Booming of Real Estate Market - Essay Example

Introduction Real E market or housing market throughout the world is facing eminent boom for a few years. This boom or overwhelming growth in the market can be best understood once the main crusades behind this boom are figured out. There can be several reasons causing the market to upsurge at such a massive level over the entire world. In any market, the prices are determined under the interaction of market forces of demand and supply, however, an analysis of real estate prices indicate some other factors involved in the determination of such mounting prices. It could be seen as a growth in the economic condition of a country while might also be attributed to be a temporary ‘real estate bubble’ that will not survive for long. This boom or bubble is not only the matter of highly developed countries, rather these surging property prices could easily be noticed even in developing individual countries of the world. This paper provides an insightful study in the growth of real estate market at an international level as well as for individual countries. This paper is an investigation into the booming of real estate market in many countries of the world relating the heightening prices to the most important factor i.e., demand, and then moving beyond to other factors contributing to the growth of this trend or bubble at such a level. The major causes behind the property market bonanza observed in several countries could also be related to some macroeconomic indicators in a particular country. However, the apprehensions concerning the existence of a ‘market bubble’ should also not be ignored. Hence, this discussion is also included in the spectrum of our study of real estate market boom. World-wide Growth In Real Estate Market Real estate market comprises a bunch of residential and non-residential sectors of the economy including housing and commercial construction sector (i.e., offices, houses, apartments, retail buildings, and also dams, bridges, roads etc), brokerage sector and real estate financing, investment and management sector etc. Thus there is an interlinked array of economic activities involved in real estate market. Real exchange property, in particular residential property is the pre-eminent asset category around the globe. It is the asset on which almost every household expends a substantial portion of income regardless of nation, caste and creed. Therefore, housing is the greatest sector contributing to the economic condition in the world. According to the US Department of Commerce (Bureau Of Economic Analysis), In the United States, the aggregate market value of housing is near $12 trillion, much larger than the US stock market capitalization and even the Gross Domestic Product. The growth in real estate market is one of the major generators of global economic upturn. Most eminent in this context is the residential sector of the economy Surging house prices, along with low interest rates, have promoted mortgage-financing activities, bucked up consumer spending and bolstered macroeconomic functioning. Conversely, real estate commercial property rates in most countries have remained well below their pinnacle levels achieved during the period of 1980s and 1990s. Besides the importance of residential real estate, another component in the real estate market is also worth consideration. The market in commercial real estate grows or tumbles in a direct relation with the derived demand i.e., entirely depends upon the current and predictable future state of service and industrial sectors in the economy. As the economic state of these sectors meliorates, the commercial real estate market grows rapidly and vice versa. Conversely, the growth residential or housing real estate market depends upon several economic and demographic factors. It certainly drives the prominence of housing sector as an indication of the economic state of the country and also makes it crucial to analyze an abnormal rise or fall in the growth of housing real estate market. The real estate market in particular to the housing market has increased in most parts of the world with varying rates. The following table shows the house price index by Economist.com indicating the percentage changes year to year in the housing property sector of the major economies of the world: House-Price Index (% Change) 2005 2004 South Africa 23.6 28.1 Hong Kong 19.0 17.4 Spain 15.5 17.2 France 15.0 14.7 New Zealand 12.5 23.3 United States 12.5 8.4 China 9.8 7.7 Britain 5.5 16.9 Canada 5.2 5.7 Singapore 2.0 -1.5 Germany -1.3 -0.8 Japan -5.4 -6.4 Source: Economist.com The above table shows in approximately half of the countries displayed in the table have witnessed a housing market growth by 10% or more. South Africa has had about 23% rise in the real estate market, United States has had an increment of 12.5%, France and Spain with about 15%, Britain with 5.5% and China with 9.8%. The housing prices have fallen in fewer economies such as Japan, Germany and also Singapore to some extent. China Real Estate Growth 2000 2001 2002 2003 Percentage increase 20% 25% 22% 31% Source: China National Bureau of Statistics [NSB] China’s over real estate market has risen by about 31% in the year 2003 from 20% in 2000, 25% in 2001, and 22% in 2002. This shows that the country is facing a constant up surge in the real estate market. Source: Collier International UAE Real Estate Review 2003 The average apartment rentals presented above are from the Abu Dhabi’s residential market rentals from 1990-2002. These statistics show that Abu Dhabi’s housing rentals market is booming in all the ranges of apartments from one bedroom to two bedrooms and three bedrooms. Source: Collier International UAE Real Estate Review 2003 Dubai’s average apartment rentals also reflect the same case from the years 1990 to 2002. The rentals have in fact risen more in less numbers than that of the Abu Dhabi. However, an analysis of the above chart also reflects an upsurge in the market of apartment rentals in Dubai. The above discussion shows that real estate market in particular the housing market is facing a significant boom in most parts of the world and it is expected to continue in the same direction. There are many economic and non-economic factors responsible for this growth such as low interest rates and incomes of the consumers. Major Factors Involved In The Surging Property Prices Rising Property Demand Or Market Bubble Conclusion References NBS (2003 and various years), National Bureau of Statistic China US Department of Commerce (Bureau Of Economic Analysis) Collier International UAE Real Estate Review 2003, accessed June 6, 2006 from worldwide web: http://www.colliers.com/Content/Repositories/Base/Markets/UAE/English/Market_Report/PDFs/MarketReport2003.pdf Economist.com accessed June 6, 2006 from worldwide web http://www.economist.com/opinion/displaystory.cfm?story_id=4079027 Read More