Why property prices are rising and falling

Why property prices are rising and falling

The housing market is influenced by economic, industrial and financial factors, which largely determine the prices at which the purchase and sale transactions of apartments and houses will be carried out.

Growth in the number of transactions

Without strong demand, primarily from local residents, one should not wait for the growth in real estate prices. You can look at Spain: the increase in the number of transactions recover the local market from the crisis, and only then the prices were pulled up. According to Knight Frank, in early 2018, housing in Malaga has risen in cost by 10.4% year on year.

According to our estimates, property prices in Malaga did not rise by 10%, but by a maximum of 5%. But the number of transactions increased in 2017 by more than 14%, which is most likely due to the fact that the Spaniards themselves began to acquire more real estate in this region (perhaps the Catalan crisis had its effect). The share of foreign buyers remains at 30% of the total number of transactions (it even decreased slightly compared with the previous year). At the same time, the lion’s share of real estate sold (over 80%) falls on the secondary housing.

However, foreign investors should not be written off. A significant influx of foreign investment is definitely pushing cost up in the local market. Such a reason in Budapest is the increase in demand from foreign investors for profitable and commercial real estate with long-term returns in a politically stable environment.

The cost is influenced by the demand for good office and hotel deals, which are currently very difficult to find, as well as the growing economic growth in Hungary and the efforts of the Hungarian government to create a favorable environment.

Lack of offers

When a product becomes scarce, its price rises – the classical law of economics holds true for the real estate. Perhaps the most characteristic example can be observed in Berlin, where over the past year real estate has risen in cost by 14.9%. We have been seeing a similar pattern of price increases. In recent years, the real estate market in Berlin has become closer and closer, demand exceeds supply. We can name three main reasons for such a stir. First, population growth (about 50,000 people per year). Secondly, low mortgage rates in the region of 1.5-2% per annum. And thirdly, the growth of the welfare of the population and the lack of profitable alternative types of investment. At the moment, we can safely say that the seller’s market prevails in Berlin, it is now much easier to profitably sell property than to buy it.

Berlin began to grow steadily in cost since 2004, when the last crisis was observed after the fall of the wall and the subsequent outflow of the population. Today, Berlin is one of the largest European capitals, a developed beta city with great potential in the innovation market and a high standard of living. In accordance with the urban development plan, the dilapidated housing stock of the GDR was demolished in Berlin. But despite the construction boom of recent years, the city does not have time to meet the demand. And Berlin is just experiencing an unprecedented influx of population, and we are convinced that this is not the limit.

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