Property and real estate, without a question, is one of the most expensive if not the most expensive possession for most people. Real estate represents a significant portion of most people’s wealth in Bangladesh as well. And for its sturdy nature, many people feel safe investing in real estate than any other sector. That is why the demand for real estate is dramatically increasing day by day in Bangladesh, especially Dhaka. But before investing your hard-earned money, it is important to have a better understanding of the factors that drive the real estate market. Here in this article, we will discuss those key factors that drive Dhaka’s real estate market as well.
Demographics
Demographics are one of the biggest factors that drive the real estate market. It represents the data that describes the composition of a population, such as age, race, gender, income, migration patterns, and population growth. These are often overlooked but have a significant impact on how real estate is priced and what types of properties are in demand. Major shifts in the demographics of a nation can significantly impact real estate trends for several decades.
There are numerous ways a demographic shift can affect the real estate market, but for an investor, some key questions to ask might be:
i) How would this affect the demand for second homes in popular vacation areas as more people start to retire? Or
ii) How would this affect the demand for larger homes if incomes are smaller and the children have all moved out?
These questions can help investors narrow down the type and location of potentially desirable real estate investments long before the trend has started.
Interest Rates
Interest rates also have a major impact on the real estate markets. If you’re considering buying a home with a mortgage it is beneficial to research interest rates using a mortgage calculator. Changes in interest rates can greatly influence a person’s ability to purchase a residential property. That is because the lower the interest rates go, the lower the cost to obtain a mortgage to buy a home will be, which creates a higher demand for real estate, which again pushes prices up. For example, the interest rate of loans came down to a single-digit last year and it has impacted the real estate market positively as more and more people became interested in a buy a new home and opted for a home loan. It’s important to note that as interest rates rise, the cost to obtain a mortgage increases, thus lowering the demand and prices of real estate.
The Economy
Another key factor that affects the value of real estate is the overall economic health of a country. Of all the factors that drive the real estate market, the economy has the most impact. This is generally measured by economic indicators such as the GDP, employment data, manufacturing activity, the prices of goods, etc. Broadly speaking, when the economy is sluggish, so is real estate. However, the variability of the economy can have varying effects on different types of real estate.
For example, investing in the hotel business has a higher chance of being affected by an economic downturn than investing in office buildings. The nature of the hotel business depends largely on people’s ability to earn. Renting a hotel room can be compared to a form of short-term lease that can be easily avoided by the customers if the economy takes a downturn. On the other hand, office tenants generally have longer-term leases that can’t be changed in the middle of an economic downturn.
Government Policies
Government rules and regulation is another big factor that can have a huge impact on property demand and prices. Registration cost, tax, and subsidies are some of the ways the government can temporarily boost demand for real estate for as long as they are in place. Being aware of current government incentives can help you determine changes in supply and demand.
For instance, the legalization of investing undisclosed money into real estate had a significant impact on the housing market of Bangladesh. BDT 3,200 crore of undisclosed money was invested in real estate in 2020 from July to November.
Apart from these, other complex factors also affect the real estate market. We discussed the factors that directly impact the real estate market, but in practice, the reality can be very different. However, it is always better to clearly understand the factors that drive the real estate market.
