So What Has Fuelled The Boom In The Real Estate Market

Category: Finance, Real Estate.

"Booming Real Estate Market in US" - does this phrase sound familiar? Profit- making being the key to investment has paved the way for development in the real estate market.

One often wonders as to what was so booming about US real estate market and what s really behind the hype created by this market. Real Estate finance and investment basically encompasses a gamut of profit- making activities such as buying/ selling of property, building/ construction, leasing/ renting commercial premises or houses, advising, servicing and maintenance, financing for real estate and the list goes on. Builders of commercial and housing complexes offer state of- the- art infrastructure to keep pace with the rising competition. Every person interested in earning returns is aware of the money he can make in real estate. They look out to develop property in the emerging areas which give promising returns. Agents have been able to gain good rates of commission on deals and have expanded their business with increasing number of conversions.

Investors usually buy and hold the property with an expectation of making profit once the prices shoot up. We find speculators minting money by holding stocks of real estate and thereby triggering a price rise. They provide them with well furnished property and also take care of the maintenance expenditure. Owners of leased houses/ property charge high rents from their tenants. Thus the tenant has to simply pay for using the property rather than worry about its overhead costs least concerned about the heavy prices paid by them. Housing finance companies and financial institutions too have taking the advantage of the boom and designed tailor- made financial products to suit the investor s needs.

Educational institutes and associations organize specialized courses and trainings for real estate investments to help students and beginners make a career. Cheap rate of finance with attractive terms of repayments and installation benefits has made easier access to this market. These developments have been reflected in the stock market and GDP and have made real estate as a rewarding business arena. Lawyers& investment advisors have also had a boom in their business for the services provided in planning investments in real estate. All these factors have created a fascination for real estate investment. So what has fuelled the boom in the real estate market? We would find every other person speaking about Real Estate finance and investment and the money minted by them.

Increase in speculative activities and availability of cheaper loans along with good economic performance has caused this market to thrive. An important factor that drives the real estate market is demand. Expansion of business activities in every sector has facilitated the growth of real estate as investments. An imbalance between the demand- supply causes the market to rise. Inflation increases the money supply which triggers the demand without a rise in corresponding supply. Inflation is also a very important factor that causes the prices of real estate to appreciate. This reduces the value of money and raises the returns on investments.

These factors not only make the cost of land/ property expensive but also the rent paid for its use. Other factors include growing economic development, increasing employment opportunities and infrastructural development in upcoming towns and cities, location and available facilities, current market rates, competition. All these have given way for the high rates of property to buyers. This has made it difficult for genuine investors willing to buy property. Escalating prices creates a bubble coupled with overheating of property market by speculators. They are the ones who bear the brunt of rising rates and end up paying much more than the actual value.

However, this thriving market saw its downside in 2006 with interest rates rising and measures taken by the government to discourage speculative activities.

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