Real Estate Market

Real Estate is inclusive of either vacant land or land with building/s. Such immovable property is termed real property or realty. All over the world, the real estate market has been booming, with land prices steadily appreciating and construction costs going up. With increased avenues for construction finance, the demand has equaled or even exceeded supply in several places. The real estate market is broadly divided into three categories, residential, commercial, and industrial.

According to economic surveys, real estate assets of developed economies account for about 55%, while financial assets like stocks, bonds, etc., amount to about 45%. The real estate market has come a long way from mere buying and selling. Detailed scientific analytical methods of real estate economics are followed nowadays to take informed decisions on market operation. Owners, users, renters, developers, renovators, and facilitators are the real estate market players.

Owners, owner/users, and renters create the demand in the market. Developers and renovators provide the supply. Facilitators like banks, real estate brokers, etc., render the intermediate services to bridge the supply and demand fields. All immovable properties are considered durable, with constructed buildings lasting several decades, while the land is virtually indestructible. However, more than 90% of the real estate supply comes from existing properties. Only about 10% of the supply are met by new property development.

The unique nature of realty is that each property is singular. The location of the land, the type of building on it, and the financing terms of the property differ from one property to another. As such, pricing a property is not an easy task. Though realtors try to determine property pricing in a scientific manner, most of the time the pricing is based on speculation or educated guesses. Transaction costs and delays in delivery affect the pricing in a negative manner. On the other hand, the fact that realty is considered both good for investment and good for appreciation, as well as the immobile nature of immovable property, exert a positive influence on property pricing. Sizes of the population and permanent income also play a significant role in the pricing mechanism of immovable properties.

Supply side is determined by acquisition costs, site improvement costs, labor and material costs, finance, administrative, and marketing costs. However, an increase in these costs could prove to be a double-edged knife. Cost escalation normally leads to appreciation of the property value. On the other hand, higher prices could also result in dampening of the spirits of the buyers, resulting in reduced demand. That said, the elasticity curve of supply-demand is generally high in the long run.