What Factors Drive the Property Market and their Prices?

Real estate is among the most profitable investments available, not only because of its great returns, but also due to the fact that properties are safe and tangible assets.

However, there are several factors that would impact the investment potential and the price. Allow me to discuss these factors


Demographic data have direct and indirect effects on the real estate market. A large working age group who are earning well will have a positive effect on the industry because their higher purchasing power could result in generating higher sales. 

Shifting property needs. Many were kept indoors due to the pandemic lockdown. Thus, they are now asking developers to revisit their developments, and consider providing larger green spaces to mitigate the chances of getting infected easily. Meanwhile, it is believed that millennials and zoomers (generation z) will drive the property sales in the next few years, thus their preferences will change the current property deliverables and how they will be priced.

Government Policies

Policies play an important role in the real estate industry as they boost demand or can make investing more difficult. 

Inflation. When inflation rises, so do mortgage interest rates and property prices.  When debts and borrowings become more costly, developers and investors may be discouraged to buy new properties or launch new projects because of the fear of uncertainties, property oversupply situation, prolonged return on investment, and worst – a downturn. 

Public sector investment and incentives. Increased government spending on infrastructure and transport, coupled by additional incentives as provided by previous and current administrations,  directly and indirectly affect real estate developments, thus allowing property prices to recover faster despite the pandemic’s impact.

Incentives granted to entities registered pursuant to the 2022 Strategic Investment Priority Plan (SIPP) and the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Law are also expected to enhance rural developments, given the longer Income Tax Holiday periods provided investors.  

Legislation. Proposed and new legislations are other factors that can affect property investment and prices. Stricter legislation could discourage investment while business-friendly rules and regulations encourage investment. As an example, the amended Retail Liberalization Act that grants foreign firms the opportunity to invest in business with paid up capital of P25 million, will generate demands for new physical shops/stores, warehouses and logistics facilities, etc. 


Overall health. Investors are always on the lookout for opportunities where they can buy low and sell high. Thus, the health of the economy is another factor that can affect real estate and their values. When the nation’s economy is stable or at an upswing, more will be attracted to invest as the demand for residential and other developments will improve. 

Conversely, in a laggard economy, few will be attracted to shell out money, except for seasoned investors. Moreover, while there may be more funds available for lending at low-interest rates, creditors will actually be more cautious, for fear of not being repaid.

Interest Rates. Rates have a major impact as most purchases and investments are financed. When interest rates go up, the cost of mortgages increases and becomes expensive, forcing many investors to want to minimize expenses, thus lowering the property demand. On the contrary, when the interest rates go down, the cost of borrowing becomes cheaper and investors are encouraged to buy or develop land and real estate projects.

Public Sentiment

Trust and confidence. The country and government’s image and business-environment can either attract or discourage local and global interests. As shown during the Philippine Offshore Gaming Operators (POGO) boom, more property developers, investors and buyers were enticed to develop, buy and sell office spaces, residential units and hotel rooms, expanded warehouses and logistic facilities, open up restaurants and accessory businesses, to support the demand created by POGO offices and employees. 

Understanding these key factors will bring you one step closer to being a happy investor.

References include “4 Key Factors That Drive the Real Estate Market” by Joseph Nguyen (Investopedia.com); “Factors Affecting Investment” by Tejvan Pettinger (economicshelp.org); and “Top 8 Factors Affecting the Real Estate Market” (graana.com)

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Henry L. Yap is an architect, environmental planner, former real estate practitioner and senior lecturer, and one of the undersecretaries of the Department of Human Settlements and Urban Development (DHSUD).

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