By Anita Mba
Real estate prices tend to recur and most of it bank on external factors that cannot be controlled. Thus, in acquiring property, it is necessary to examine the market in broad terms paying close attention to the pattern of the economy and other factors around the time of purchase to help define short and long term value.
The economy substantially impacts the overall strength and condition of the real estate market. When the economy thrives, the market thrives as well, when there’s a downward spiral, the market suffers as a result. Generally measured by indicators such as the GDP, and employment rates, the market is largely reliant on consumers’ ability to support and invest in the various types of real estate, the economy will have varying effects on each one. With regard to hospitality for instance, these are very sensitive to and dependant on economic performance due to its short term nature, consumers would avoid the extra expenses on hotels if the economy performs poorly. Home rentals on the other hand can be regarded as necessities with longer terms than hotel leases and as result, will less likely experience sudden change.
In growing economies like Nigeria where there is increased real estate activity, the impact of the economy is felt and having just escaped recession, the connection between real estate and the economy remains pronounced and as a result, rising vacancies, abandoned properties etc.
LAWS AND GOVERNMENT INITIATIVES
Legislation is also another factor that can have considerable impact on the market. The technicality and bureaucracy associated with acquiring property and perfecting title documents makes it far from a seamless process. The Land use act which is one of the governing laws of land in Nigeria remains more problematic in practice. The policies and daunting procedures involved in securing building certificates and approvals from the government is also not encouraging.
On the other hand, Government involvement and incentives such as Lagoshoms mortgage scheme created by the government to encourage and support home ownership for first time buyers will ultimately have a positive influence on the market. Similar initiatives can greatly impact and balance the market, encourage affordable housing targeted at low income earners and curb the apparent housing deficit.
This describes the composition of the population, i.e. age, class, gender, income, population growth combined create the special characteristics of an environment, these statistics are often overlooked but noteworthy factors that affects how real estate is priced and what types of properties are in demand. The connection concerning these factors and housing markets is based on the idea that demographic elements are the crucial drivers of the real estate market. Major demographic shifts can have a large impact on the market in many ways. For example, baby boomers, those born between 1945 and 1965 are an example of a demographic trend which will significantly influence the market. The transition of these baby boomers to retirement stage is one of the more exciting demographic trends in the last century. The retirement of these baby boomers is guaranteed to be observed in the market for decades to come as generations and demographics shift.
Investors can also influence the market such that when there is a decline in the economy and interest rates are up, sellers are forced to crash property prices to break even at best. This creates an insatiable wet appetite for investors who acquire distressed properties, foreclosures etc. They quickly grab such properties and flip them. The impact here is that in an attempt to liquidate, there is a sudden influx of properties hitting the market at the same time, which in turn may influence the market negatively or positively as the case may be depending on timing.
The relationship between these factors and the market plays a vital role in determining the direction of the market. Having a decent understanding of the key drivers goes a long way when researching potential investments.
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