The real estate sector has a very crucial role in the Indian economy.

The Indian real estate market is expected to touch USD 180 billion by 2020 and the housing sector is expected to contribute around 11% to the country's GDP by 2020. Pricing trends in the real estate sector are an important calculation people tend to look at. Many price trends for this sector are predicted each year. These are technical analysis indicators that relate price to various factors in the market. While observing price trends is important, understanding the timeless factors that are considered while projecting these trends is also very vital.

Here we bring you a collection of factors that contribute significantly to the pricing trends in the real estate sector of India.

Supply and Demand

When the demand for property is high but availability is scarce, prices rise and it becomes a seller's market. This scenario is also called a hot market. Inventory is a major factor in creating hot markets.

When the demand for property is low but the property is abundant, prices decrease and it becomes a buyer's market. This scenario is also called a cold market. Even if the land is available on which to build more homes, the time it takes to construct them cannot meet immediate property needs, so demand will remain constant or rise.

Interest Rates

Changes in interest rates can greatly influence a person's ability to purchase residential property. Interest rates affect capital flows, cost of the mortgage, investor sentiments and drive property prices in a variety of ways.

The lower interest rates go, the lower the cost to obtain a mortgage to buy a home will be, which creates a higher demand for real estate, pushing the prices up again.

Economic Growth

The overall health of the economy is important. This is generally measured by economic indicators such as the GDP, employment data, manufacturing activity, the prices of goods, etc. The real estate sector follows a direct relationship with the economy. When the economy is sluggish, so is real estate.

The Great Recession from 2008 to 2012 underlined the link between real estate and the broader economy. Local economies with a large number of real estate-related jobs (whether in construction or mortgage financing) experienced significant property price depreciation in the United States.

Demographics

Demographics is the data that describes the composition of a population, such as age, race, gender, income, migration patterns and population growth. These statistics are substantial in impacting how real estate is priced and what types of properties are in demand. Major shifts in the demographics of a nation can have a large impact on real estate trends.

Government Policies

The legislation is also another factor that can have a sizable impact on property demand and prices. Tax credits, deductions, and subsidies are some of the ways the government can temporarily boost demand for real estate.

The valuation of a property is in direct proportion to the quantum of disposable income in the hands of the purchaser or the majority population in that area. Hence, the government policies which aim at rendering more disposable income in the hands of people would create a strong demand in the sector.

Location

Location is a prime factor in the valuation of your property. Good quality schools, proximity to employment opportunities, shopping and recreational centres and healthcare facilities often boost property prices. While these three preferences, namely the proximity to a school, work and entertainment/shopping, are a trinity that makes for a highly desired property, though these demands are sometimes also independent of each other.

Quality of schools is frequently the single most important factor for buyers with children of school-going age.

Proximity to local employment opportunities is a very high priority for most buyers from the service sector.

Proximity to social, shopping and recreational centres is valued most by younger buyers but plays an important role in pricing for all homebuyers.

It has also been noticed that certain regulatory factors such as zoning regulations can also have an impact on real estate prices. If zoning regulations restrict the amount of construction in a particular area, the overall attraction of properties may rise because of open spaces and greenery.

Land prices

In a study titled, "The effect of land prices on the spatial differentiation of housing prices," conducted by Shaojian Wang, Jieyu Wang and Yang Wang it is stated that the land prices are the primary driver of housing prices, and their impact on housing prices vary over different administrative levels.

It further states that the effect of land prices is the strongest in the urban districts of provincial capital cities.

The internal influence mechanisms for land prices driving housing prices include topographic factors, urban construction level, the agglomeration degree of high-quality public service resources, and the tertiary industrial development level. The urban land supply plan (supply policies) is the intrinsic driver that determines land prices in cities; through supply and demand, cost, and market mechanisms, land prices then impact housing prices.

Raw material

Steel and cement are the most important inputs required for any construction project. Therefore, any changes in the price of these raw materials will directly affect the cost of the final product (in this case, homes).

In recent times, the price of iron and steel in India has increased by about 60% due to various reasons ranging from international price fluctuations, application of duties and shutdown of steel manufacturing units by China, the largest producer in the world.