Real Estate Investment International

REAL ESTATE
INVESTMENT
INTERNATIONAL

Table of Contents
QUESTION-1..................................................................................................................................4
a) Law of demand and law of supply in markets of real estate....................................................4
b) profitable market for real estate investments...........................................................................5
c) explanation of market characteristics on the basis of demand curve.......................................6
D).................................................................................................................................................7
e) Changes to the income level, credit availability, cost of credit, effect on the Net Absorption
......................................................................................................................................................8
F)..................................................................................................................................................9
a)................................................................................................................................................11
b)................................................................................................................................................12
c)................................................................................................................................................13
d)................................................................................................................................................15
e)................................................................................................................................................16
QUESTION-3................................................................................................................................17
A) Cycle of the real estate market based on stock flow model..................................................17
B) Degree of heterogeneity of tenants and degree of geographic dispersion of existing stock
affects the vacancy rate which is available in the market..........................................................18
C) Discussing the demand on the type and size of properties that an adult person creates to the
several stages of life...................................................................................................................19
D) Commenting on the upcoming increase of the interest rates from the European central bank
the third semester of 2022 and discussing how inflation impacts the interest rate and what are
the consequences on the real estate market................................................................................20
QUESTION-4................................................................................................................................21
A)...............................................................................................................................................21
B)................................................................................................................................................23
(c) Analysis of excess demand or excess supply of residential stock in the end of year 2024..24
(d)...............................................................................................................................................25
(e)...............................................................................................................................................27
(f)................................................................................................................................................28

REFERENCES..............................................................................................................................30

QUESTION-1
a) Law of demand and law of supply in markets of real estate
Law of demand refers to the process which states due to higher price buyer will demand
less. On the other hand law of demand depicts due to higher pricing, sellers would supply more.
In the context of real estate law of demand and supply reflect to the point which shows
equilibrium price of property. In significant term demand and supply work as one another in the
case until and unless the property equilibrium is reached (Ji, Marfatia and Gupta, 2018). The
lower supply might lead towards pricing which could be happen in bidding wars. Such conflict
issues ends when seller accept to offer and remove unit from supply availability. Although,
higher demand for properties in country aligned with lack of quality property supply. Whereby
price of house tend to hike accordingly. Apart from this weaker economy as well as oversupply
of properties direct towards decreased or no demand for housing in which price factors are tend
to fall at that point.
Real estate is the tangible asset which is made up of land and property, it is unmovable which is
also subject towards demand and supply. It can be said that price of houses as relevant to stocks
as well as bonds are dependent over law of demand and supply. It can be described effectively in
terms such as:
 Higher the demand, tend to rise high price
 More supply tend to decrease
Thus, real estate market is an appropriate example for the law and demand that also reflects to
how good these aspects can favour in relevant industry. The theory in this stage can termed as
one of the most basic principle in study of economics. Demand and supply is most significant
term that work against each other to reach up to the point at which equilibrium price is achieved.
In that case price remains equal for demand in market.
Moreover, there are some factors which impact real estate demand and supply. The fine value
attributed to demand and supply in marketplace is not easy aspect in terms of real estate markets.
It consumes more time for constructing new houses or for fixing up existing one to place into
market. In similar terms, real estate is very different from other industries which covers more
time for buying and selling procedures. The transactional activities will differ in such case and
would require time to consummate as such making real estate illiquid. Some factors immensely
influence housing demand consisted with lower borrowing cost and interest rates as well.

Whereas, if rate of interest is reduced, individual willingly access over debt as they can afford
such aspects on the basis of monthly outlay. Thus, it can be said that real estates markets are rely
over supply and demand through which it is seemed as preferable indicator in relevant industry.
b) profitable market for real estate investments
From the above diagram it has been figured out that P2 is the component in which price
of product increases which impact over decreased demand and increased supply aspects.
Furthermore, P1 indicates the price factor is higher which impact in increased demand and
shortage of supply. On the other hand, P* is the core point which denotes demand and supply are
equal which makes the perfect pair. It is known as equilibrium in which these two points
whereby demand for product equivalent with quantity supplied. It means there is no surplus as
well as shortage of good. Shortage appears in situations when demand surpass supply or when
price is in lower extent (Liow and Huang, 2018). For real estate investments P* level is accurate
which can provide profits for business to keep running on smooth basis. Supply and demand are
the relevant frameworks that can be utilized to justify and prediction of equilibrium quantity and
price of services being offered in housing market. The point over supply curve depict quantity
which suppliers fain to sell for specific price. On the other hand point on demanding curve
reflect quantity which individual is willing to buy at particular price. These interactions of
demand supply shows that equilibrium price as well quantity would prevail in marketplaces.
Moreover, in such competitive market supply and demand framework usually applied which
exhibits competition varying in two major conditions such as:
 Having two or more buyers and sellers who might be small relative to markets
 The product which is produced by sellers can be perfect substitutes.
In such competitive environment buyer and sellers access over given price as their actions does
not impact over price in industry. Thus, it can be concluded from the above graph that P*
indicates the equilibrium price which is the core point. It is beneficial to understand market work
criteria. Similarly, through such pricing methodology if price makes differentiation from
equilibrium pricing then it would imbalance among supply and demand which may provide
buyer and supplier with incentive to act differently. There is immense support for market
predictions as evidence from experimental marketplaces. This framework of supply and demand
support with relevant predictions regarding movement of pricing.

