Key factors weigh on real estate cycle

Admin 26/December/2022 09:41
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Key Takeaway

Various reasons could play a part in the real estate cycle: 

  • General economy
  • Demographic
  • Interest rate
  • Consumer confidence 
  • Government policies

“Knowing what factors affect the cycles will help you to make great investment decisions” 

The real estate cycle refers to the market’s peaks and troughs. It is difficult to determine the exact cause because there are so many contributing factors. However, experts say that the elements below are among them.

General economy

The general economy can impact the real estate market. So when the economy is doing well, the consumers are confident to buy the property. The pandemic has dragged the world’s economy into deep uncertainty. And with that, we also see that real estate has become sluggish. 

In its latest publication’s report released early December 2022, the World Bank has raised its prediction for Cambodia’s real GDP growth to 4.8 percent in 2022, thanks to the broader economic recovery. According to the report, Cambodia’s exports of clothing, travel items, and footwear continue to be particularly strong. Earnings from services, especially travel and tourism, have also improved following the introduction of the “living with COVID-19” strategy late last year.

Demographic

Demographic play a significant role in influencing the real estate cycles. The increase in demographic in a specific area will definitely cause demand for space and houses. 

Interest rate 

The interest rate can influence the buying decision significantly. People are less likely to invest in real estate when interest rates are high, but are more likely to buy more because financing a home is less expensive. In Cambodia’s context, the interest rates for housing loan is currently ranging from 8 to 10 percent per year.   

Consumer confidence 

Consumer is gradually regaining their confidence as the world begins recovering from the effects of the pandemic. Generally, consumers are more likely to spend more when they have enough faith in the economy. Their optimism will promote a rise in the demand for real estate and consequently drive up prices. 

The ASEAN+3 Macroeconomic Research Office (AMRO) has projected Cambodia’s consumer price index is expected to climb above the regional average, peaking at 6.4% in 2022 before falling to 4.4% in 2023, as the ongoing war in Ukraine and persistent inflation have presented policymakers with new problems.

Government policies 

The government mechanism will step in to help when the market is experiencing a lengthy recession. Lawmakers can implement tax deductions and design various home-buying initiatives to attract people to buy real estate. For example, in an effort to boost the real estate market, the Cambodian government has extended the implementation of capital gains tax till January 1, 2024.  The capital gains tax was originally planned to be implemented in July 2020, which is taxed at a flat rate of 20% on capital gains. This was delayed until January 2021 and then delayed again to January 2022, before the government finally decided on a 2024 deadline

It’s hard to pinpoint the real reason before the up-and-down of real estate cycles, as various reasons could play a part. However, according to experts, it can boil down to interest rates, consumer confidence, government policies, demographic, and the general economy. Knowing what factors affect the cycles will help you to make great investment decisions.  


Written by: Kem Sreyneth

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