What are the main factors determining the price of real estate?

Have you ever considered factors contributing to setting property prices and changing real estate market indices from green to red or vice versa? So, you're not alone, it's a common question many have asked before you especially market followers and investors.

A series of reasons, terms, and new shifts can move property prices up or down. These reasons are not really contingent on a particular region, but rather take their place at a very broad level where most real estate markets are now bound together.

Thus, a slight uptick in real estate prices in the United States could lead to significant activity in the Middle East and GCC markets, and vice versa. This is how things are run today, the biggest evidence of this is the events of the collapse of the US property market in 2008 and 2009 and how it affected the rest of the world markets, including Dubai, Abu Dhabi, Bahrain.

63% of wealth owners in the Arabian Gulf region are looking to invest in active real estate markets such as Dubai, Sharjah and Abu Dhabi, according to a recent report. So we thought about providing some support by reviewing the most important property price determinants in any market.

Timing of the transaction:

There are times of year when property prices are slightly higher, such as spring and winter in the Arabian Gulf region for example, and other times are in remarkable calm.

The timing of the offer of any property affects up to 20% of the property price, so a lot of real estate investment experts are going to wait and the moment is right to make any real estate deal.

Growth forecasts:

The price may also be greatly affected by the prospects of physical development and development in the surrounding area of any property.

If the development of a new real estate project or facility is announced in any area, the prices of residential units in this area shall be immediately nominated for boarding, albeit in a small proportion.

Level of rent demand:

If there are many people looking to rent a housing unit in a given area, property prices in this area become vulnerable to growth and rise.

Higher demand for rent means higher return on investment and lower risk of property vacancy. So investing in buying a property becomes a very profitable option that may offer many advantages to the owner. Very simply it can be said that higher demand for rental will lead to higher demand for purchase, and then higher prices.

Population Numbers:

Population growth in any region certainly contributes to stimulating the level of demand, which naturally leads to higher prices. On the other side, abandon any area for whatever reason leads to a decline in prices.

Foreign investments:

Many changes to foreign investors in any market may be driven by higher real estate prices and higher rental prices as well, and new market conditions may become harder for local investors.

The clearest example of this situation is the Emirate of Dubai. After the passage of a law allowing non-Emiratis to freehold in Dubai in 2002, price levels there experienced an unprecedented rise. This was due to many investors injecting huge money and investments into this market causing real estate reality to change there forever.

Government Decisions:

Laws passed by government bodies are also central factors affecting property prices, supply and demand levels as well.

Support, new taxes, deductions, etc., are all ways Governments can take to form a new reality on any market.

Saudi Arabia, for example, this year passed a new law taxing empty land or white land as it is called. The main objective of the adoption of this law is to break the monopolies of land in the Kingdom, reduce the prices of housing units specifically, and stimulate real estate transactions.

Prices have already fallen as expected after the passage of the law, but somewhat slowly. Prices are expected to fall further in the near future.

Job Creation Rate:

Another factor in the real estate unit pricing equation in any market is the rate of creation of new jobs. Areas that see the establishment of many new companies and institutions are, of course, witnessing a rise in demand for housing, and hence a rise in prices both for purchase and rent.

Dubai government agencies, for example, have pursued a policy of facilitating procedures for establishing companies on their soil to encourage international institutions to open their headquarters in their business centres and areas.

This policy has been very successful, leading to the demand of many to work in Dubai, boosting occupancy rates in the city, and also contributing to the strengthening of Dubai's real estate market over other Gulf markets.