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Characteristics of Real Estate Market

 

KualaLumpur 3

 

1) What is real estate market?
 
The overall real estate market collectively refers to the pool of all potential buyers and sellers of property at a given time. However, within this overall larger market, there exists different types of real estate markets.
 
There are various categories of property markets and sub-markets. They are segmented based on functional, locational, demographic, socioeconomic, psychological and product-related characteristics as follows:
 
 
Real Estate Market
 |
                         V     (Categories)
 |
Residential | Commercial | Industrial | Agricultural | Special Purpose
 |
                          V     (sub-market)
 |
Urban | Suburban | Rural
 |
                          V     (sub-market)
 |
High | Medium | Low-Priced
 |
                          V     (sub-market)
 |
Large/Small | Old/New | Good/Poor Design
 
 
Real estate markets are also categorized based on the types of buyers and sellers, the process of sale, or particular interests in property, such as:
 
  • Primary Sale Market - sale of newly launched properties by developers. 
  • Secondary Sale Market - sub-sale market involving non-developer individual buyers and sellers.
  • Rental Property Market - all about property rentals involving landlords and tenants. 
  • Auction Property MarketAn auction is a process of buying and selling goods or services by offering them up for bid, taking bids, and then selling the item to the highest bidder. 
  • Real Estate Investment Trust (REIT) Market - A security that sells like a stock on the major exchanges and invests in real estate directly. REITs receive special tax considerations and typically offer investors high yields, as well as a highly liquid method of investing in real estate.
 
 
2) What are the characteristics of real estate market and how different is it from other markets?
 
Real estate market is dynamically affected by the attitudes, motivations and interactions of buyers and sellers. The behaviors and decisions of buyers and sellers are influenced by social, economic, governmental and environmental factors.
 
Here are some Characteristics of Real Estate Market:
 
  • Each property is unique - heterogeneous. No two properties are exactly identical, they are physically and geographically different.
  • Only a few buyers and sellers act at any one time, within one price range, at any one location. No one has large enough share in the market to dominate the supply and control the prices.
  • Prices of properties are relatively high, few pay with cash. Purchase decisions are influenced by the types and amount of financing available, interest rate, down payment required and loan duration.
  • Investors are more likely to buy a property if the income/cash flow from it exceeds the debt service.
  • Federal, state, district and local regulations govern the ownership and transfer of properties. There may also be further restrictions on sale and purchase in the contracts or deeds.
  • Supply and demand for a certain type of property in a certain location are seldom in equilibrium, or balanced.
  • Projects take several years to build, and while new units are being built, oversupply may set in.
  • If demand suddenly increases, existing supply may not be enough to meet it.
  • Likewise, when demand suddenly drops, existing supply cannot be removed.
  • Most people rarely buy or sell properties, not familiar with the procedure, and lack knowledge and judgment as pertinent information on transaction prices and details are not readily available.
  • There is no central market for property, such as the KLSE for stocks. Buyers and sellers are brought together through various communication channels and through estate agents.
  • The lack of a central market, coupled with incomplete information, property market is known as a market of Imperfect Knowledge, where opportunities and threats abound.
  • Properties are relatively hard to market and not liquid because they are durable products (unlike perishable consumption goods), expensive, require financing and not movable to where the demand is.
 
 
3) What are the forces that influence the real estate market?
 
Please refer to our FAQ under Factors Affecting Property Value.
 
 
 
*Please also read our FAQs on Real Estate Investment, and Types of Investment Properties.
 
 
by Aaron Lee, Property Street
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