016. Of course, other factors were affecting the situation, but most commentary pointed that what was happening in China was the proximate cause of US stock market volatility.
Government policies. Government policies can also trigger or halt the supply and demand balance in a country. Just to recall Canada’s foreign tax on real estate. Due to the new government regulations, the purchases of Toronto homes by foreign buyers dropped over the summer falling from 7.2 percent of sales in May to 5.6 percent of houses sold over the three months.
Government policies can largely affect the mortgage market which directly stimulates or halts the housing market. When money is easily accessible, people tend to buy as much as they can.
Construction costs. We must be clear on one thing. Developers build houses for profit. If the costs of raw materials rise, this will squeeze a respectable profit out of these projects and developers will be more cautious of building more homes or will delay the speed of building them. Eventually, this will cause a shortage of supply.
Population growth. Anything that will trigger migration into the country will result in a shortage of houses. According to CTV News reports, Canada added between 236,800 and 281,000 immigrants annually between 2004 and 2014. Naturally, the immigration will add up to the demand.
Now let’s look at micro factors which are also determinant for real estate market.
Micro factors that affect real estate market
Location and amenities. When it comes to buying or selling the property, location and amenities are determinant. Things like proximity to MRT stations, near expressways, being close to major roads, shopping malls, hospitals, child care parks, food centers and so on can raise or lower the price of the house.
Morning sun and afternoon sun. The morning sun and afternoon sun have become factors that buyers are primarily interested in. The impression is that a North or South facing house is preferred over those that are directly inviting the sun into the house.
Also, homes with a great view are also generally accepted to be of higher value.
Layout and building style. Those architectures that cannot be easily replicated, tend to have a higher value. Also, the property which has a space that can be easily utilized are deemed to be more expensive.