Does Lower House Cost Lead to Huge Demand??
Real Estate Myth #II : Lower House Cost Lead to Huge Demand
Do you prefer discounts? When visiting a supermarket, do you pick things which offer discount over the ones that don’t? It’s commonly observed that us humans are more attracted towards the items with a discounted price, be it a phone, shampoo or fruits, the demand increases whenever prices drop. As lower prices coupled with good branding increase affordability of consumption items, thereby expanding the market.
However, when it comes to demand for homes, the situation gets very complex, as it generally incorporates both the consumption as well as investment demand. From here, emerges two scenarios, in one, buyers often postpone their purchase during a falling market and in another, they see value in buying the falling market, as it offers huge number of options.
Whenever prices of homes fall, home buyers usually get lower realization for their old homes, which invariably gives impetus to lowering of budgets by home buyers, effecting the overall demand for the new apartments, says Jayesh Dave, Managing director of Jayraj Builders. This is in complete contrast to consumer goods, as the lower prices in real estate sector mean lower demand.
It is due to such a complex cycle in place, generating a demand curve for homes is principally a difficult job. This coupled with inefficiencies and faulty work culture in the real estate sector, further increases the complexity involved. Therefore, it would be important to highlight such issues through this medium, as it has the capability of reaching out to multiple audiences, as the majority still believes that lowering home prices means higher demand, added Mr. Dave.
Thus, many economic principles that are used to analyze markets for multiple consumer products don’t remain applicable to real estate. Hence, lowering prices doesn’t expand the market, as one would normally expect.