Did you know that house or apartment building sitting on your property is a packaged commodity? Think about it. What is a structure except a compilation of commodities like copper, wood, steel…and concrete. Low tech sticks and bricks, if you will, that contribute to how expensive or how cheap the price tag is. Despite frequent appearances to the contrary, the value of a property isn’t just a number plucked out of thin air. There are very simple forces at work behind the scenes driving the bus.
First, let’s realize that the overall value of a property should be divided into two components. There’s the land, and then there’s the improvement or structure. As prices rise these days, almost the entire gain is due to the rising prices of the basic commodities used to build the house.
Why are the prices rising? Because millions of Chinese families are reaching middle class status. Homes must be built because they have money to pay for them. When China needs more concrete, the demand drives the price higher for everyone else. Basic law of supply and demand.
Do you think China will suddenly decide to opt out of modern civilization? Probably not. Demand will only continue to increase. If you know the concept of packaged commodities is going to keep property values going up, what should you do?
Don’t know about you but we’re going to be buying rental properties.
The Empowered Investor Team
stock.xchng / hisks (Kriss Szkurlatowski 12frames.eu)
