Land has been traded for years. Its value has climbed up with time and not due to inflation but to an appreciation of its value. There are various reasons why land price keeps on appreciating. It can be explained through the use of economic terminology or simple logic. Some of the causes are the population growth, economic development, infrastructure, greed and agriculture. Land has always been an alternative for investing. The lucrative appreciation of its values has exceeded inflation rate giving investors the upper hand. They become wealthier with time
Economic Explanation
It is prescribed by economic theories that high demand will result in shortage. A shortage of land will eventually exert pressure on supply (availability) which as a consequence will cause the price of land to increase. The increase in price can be due to a shortage that can resolve from population growth, increasing income, inflation or other economic phenomena.
Facts
The price of residential land in rural areas has been increasing faster than in urban areas. This was proven by a study between 1980 and 1997. The appreciation of the value of land has been greater in both absolute and percentage terms. The land in rural residential area is more lucrative to buy than land in urban areas. Farm land has been increasing at an average of above 10 percent per year.
Factor 1
In the last years a very strong factor contributing to the appreciation of land has been the demand for natural commodities. The high demand for farm land and its products has been lurking the interest of investors. They have continuously bought land for the purpose of producing bio-fuel and other commodities such as meat, wheat, flour among others. This has given farm land a higher value and has been the cause for its long lasting appreciation price.
Factor 2
Land is a resource which is scarce. It is hard to find lands for sales at specific areas. For example, if you do want to buy land near a lake, the owner can consider this area as his heritage. This would imply that he would probably not sell the land especially not at market price. To convince the owner, the offering price must be at least 50% above the clearing price. This appreciation in value is fictitious but real. Thus having land in possession at different spots can luckily attract you, a persuaded buyer, who is eager to spend money for specific areas of land.
Factor 3
Development is another factor contributing to the appreciation of land value. In economic zones, the owner of the property (land) will be offered a lucrative deal. As the value of land in highly developed areas are sky-high. Thus, possessing properties prior to development can bring great return on capital. It is hard to speculate about development but it is possible. The construction of a supermarket nearby would leverage the price at its surrounding by more than 20% in the short-run. The reason behind this increase in net worth of the terrain is the convenience that it offers to its citizens.
Land has always been appreciating. The limited supply of the resource and increasing demand through rising population will continuously purport this incremental effect. Land is an everlasting escalating value for investors or private owners.
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