Role Of The Real Estate Industry

The economic significance of real estate lies in the fact that it is highly decentralized in nature and is closely related to other industrial sectors. The force or feebleness of economic developments in real estate has major repercussions for the rest of the economy.

Real Estate & Gross State Product:

Real estate is a major contributor to the Gross State Product (GSP) in terms of indirect business taxes, income from property and payments received by industry workforce.Both the local and state authorities levy taxes on commercial and residential property, which help fund additional services. Raising property values is necessary as it helps municipalities to offer a particular standard of services while maintaining a set tax rate. Prohibitive tax rates are likely to holdup economic growth; hence, the means to enlarge the tax base through new construction and appreciation is crucial to running a healthy government.

The state requires payment of transfer tax on a one-time basis when property is transferred. The revenue generated from the transfer tax on the brokered sale of homes has contributed significantly to the state treasury.Thus, the real estate industry plays a key role in the economic might of a state.

Real Estate and Property Tax

Property tax has to be paid yearly to the local and state authorities irrespective of whether a property is transferred.A robust real estate market, where prices are inclined to go up, adds to greater property values and better tax revenues. Municipalities generally count on growing home value developments to raise the assessable property base leading to substantial revenues. This eliminates the need to jack up transfer or property tax rates. The real estate industry brings about stability in the economy and helps meet basic human requirements.

Employment opportunities

The spurt in real estate creates considerable job opportunities, particularly in the construction industry such as real estate builders and agents, retailers and manufacturers of durable goods. Dealing in real estate also entails intricate monetary transactions that utilize the services of people from the financial sector and the real estate brokerage business.Thus, real estate is a major employer and accounts for billions in national income.

Rising income levels

Real estate has positively impacted the income base. According to reports, every $1,000 profit received from the sale of a house boosts consumer spending by about $150.The spurt in real estate has led to rising income levels of professionals in the real estate business and the housing services industry as well as swelled the rental income of landlords.

Growing middle class

Many households have taken advantage of low mortgage rates and tax credits to purchase homes. As a result, sales of residences have been vigorous, the number of mortgages approved has increased tremendously, and the number of people owning homes has climbed higher. In addition, the low interest rates and rising income levels have enlarged the middle class base and boosted the performance of the real estate industry.

Increasing urbanization

Real estate fever is gripping every state leading to increasing urbanization as witnessed by increased demand for and development of residential property, burgeoning malls and shopping plazas, mushrooming demand for commercial space and Information Technology Parks.Real estate has completely changed the face of cities.

Real Estate and other Sectors

The real estate industry is majorly associated with several other sectors of the economy. Every time a new house is erected, it fuels demand for intermediate goods such as cement, gypsum, bricks, wood and wood products, plumbing, and insulation.Prior to and following a real estate transaction, owners buy products like paint, wallpaper, fittings, carpeting and upholstery, furniture and appliances, plus services such as packers and movers, cleaning and landscaping.

The real estate explosion fans credit expansion and stress on consumer durables. People take loans to purchase homes and then reborrow to furnish the homes. Buying homes involve huge capital costs and a major part of the selling price is raised through finance. In fact, a considerable amount of capital market funds is invested in housing. Payments made to these associated industries also contribute to the economic development.

Real Estate and FDI

Real Estate attracts foreign direct investment (FDI). Several foreign companies either begin or expand operations in the state. Many also establish research and development facilities. The flow of foreign investment coupled with forming joint ventures with foreign companies has produced increasing employment opportunities for highly skilled workforce and stimulated the growth of the middle class.Undoubtedly, real estate is a vital contributor to economic growth and stability.