Factors Affecting Residential Investment
Residential investment is an area that interests many, and accounts for the wealth of a greater percentage of homeowners, hence, knowing the factors affecting residential investment is of significant importance. These factors basically refer to the aspects or conditions that may hinder or encourage people from investing in residential property. By knowing these factors, people or companies with plans of investing in residential property are able to determine the supply, demand and market trends for better decision making.
It is estimated that a third of the net worth of an average American lies in real estate investments. This translates to a value of about $20 trillion for the whole real estate industry. Based on the huge size and scale of the residential property market, it is becoming an attractive investment option for many people.
The Key Factors Affecting Residential Investment
There are quite a number of factors affecting residential investment that you should know in order to successfully sail the murky waters of the real estate industry. However, not all may have significant impacts in the residential property market. The following are some of the key factors impacting residential investment.
The economy
The health of a country’s economy has a great impact on the condition of the residential property market and entire real estate sector. The economy of a country can be measured by several indicators like the GDP, employment data, prices of goods and services, manufacturing activities among others. When the economy is dragging or at a stand-still, the real estate market also assumes a similar pace.
However, it should be noted that the impact of the economy on the residential property market may vary For example, leasing a residential property on long-term basis can be quite costly in a country experiencing economic problems, since the terms always remain the same.
Rates of Interest
Changes in the interest rates can also have an influence on the ability of an individual or company to invest in residential property. This is because when the rates of interest plunge, the cost of obtaining mortgages for purchasing homes also falls, thereby creating a high demand. As usual high demand always translate into higher prices, hindering many people from investing in residential property.
In contrast, high interest rates facilitate increased cost of mortgages, hence, lower prices of homes, which may negatively impact those planning to sell their homes.
Demographics
Often ignored by many investors, demographics is also one of the main factors affecting residential investment. Demographics refer to the data describing the composition of a population, which can be obtained by looking at aspects like gender, age, race, income levels, population growth and migration patterns. The statistics have a huge impact on the pricing of residential property and also the units or types that are on demand in the market.
For example, demographics of a higher population of older people will mean a high demand for retirement homes. Besides, a population with low income levels can also mean lower demand for residential property since many are unable to afford buying homes, instead, prefer rentals.
Government Regulations
Legislation by the government and relevant authorities can also have significant effects on residential investment. Some of the main government policies that investors should watch out for include tax credits, subsidies and deductions. The government may decide to impose these policies in order to increase the demand for residential property.
Awareness of the current government incentives can be of great importance in determining the supply and demand, and also identifying misleading market trends.
An example of an instance when government regulations affected investments in residential property was in 2009. The US government announced a homebuyer’s tax credit for the first time, to home owners in an effort to spur the buying of homes at a time when the economy was beginning to gain ground from the depression.
Conclusion- Factors Affecting Residential Investment
There are other factors affecting residential investment that you may also need to look into before making the final decision. Besides, the factors described above may have varied outcomes, different from the expectations. Therefore, you should always be keen and preferably involve an expert in the residential property sector for advice on how to perform a comprehensive analysis of the market.
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References
http://www.investopedia.com/articles/mortages-real-estate/11/factors-affecting-real-estate-market.asp
http://umrefjournal.um.edu.my/filebank/published_article/7195/Factors%20Affecting%20the%20Purchase%20Decision%20of%20Investors%20in%20the%20Residential%20Property%20Market%20in%20Malaysia.pdf
http://www.prres.net/papers/Schwann_Brown_Scott_Personal_Residential_Real_Estate_Investment.pdf