6 signs that help to predict growth in property prices

As you know, buying real estate is when the market has reached the bottom and sell at the time of the peak at the maximum price. However, the cost of objects is always influenced by many factors and therefore it is important for investors to choose an appropriate strategy and be able to predict how will behave prices for a specific period of time. “Tranio” tells, on what grounds can determine whether property is expensive or cheaper in the near future:

• economic growth (GDP)
• the growth of the middle class
• the increase in construction,
• rising prices for oil and energy resources
• major international events
• the development of infrastructure.

Economic growth (GDP)

Economic growth leads to increased purchasing power and welfare. In turn, this leads to an increase in the number of transactions in the market and, as a result, the growth of real estate prices. For example, in Spain and Italy both GDP and housing prices grew from 2000 until 2008, when the global financial crisis, and since 2009 in both countries, these indicators decreased.

The growth of the middle class

Most of the buyers of real estate — the middle class. The change in income of this social group has a significant impact on demand and thus prices on the market. In General, in countries where the middle class is getting rich quickly, housing prices grow faster, and Vice versa.

For example, from 2000 to 2015 the average annual growth in wealth of this class in the Philippines and Russia accounted for 11 % and real estate prices in these countries over the same period grew on average by 7 and 9% per year, respectively. In France and Switzerland the average annual growth well-being of this population group was 7 %, and the growth of prices for housing — 4 and 5 %. In Japan, the income of citizens 15 years has not changed, and the property thus fell to 2 %.

The increase in construction

The revival of the construction industry indicates an improvement of the situation on the real estate market. Construction volumes are beginning to increase as a recovery in demand. So, the pace of construction in Spain has ceased to decline in 2013-2014, and with that has started to raise real estate prices.

Rising prices for oil and energy resources

When oil prices are rising, and rising real estate prices. Thus, according to Savills, amid falling oil prices from 2007 to 2009, apartments in Moscow fell by 51 %, and when in January-February 2009, oil prices started to rise, the cost per square meter also went up. In 2015, the oil showed a negative trend, and housing prices also declined.

This situation is typical not only for volatile markets, but also for countries importing oil: cheap energy costs to the population and companies, respectively, are released funds for the purchase of real estate, which leads to an increase in demand and prices in the market.

Major international events

Major international events (Olympic games, world Cup, world exhibitions, etc.) lead to higher prices for housing near the venue of these events. Sometimes these events have a lasting effect on the market, for example, “the Olympics effect” is observed in the host cities of the Games within a few years after the competition. So, in Athens (the site of Summer games of 2004) and London (2012) housing prices before the Olympics grew at a moderate pace, and then it sharply went up. In 2015, on the eve of the Olympic games in Rio de Janeiro, prices in that city have risen so much that the market has formed a bubble. The 2020 Olympics will be held in Tokyo, and experts also expect a rise in property prices in the Japanese capital.

Similarly, market impact and other major events. For example, in Dubai is projected to rise in real estate prices in connection with the holding of the world exhibition “Expo-2020”. According to the website ArabianBusiness.com housing in the largest city of the UAE began to rise in November 2014, right after it was announced that the event will be held in Dubai from November to December 2014 the real estate near the sites selected to host “Expo-2020”, increased in price by 9 %.

Infrastructure development

The construction of the international airports, major hospitals, bridges and other major infrastructure projects lead to the fact that property prices in the surrounding areas are growing faster than in other parts of the city.

For example, according to Knight Frank, prices in the London property located in areas adjacent to the erection of the stations of high speed rail Crossrail (currently it is the largest infrastructure project in Europe), growing at an average 5% faster than in other areas of the British capital.

Another example: analysts of the Turkish Center of strategic planning of real estate investments (Gayrimenkul Için Strateji Platformu) believe that launched in 2014 the construction of the third Istanbul airport has led to an increase in property prices in the surrounding areas. According to the Center, the land near the airport in 2013 was worth 20-30 euros/m2, and in 2015 — already 77 euros/m2.

Those who buy property for investment purposes, I recommend to purchase residential property in a good area with growth potential. Ideally this should be adjacent to the elite district, a house in which today is in the middle price range, but in 10-15 years can become expensive. Real estate is always in demand, the urban population will only increase, and the areas adjacent to the Central and convenient, are doomed to become expensive, so apartments in these promising locations is the best asset. Besides, if necessary it can be sold without discounts.

Georgy Kachmazov

CEO and founder Tranio

“Tranio” recommends to monitor developments in the markets and to select locations for investment in accordance with projected dynamics.

Yulia Kozhevnikova, “Tranio”