The economics of real estate can be explained as applying economic technique to the markets of real estate. The use of economics in this sector is basically done to predict and explain the prices, demand and supply. They key focus is to focus on the structural changes and business trends affecting the industry.
The main people in a real estate market are:
- real estate agents
- real estate attorney
The nature of demand to sell your house fast in this market depends on the owner/user whereas the renters and investors decide the supply side. Other main participants such as real estate agents, etc. serve as intermediates and facilitate the whole investment process.
Characteristics of real estate market
The characteristics of such markets include:
One of the main characteristic of this sector is that it is durable. A chunk of land or a building can stay as long as decades or maybe centuries if the conditions are suitable. Land is theoretically indestructible. This being the reason real estate market is often also called stock/flow markets. According to recently conducted survey in India 97% transactions in real estate markets are done for existing buildings and houses whereas the remaining 3% for newly constructed buildings.
This term defines the whole beauty of real estate. Every property is different in each and every aspect, be it financing or building or locations. This however makes information asymmetric and costs more varying. The cost for the same 2 properties may differ by a huge amount because of them being on different locations. To tackle this difficulty, the economists in 1960 introduced a new supply survive equilibrium that relates supply comprising of service units.
Higher transaction costs:
As the population is on a steep rise, the cost of properties has gone much higher. The transaction costs include the cost of search, agent’s fees, legal fees, court fees, taxes and registration fees. In India the transaction costs range from 3% to 7% of the property price. However in countries in Europe the transaction costs range from 16% to 20% for the both buyers and sellers.
Investment and consumption:
Real estate on one hand being a safe investment can also be purchased with motive of consumption or both. This double nature provides tips for buying a house and a safe means of investment and security and prevents over investment in this arena by substantially reducing the effective availability.
One of the main features of Real Estate is its immobile. Though in some places the concept of mobile houses has been effective, but land still remains immobile. Consumers and investors have to reach out for the goods rather than the latter reaching for the consumers. This being the reason a physical marketplace for real estate cannot be defined. This spacial fixity makes it important for the market adjustments to move towards the property.
Real Estate Economics have been the center of attraction of researchers and economists for quite some time now. In recent times many people have chosen this sector as their career. Because of the high pay and substantial risk involved, it has made people turn their concentration towards it, especially the youth.
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