Real estate has always been considered as a fruitful asset in one’s investment portfolio, for the short term, as well as long term. Property is one of those few assets, which can offer you returns that are higher than the inflation rate. However, only a modest part of the population manages to invest in real estate, out of which only fewer can understand how the property market works and what really contributes to price appreciation in the property market.
What causes property price appreciation?
Infrastructure development
Infrastructure development plays a key role in price appreciation. Any new connectivity, transport, road, or transit hub, will act as a growth driver, as these are expected to bring more population and ultimately, more demand. Investors who time the market right, can get the most out of their real estate investment.
Let us understand this with an example.
Gurgaon’s property market is currently witnessing major demand from end-users and investors. New projects being launched in the region, are seeing major footfalls from serious buyers. This is because the upcoming Dwarka Expressway, a major infrastructure project, will boost connectivity between the national capital and Gurgaon. As a result, properties located along this stretch will become more attractive and fetch better returns for the investors. A similar trend was noticed when the Noida-Greater Noida Expressway was under construction. Prices moved from Rs 2,000 per sq ft to Rs 5,500 per sq ft in a matter of a few years, along this project. Similarly, localities where the Mumbai Metro had traction witnessed triple-digit price appreciation in just five to six years.
Upcoming or available amenities
Imagine a property without a parking space. Now, think of a similar property, with a parking space. This additional amenity can create a price difference of 10%-15%, especially in metro cities where parking in residential colonies may be a hassle. Property owners, who continue to upgrade their property, can get a better rate than the prevailing market rates. This could be a basement garage or a mini terrace garden or a kitchen lawn. In addition to this, the architectural design, upkeep and interiors of the property, also play a pivotal role in price appreciation.
See also: How does a neighbourhood impact property prices?
Local development
For a property market to appreciate, it is very important that the local neighbourhood and the social infrastructure, support growth. A property in a gated residential colony with a functional residents’ welfare association (RWA) will be preferred to a stand-alone property located in a regular colony. Similarly, green cover, security surveillance, facilities in the immediate neighborhood and type of gentry residing in the area, can also result in property appreciation. In an area, where stand-alone properties give way to independent floor constructions, the properties may become more preferred but it may not appreciate in terms of value.
Policy changes
One major policy that directly impacts real estate appreciation, is lending rates. Cheaper cost of borrowing brings more buyers to the market, creating more demand and appreciation. Similarly, reductions in stamp duty rates, circle rates, GST rates, income tax benefits, etc., directly impact demand.
Economic situation
A country’s economic condition also plays a vital role in property appreciation. If the inflation rate is high, the value of money will reduce. This means that a builder would need to spend more on input items like construction materials, labour, permits, etc. However, this does not imply that the property prices will rise, irrespective of the growth drivers. For prices to grow, properties have to meet several requirements, including accessibility, infrastructural requirement and availability of residential properties. In addition to this, the overall economic indicators such as GDP, purchasing power parity and unemployment rate, also contribute to price growth in the long run.
See also: Impact of Coronavirus on property prices
FAQ
Top 5 factors that make property prices appreciate
By Anil Pharande
Today, not just investors but even end-users check for property price appreciation potential before buying a home. We list the 5 important factors that cause property prices to appreciate
November 26, 2018: Real estate investors are always keen to buy a property when they know that it will gain in capital appreciation but it is not only property investors who are attracted by this phenomenon. There is also greater interest from end-users for buying rather than renting homes, since real estate appreciation means that their asset becomes a greater source of financial security going forward. Appreciation also opens up the possibility of selling the first property and buying a bigger and better one should the need arise, which usually does as the family grows.
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