The real estate market is the economic sector that involves the buying and selling of infrastructure such as buildings for residential purposes, commercial premises and the industry segment. Like any industry, it is sensitive to the economic forces of supply and demand. The main people involved in this area are the owner, tenant, developers, renovators and animators.
This sector has a number of unique characteristics. Real estate is sustainable since buildings can last for many years while the land on which it sits is indestructible. As a result, the offer is made up of a large share of already existing stock and a tiny percentage of new developments. Thus, the stock only varies in price according to deterioration, renovation and new development to come.
The stock in this sector could be described as heterogeneous since each piece is unique. All buildings are different in terms of location, structure and design, as well as how they are financed. Change in this area takes a long time. This is due to the long term involved in financing and building new properties.
Real estate has very unique feature in terms of buyers in this market. Property can be purchased either as an investment with the expectation of generating income or as a consumer good with the intention of using it. Individuals could also invest in the market for both reasons by using the property for a period of time before selling it for a profit. As a direct consequence of its dual nature, demand is strong since individuals tend to overinvest in this sector.
Immobility is another characteristic of this sector. The properties as well as the land it sits on are both stationary. As a result, there is no physical marketplace, which means going to where the property is. Therefore, this question makes location a primary factor before investing.
The main driver of real estate demand is demographics, ie the size and growth of the population. Demographic composition plays a huge role in determining demand and, therefore, price. The performance of the economy also affects the performance of the sector as it plays a role in the ability of investors to take out loans and mortgages to fund their businesses. Naturally, pricing determines the level of demand in the sector.
There are several ways to finance investments in the real estate market from government and commercial institutions. Financial assistance can be obtained from commercial banks, savings banks, mortgage brokers, life insurance companies and other financial institutions. However, the best practice is still to obtain funding from your own savings.
Given the recent real estate crash, it is best to follow some guidelines. As a buyer, make sure that the price you pay for the property matters a lot as well as the possibility of disposing of the purchase later down the road. Otherwise, it is advisable to reduce the size of your mortgage to be on the safe side. As a seller, identify the right time to put your property on the market to avoid low offers.