It is one of the hardest aspects of real estate investment to master: how exactly do you assess the true value of a property or a piece of land? There are a huge number of different factors that can influence the value of real estate – so which ones should we focus on and attempt to assess? Here are my thoughts on just a few.

Demographics matter

One of the biggest stories in the Mexican real estate market in recent years has been the effect of the increasing numbers of young people within the population. Almost half of our population is now 25 or younger and this demographic change has shaped the approach that we all need to take as real estate investors and developers. We see it in the growth in mixed use developments and the increasing value of properties in places popular with young entrepreneurs like Mexico City. It is a great example of how demographics can directly influence the value of the real estate market.

And of course, demographic trends don’t just operate on a macro level. It is also important to take into account the many local demographic changes that can directly influence the value of a piece of real estate. So, what is the average wage in the area you are looking at? What are the levels of education among the people who live nearby? Are people migrating into the area, or out of it? And why?

These are just a few of the kinds of micro demographic trends that you will need to consider before entering into any real estate deal – whether it is buying your own home or investing as a partner in a new commercial real estate development. Like the movements of the earth’s crust, demographic changes can be slow – but they can have a dramatic and lasting effect on real estate value.

Interest rate ups and downs

Clearly, when interest rates go up, it becomes more expensive for people to access the loans they need to buy real estate. In this way, interest rates can have a direct, and dampening effect on the overall prices of property. If demand is down, prices usually go down too, to compensate.

Assessing whether interest rates are likely to go up or down is one of the most fundamental skills of any real estate investor, not just because it effects property value, but because it can also drastically impact the value of investments such as FIBRAs. FIBRAs are a popular kind of trust that many investors often use to purchase or fund the development of real estate for leasing in Mexico.

So, if rates go up, it’s not just house prices that go down – that FIBRA that you invested in is also likely to be less valuable too. Of course, the opposite is also true – when rates fall, your FIBRA trust will rise in value, along with the value of real estate overall.

The broader economy

It’s also obviously not just about interest rates – the performance of the country’s economy overall also has a profound and direct effect on the value of real estate.

Everything from GDP to unemployment levels and the amounts of income growth within the country are all useful indicators of how willing and able individuals are to spend. This includes their ability to purchase real estate to live in, as well as the amount of disposable income that they have to spend on non essential items, another factor that directly effects the value of retail and commercial property in particular.

And then, there are macro factors, such as the overall performance of the global economy, and the ability that the market you are considering investing in has to ride out the ups and downs of these bigger economic cycles. Some sectors of the real estate market are more susceptible to change than others, and will lose their value when times are hard while others are better able to maintain it.

Clearly, there are many other factors that can and do affect the value of real estate in one way or another, from local planning laws and financial regulations to factors that are much harder to pin down, such as an area suddenly becoming fashionable with a certain demographic.

But the key to success for me has always been to try and gather as much data as possible before I invest. I then take the time to assess it objectively and before going with my gut feel – asking myself, what value do I personally see in the piece of real estate, and to what extent do I think that this sense will be shared by others?

It is a tough call, but I believe that fundamentally understanding what ‘value’ really means to you is a great starting point for any assessment of an investment.