The real estate market has been gathering lots of followers in the last few years. Well, according to a report by Straits Research, the market was valued at USD 4.04 trillion in 2024 and estimated to have hit USD 7.84 trillion by 2033. Just as players track lotto results, investors have been tracking the growth of the real estate market and getting to understand why it is blowing the way it is.
But wait, why is the real estate market growing at such a tremendous rate? In fact, when you look carefully, while we cannot pinpoint one specific period where real estate growth was at its peak, at least we can say that there was a big boom between 2019 and 2022. According to statistics, the growth rate between 2025 and 2033 is estimated to be 7.6%. But what is the reason behind all this?
Long term appreciation
Real estate investors typically make their money by relying on rental income, appreciation, as well as profits generated by property-dependent businesses. You see, over time, the value of real estate tends to increase, and with proper investment, you can make some good amount when you are selling.
Well, real estate is not like other investments like stocks and bonds; you can influence the value of your real estate property. Before we can even get to that, you should know that real estate appreciates naturally over time without your involvement. According to statistics, this value increases by around 3-5% annually. But now, you can increase the rate of appreciation by making renovations and repairs.
However, the one thing you should keep in mind is that not all renovations will increase the balue of your property. It is therefore very important to work with a credible and licensed appraiser to help you get the best kind of renovation you can make. And by the way, some renovations can even pay you back as much as 80-90% of your investments.
Real Estate Investment Trusts (REITs)
This is an option for people who want to invest in real estate but have yet to make up their minds on whether they can own or manage property. REITs are companies that either operate or finance income-producing real estate properties. Here, you are able to trade publicly traded REITs on stock exchanges.
When REITs were created, they gave a chance to ordinary people to invest in major properties like shopping malls, skyscrapers, apartment complexes, etc., in the same heartbeat as buying stocks. The good thing about REITs is that they must pay out 90% of income to investors. This means that they typically get higher dividends than many stocks.
Tokenization
Blockchain technology has come to disrupt the world as we know it. Who knew that you could own a fraction of an asset in digital form? Actually, estimations by McKinsey show that the value of tokenized digital securities might reach USD 5 trillion by 2030. This whole growth is in part due to real estate tokenization.
According to a 2023 survey on 750 CFOs across the globe, at least 12% of real estate companies are using tokenization. A further 26% are in their piloting stage and 29% are doing serious research. This just goes on to show how much tokenization is going to be a big deal in the real estate industry.
Well, with tokenization, real estate property is divided into fractions, and the operational process is automated by smart contracts. After the property has been divided into smaller portions according to how the owner wants it, it is put up for sale. Someone can purchase one portion or as many as they would like.
This whole process gives a buying opportunity to individuals who are not in a position to purchase a whole real estate property because of the price.
Hedge Against Inflation
Every day, you get to hear conversations about inflation getting more intense. The fact that you can wake up one morning and the cost of the products and services you are used to have gone up is frightening. It’s especially scary when the income you are getting is growing at a slower pace than inflation. Even though the global inflation rate was expected to fall to 5.8% in 2024, there are countries that have rates of up to 30%. With real estate, there seems to be a positive relationship between demand and GDP growth. As economies become bigger, the value of real estate goes higher. The demand for property raises rental income meaning that there will be higher capital values. Because of this, real estate tends to reserve the buying power of capital by shifting some of the inflationary pressure to tenants. It also makes use of inflation positively by capital appreciation.
Therefore, if you are investing in real estate, then you are at a better position to keep the value of your wealth. As we conclude, it is quite clear that investors are considering having real estate investments because of a number of reasons. Looking at it, the long term appreciation of value, hedging against inflation, tokenization and REITs are all doing a good job of bringing in more investors to to the market. Within the next few years, you can be sure that this market is going to be exploding in a way we have not seen before.