Real Estate Economics - Assignment Example

Real E Economics Real E Economics What is the role of the pricing mechanism in the property market? Pricing mechanism balances demand and supply in the property market. It also allows room for commodity price decisions. The pricing decision is done in line with the current market trend to avoid losses and poor market forces (TSE, 1994, p 56). In the property market there is price variation depending on the kind or type of commodity to be sold. In any decision-making regarding the property market, price mechanism has to be considered to be a sales determinant (Mckenzie & Jensen, 2011, p44). The higher the price the lower the purchase rate and vice versa. According to marketing research statistics taken in the last five years, the role of pricing mechanism in the property market is to balance purchase and selling rates. It also ensures that interest incurred by the seller or property owner. Below is an example graph showing a balance in supply and demand in relation to pricing. 2) Location theory, static and dynamic views of market value of land, allocation and pricing Location theory determines or explains the some of the geographical locations in which economic activities take place (TSE, 1994, p 56). The theory also explains the reasons for the establishment of economic activities in given areas. It is believed that big business corporation or will always choose geographical locations that help them generate huge profit. On the other hand an individual will only choose a location where his or her utility can be maximized (Gonzalez, 2003, p36) The geographical theory also determines the market value of land and allocation. In geographical locations that generate a lot of profit and have good market forces land pricing cost is always high. Land allocation and pricing mainly depend on demand and its profitability. Static models do not deal in time as far as market processes are concerned. 3) Why is it that rental values typically display a cyclical pattern The cyclical pattern displayed in rental values is in relation to the range and land location. Apart from land, it also reflects the supply and demand as a business activity. When demand is high, the rental rates will hike while low demand calls for the rental price or values to be dropped by a given percentage. Demand is not constant and this explains why the rental values keep on flopping and hiking (TSE, 1994, p 56). Cycling of rental values also determined or controlled by geographical location. Actually, not all locations are profitable and this is the reason for the land value cycling. Value differentiation is viewed in terms of agricultural production. Fertile land prices will always be high priced as compared to infertile lands. One of the agricultural researchers named Ricardo, in the process of his valuable research said that the variation in land value would not exist if all were homogenous (Gonzalez, 2003, p32). Another cause or reason for cycling is the age of the buildings. Buildings are becoming old and obsolete hence causing price variation. 4) Assessing relationship between planning and real estate development. Real estate development and planning are two compatible activities. This means that real estate developers cannot be effective without planning. Planning plays a major role in estate development. Planning involves a lot of activities that have to be assessed carefully before setting up or instigating real estate development (Mckenzie, 2011, p44). Planners will first survey the area in which the real estate is to be established. This is to make sure that the geographical position of the location is fit for such development. Planning also gives approximation and estimation of the materials to be used in the entire development project. For development to take place, there must be an advanced plan that will guide the contractors through the process (Gonzalez, 2003, p32). Contractors in the real estate development, will have to work in line with the plan given to them. This explains the relationship between planning and real estate development. Actually, real estate development cannot take place without a plan. Not to forget is that real estate designers will also need to maximize their profit hence calling for the strategic plan. 5) Relationship between the user and investment sectors the determinants of investor demand for property assets User and investment sectors are usually linked by the development sector. This is proven when certain assumptions are taken into place. Actually, it can be assumed that both the investment sector and the user, are in line with the process linked to economic revival. Various steps link user and investment sectors(Mckenzie, 2011, p44). The first step is when the rate of occupation is high and profitability is enhanced. The second step is when occupants claim for space increase. This in turn reduces the space stock available. Actually there are many steps that link investment sector and user though only the two mentioned explains the relationship. 6) Discuss how interaction within the property market may occur across property sectors and locations, and between different property interests.  The interaction of the property market across the property sectors can happen when there is government involvement. A government will always try to link or unite its business corporations. In cases of property market, the government has its own rules and regulation that controls all issues regarding the property market (Mckenzie, 2011, p44)t. This is one of the factors that may lead to the interaction between the property market and across property sectors. Advertisement is another factor that links property market and sector. When advertising a property, must be in line with the property sector to achieve good market forces (Gonzalez, 2003, p32). The property owners must come up with advanced strategic plan that can enhance the interaction. Actually interaction always happens due to various activities that take place in the property market. The advertising plan will incorporate the product concept, which states that the consumers will only favor the product, which have better quality performance and features as opposed to normal product (Mckenzie, 2011, p44). As a strategy of incorporating the product concept, the advertising plan will involve the use of these media, which can help in meeting the product needs of the customers (TSE, 1994, p22). This will involve the use of persuasive advertising such in order to convince the target audience about the unique benefits related to the products. The advertising plan will also involve face-to-face method where the business will send out some of the agents in order to convince the target audience about the benefits of the multifunction watch. The direct touch between the business and the audience allows the latter to ask question about the use of the products (Gonzalez, 2003, p32). This allows the business to illustrate on the various importances something, which will increase the customers’ loyalty towards the multifunction watch. Further, with the face-to-face advertising, the company would be able to uphold the good image of the product because of being in position of manipulating the customer’s view. The face-to-face method allows the business to remove any bad motives held by the target audience, about the product (TSE, 1994, p 56). The business will use the media, magazines and newspapers, in order to convince the customers about any change in the prices or the components of the product. This will ensure that the business maintains a strong relationship between them and the customers even though there are changes in the product. 7) Explain market efficiency and the factors that affect the efficient operation of the property market. Environmental factor may also affect efficiency of the property market. Some of these factors are; location, demand, time and cost. When a high price cost is imposed to a commodity, then the chances of it being purchased is less as compared to those with a low sales price. When a property is not in demand, then its market efficiency may be poor (Mckenzie, 2011, p44). This is because it is considered unprofitable considering time. Every commodity or market property is controlled by the time factor Of all the factors that affect market efficiency, time seems to have a great weight. A product may have value and good market forces today, but in the next five to six years, its value would have depreciated. In this state, the property is considered obsolete and unprofitable. The key factors that affect the property market according to the explanation given above, are; time, cost and demand. The three are considered vital being that they are compatible and support every marketing activity within the property market (Gonzalez, 2003, p32). There are many other factors that might affect the efficient operation of the property market. Some of these are considered minor but if allowed to accumulate, then they can cause a big mess in property marketing (TSE, 1994, p 56). Generally, the main factors affecting marketing operation are based on the challenges faced by the marketing agencies and how they perceive the three mentioned factors that are cost, time and demand. 8) What factors influence direct property investment demand, and does the institutional investor’s requirement vary from one investor to other investors Some of the factors that may affect direct property investment demand are land and profitability (Mckenzie, 2011, p44). Actually, in an investment demand, the investors determine or decide on the kind of investment to be established depending on land availability and profitability. Investors may not be interested in less profitable investment (TSE, 1994, p 56). This therefore means that profitability and land ( investment space) are the two main factors that influence investment demand. Bibliographies Mckenzie, D. J., Betts, R. M., & Jensen, C. A. (2011). Essentials of real estate economics. Mason, OH, Cengage Learning. Gonzalez, I. (2003). California real estate economics. Chicago, Dearborn Real Estate Education. TSE, Y. -C. R. (1994). Real estate economics: theory and policy ; with reference to Hong Kong, Singapore and Taiwan. Hong Kong, EIA Publ. Read More