Right now the market in real estate is what you might call buoyant. Prices all over the world are rising – and rising fast. What’s more, there’s good reason to expect these trends to continue. Most international investors say that they’re going to continue buying real estate in 2016. And the market looks set to expand further.
Not surprisingly, many people are becoming interested in the real estate market. After all, prices are surging in several cities. This post, therefore, details all the reasons why you might want to put some of your money into real estate this year.
City Populations Are Increasing
Right now, millions of people are moving from rural areas in the developing world to urban areas. This means that the global population of people living in cities is expected to rise by a billion over the next ten years or so.
What does this mean for real estate? Well, for one, it means that there will be more pressure on existing housing. In some places, the price of housing will increase much faster than inflation. We can already see this happening in Shanghai, for example. Thousands of Chinese migrant workers find their way to the city each year. And when they arrive, they need housing and places to go to work. This pushes up the prices of fixed housing stock in these places, often faster than new houses can be built.
Global Cities Are Becoming Global Markets
We’re also in the midst of another phenomenon: the global city. The term has been bandied about for decades. But it’s only in the last few years that we’ve really seen genuine evidence for it.
For instance, new apartments in global cities, like Melbourne are selling for more than 13 percent more than they did a year ago. And it’s all being driven by the fact that businesses no longer approach the market on a country-by-country basis. Instead, they see it as one giant market, and then just ask themselves where the greatest talent lies.
In cities, like Melbourne, there’s a lot of talent. So businesses from all over the world are relocating to the city. And this is driving a self-reinforcing process. The more talented people are attracted to the city, the more the city attracts new businesses. New businesses, in turn, attract new people to the city and so on. The effect is that real estate prices are being driven ever higher. And for good reason.
Low Global Interest Rates
We’re in the midst of something of a capital glut right now. Central banks all over the world are doing everything they can to keep interest rates low. While the wisdom of this policy is questionable, it’s doing a lot to boost real estate prices. Credit is cheap. And as a result, real estate investment is attractive. Cheap credit is boosting real estate prices around the world.
Will low rates continue? Almost certainly. Most governments and consumers around the world are so indebted right now that any interest rate rise would be devastating. It might sound bad, but this is bullish for real estate.