SUPPLY AND DEMAND IN REAL ESTATE
Most people fantasize with the idea of owning property in the real estate market. The idea of getting passive income from rental property or just forgetting the whole pay rent each month seem to be quite appealing. Of course what most of these people tend to ignore are effects of supply and demand in real estate market in fact;
Why would people prefer houses on one side of a river and not the other or even one side of the road and not the other and yet the houses are identical and the geography seem more or less the same?
How does a factories decision to relocate or a decision to build a college hostel affect the real estate market?
All these will have a certain effect on the supply and demand in real estate
Categories of real property
In my last article I did talk about areas in real estate that you can specialize in and actually make money. The thing is, if you are going to do much in real estate, you better start by understanding the categories of real property that is;
- Residential: this refers to the kind of property people live in. All property used for single-family or multi-family housing whether in urban, suburban or rural areas
- Commercial: this is where you find business property including office space, shopping centers, hotels etc
- Agricultural: firms, timber, ranches etc
- Industrial: land in the industrial districts, warehouses, factories, power plants
- Special purpose: this is where you end up with churches, schools, cemeteries and government-held lands
It is important that you don’t confuse categories of real property with classification of land because with land we have public, private and community. I will talk about this in a later article or video, which by the way you can access by joining the mail list or just clicking HERE.
SUPPLY AND DEMAND IN REAL ESTATE MARKETS
By supply and demand am talking about operations in the market, that is, how prices for goods and services are set. Simply put, when supply increases and demand remains stable, prices go down and when demand increases and supply remains stable, prices go up. The idea is greater supply means producers need to figure out how to attract more buyers hence the option to lower prices while greater demand means more buyers and as such producers increase prices.
Factors affecting supply
Factors that tend to affect the supply side of the real estate market include;
Labour and construction costs
Availability of labour, building materials etc, can increase or decrease the cost of coming up with a building. High permit fees by relevant authority can also have a negative effect on constructions.
Government control and financial policies
Government monetary policies can have a higher impact on the real estate market, for example, issues to do with interests on lending or even taxation, since real estate are some of the primary sources of revenue for local governments.
Land-use controls imposed by local governments, building codes and zoning ordinance tend to shape the character of a community and in effect control the use of land
Factors affecting demand
Factors that tend to affect the demand side of real estate market include;
Population
Shelter is a basic human need. This doesn’t mean that it is your buildings they will need but the idea is, as the total population of the country continues to rise, the demand for real estate increases faster in some areas than in others.
Demographics
This refers to the description or composition of a population, Things like family size, the ratio of adults to children, lifestyle etc. This helps in determining the quantity and type of housing needed.
Employment and wage levels
Decisions about whether to buy or rent and how much to spend on housing are closely related to income. So when job opportunities are scarce or wage levels are low, demand for real estate usually drops
CONCLUSION
The choice of which real estate market to join and how much you will make, often depends on the supply and demand in real estate market. This means you have to understand that 1) Real estate is unique because no matter how identical two buildings are, each occupies its own location and 2) Property tend to be immobile, that is, cannot be relocated.
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