Real Estate has no extraordinary returns but here are factors that determine value of property

Real estate is probably the single largest investments in the portfolio of every family across the globe.

Most middle class families invest the maximum amount of money in their residential homes. In many parts of the world, this belief has been reinforced by the fact that houses have exponentially risen in value.

When venturing into real estate, much like any other investment, the first thought that comes to a developer’s mind is the returns. Photo: Centum.
Source: UGC

Stories of 50 times appreciation over a period of 20 years are not uncommon. However, it is important to note that this nowhere near an extraordinary rate of return.

Even if a property has grown 50 times in 25 years, its annual rate of growth is less than 10%!

It is lack of literacy about the magical effects of compounding that makes people blindly chase real estate.

The important point is that people look at historical data about real estate and expect the trend to continue.

Understanding the key factors that drive the real estate market is essential to performing a comprehensive evaluation of a potential investment. Photo: Centum Real Estate.
Source: Facebook

This means that they expect that over the next 50 years the property prices will once again increase by a multiple of 100.

This may or may not be true depending upon the specific location.When venturing into real estate, much like any other investment, the first thought that comes to a developer’s mind is the returns.Land appreciates simply because it’s limited in supply. Consequently, as the population increases, so does the demand for land, driving its price up over time.Being a free market driven by the forces of demand and supply, the high demand will result in rising property prices. Photo: Centum Real Estate. Source: FacebookOwning land opens up the possibility of selling the first property and financing other investments such as developing another plot. As such, real asset becomes a greater source of financial security for an investor.Appreciation in a property’s value can be caused by factors like inflation, increasing demand, and also improvements to the property. 1. Infrastructure development The availability of amenities is what makes an area attractive and desirable to potential buyers.People buying homes for their own use will be drawn by the development of new infrastructures such as hospitals, schools or other new real estate market drivers such as shopping malls, airports or increased public transport facilities in a particular […]

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