What Determines the Value and Demand of Property?

Real estate has historically been attractive worldwide from various perspectives, whether it is for personal use or simply investing in it. The decision to buy or sell real estate is a complex one, with interplay of numerous facets of human behavior and decision-making abilities. It involves not only the physical attributes of a property but also aspects like emotions, social status, safety, proximity, etc.

The diverse ways people make decisions and the various factors that influence their choices are critical components in determining the value and demand of properties. The psychology of real estate is a complex process of assessing and valuing the different factors that can influence how one approaches buying or selling properties.

Emotional Factor: One such factor is emotion, which has one of the greatest influence on buying or selling decisions. Emotion traditionally plays a significant role in real estate decisions and can sometimes inflate a property’s price. For example, someone emotionally attached to a house may place a higher price tag on the house they’re selling. Similarly, someone may be willing to pay a premium for a house in a neighborhood that reminds them of their childhood.

Another critical factor in the real estate industry is social trends & behaviors. People often base their property decisions on what others in their neighborhood are doing. They tend to own and maintain homes similar to their peers or neighbors. This social behavior can manifest in the property market when many people are willing to buy the same house, and the property tends to command a higher price. Conversely, if a home has been in the market for sale for a long period, people may start to suspect there’s something wrong, causing the price to drop.

Economic Conditions: Decision-making in real estate is typically influenced by current and anticipated economic conditions. The cost of living, interest rates, inflation level, and market confidence are all factors that can influence a person’s ability to buy or sell a property. It’s traditionally observed that in countries with lower interest rates, people are encouraged to take home loans and mortgages, leading to an increase in property demand. The opposite is also true. In places where the cost of living is rising significantly, people often postpone their decision to buy and move into new houses.

External economic factors also play a role in property decision-making processes. For instance, buoyant economic activity or GDP growth in a country tends to coincide with higher demand for quality houses and commercial properties, pushing their prices up. Conversely, during economic recessions, property demand can decrease, negatively affecting prices. The decision-making process in the property market is also influenced by psychological factors like risk aversion. People are typically very risk-averse when it comes to property, which can slow the pace at which properties exchange hands. For example, during the time of demonetization in India in 2016, people became extremely risk-averse in real estate decisions, leading to a significant stagnation in the property sale and purchase market.

Heuristic Attributes: The heuristic attributes of a particular property market can also affect the real estate decision-making process. This can manifest in various ways. For example, if a potential buyer of a property encounters a certain flaw in the legal documents of many properties in a particular region or city, the buyer might assume that all properties in that area have such a shortcoming. They would either place a lower value on a certain property they want to buy or not buy property there at all.

Thus, precise knowledge of consumer behavior combined with an economic approach, and not just the physical attributes of a property will lead to a better understanding and prediction of decision-makers actions in the real estate market.

Source : FE

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