In our premier article in this series, we would like to unravel the popular belief on why real estate is so expensive. From an outsiders’ perspective, it is very easy to conclude that industry stakeholders are just slapping outrageous prices on properties, but in reality, are they? Here are some factors that go into valuation of real estate deals and sometimes the overall market.
Real Estate is Finite
The first and foremost reason is that Real Estate is a finite resource. You can make more money, but you cannot make more land. Yes, dredging occurs, but that usually is an expensive and careful displacement of land to serve a purpose. As a result, as with every other scarce commodity, the price attached to a property will rise and fall on the availability. As more and more folks go into buying property, the availability is set to reduce and thus prices will most likely increase.
Effect of Inflation
Inflation is a significant marker on the real estate market and the reason is not far-fetched. As the cost of goods take an upward tick in an economy, the prices of building materials are also directly affected. The totality of these costs can significantly bump the asking price on a real estate property. Also, inflation occurs more frequently than deflation, so the prices continue to rise as a direct consequence of economic trends.
Cost of Repair & Maintenance
The total value of a property just doesn’t stop after it’s been purchased, but every investment on the property adds value to it. Activities such as remodeling, upscaling or even some maintenance work could edge up the value of a property especially when you’re renting. So if you want to reduce the impact of the real estate lease market, it is better to move around less often, as current market prices are usually higher than upward price reviews. Also maintaining the property edifice will help stave off evictions.
Quality & Expertise
We hate to break it to you but all real estate is not the same. Some are more equal than others and this is not about the finishings or lighting effects. Well designed and structurally sound buildings tend to cost a lot more than their counterparts not only because they are built in line with best practices by experts, but also means choosing to use quality materials, some of which are imported, which cost a pretty penny. Of course, there are a lot of inflated prices on the market, but that’s why you need expert advice.
Demand & Supply
How close is your property to city, an airport, a business hub, what amenities are available to you? What of demand? Is the real estate market bullish or not. How many properties are on the market? What is the local/global economy like? So many things factor into the listing price of a property.
It will interest you to know that during harsh economic times, real estate investments peak as it is a safe and reliable investment haven for many.
There are several factors as to why the cost of a property is what it is, but these are some obvious pointers. Tell us in the comments, do you still think real estate is overpriced?