In the context of housing market business it can be stated on the basis of graph if both buyers and
sellers are inclined for exchange of quantity at price. At that single point demand and supply are
into balanced terms, the determination of price is highly depended on these factors.
c) explanation of market characteristics on the basis of demand curve
Demand curve in the context of economics is graphical representation of relationship
among price of product and quantity of product demand. From the graph it shows that elastic
demand is the one whereby changes in quantity demanded occurs due to change in price. On the
other hand inelastic demand refers to the process in which change for quantity demand appears
because of small change in price (Sadayuki, Harano and Yamazaki, 2019). Price is the most
essential factor in terms of identifying elasticity. It can be said that demand remains inelastic as
demand for product or service remains unchanged even if the price changes. The sensitive term
of price change are crucial while selecting markets for investments in real estate. For instance, in
market where real estate demand is sensitive in lower terms and more preferred with investment
point of view even the price rise in that case there would be decrease in demand. Thus,
sensitivity to real estate demand towards change in price is measured through price elasticity of
demand.
In the context of real estate business inelastic demand is more suitable as it does not
affect the demand in the cases when change in price takes place. The inelastic aspects drive the
purpose for business in better equipped terms towards profit maximization, also it is protected in
efficient terms for economic downturns. It is beneficial for the markets of real estates as price
factors increase but the consumer buying habits remains same which might provide various
benefit to business. The demand curve of perfectly inelastic goods are stated as vertical line
presented in graph as quantity demanded is similar with price changing factors. Also, supply is
also inelastic in that situation of unique product. It does not matter how customers are willing to
pay but there cannot be more than one primary version of it.
On the other hand elastic demand is riskier for real estate markets, these places includes
houses available for sale and numerous of buyer looking for one to purchase. While there are
some basic economic factors which impact to level of elasticity in housing markets. For instance,
if most of the people look further to buy home, the price will rise. While of these homes are
listed for sale which relates to amount of interested buyers in which price remains decreased.
Buying of house tend to have higher elasticity of demand. The elasticity is riskier for business as

loan interest rates and borrowing cost is in higher terms. Hence, it can be determined through
availability of substitute in particular market and segment. For instance, property having low
substitutes might have decreased elastic demand than segment having more substitutes. Hence,
investor should pay more interest towards project and markets with inelastic demand price as
price factor increase it would increase revenue as well (Joghee, Alzoubi and Dubey, 2020). It
would cause due to reduce in demand which would be not enough for eliminating gains from
increased price and rent as well. Moreover, if the price will goes up the quantity demand will fall
down but in that case revenue will be uplift due to decrease in Q is smaller than hike in P.
D)
In rental market it is seen that generally Net absorption method is being used. Since under
this method just supply and demand dynamics are taken into consideration. It is very essential
since if only one side is being undertaken then will impact the performance and quality of final
outcomes.
It can also be summarized as the difference between both commercial space which is
vacated in certain phase of time, by organizations, companies, tenants etc. this is highly useful
due to deeper insights it gives and paves the way forward (Jawad and et.al., 2018)
The gross absorption is also being used but due to some perilous notions it have, the
method is not given preference. It just measures the total square feet which are leased or
absorbed for sort of vacated space during a certain phase of time. This does not perceive both
dynamics but rely on a singe set of notions.
It would not be unfair to elaborate that it takes just one side of the picture into focus, total
space which is occupied, is definitely an important thing yet on the basis of the single set of
knowledge the entire decision can not be made. Just occupied area gives information about
possessions but the balance can not be deciphered which is salient thing for making decision
pertaining to rental market.
Keeping the shortcomings of the gross method the Net absorption method comes with
some advantageous points. It helps in installation of deeper understanding. The real estate market
is quite dynamic and in absence of both market supply and demand it is not handy to make
decisions (Kjeld and et.al., 2021)
It is supposed to be more handy and lucrative since it discloses to the investors that
should they make investment or not. It gives deeper insights of demand and supply. Weather the

demand is supposed to be higher or would be going down. These ideas pertaining to changes in
the occupied space offers greater understanding to the investor. This is the most significant
reason behind its preference when it comes to measurement of real estate.
The modern market of real estate is quit rigid and does not give that much resilience
while making decision. The extraneous forces are also impacting these decisions to the fullest
extent so in such predicaments an organization can not rely on just single side of a game, there is
inevitable need to perceive all the relevant areas in attempt to make rational decisions.
For example- If Net Absorption method is being used then-
Net absorption= Square feet which is physically occupied- Square feet which is physically
vacant during a certain period (Yadav and et.al., 2021)
By applying this formula the outcomes can be perceived and better judgement can be
driven. It may be negative or positive since the difference between occupied and vacant real
estate do not follow any pre intended trend. So it would be fair enough to decipher that net
absorption method is relatively better.
e) Changes to the income level, credit availability, cost of credit, effect on the Net Absorption
Changes in different economic factor creates issues and challenges for businesses in the
overall real estate industry in order to grow. These aspects are beneficial for fluctuating the
overall performance of the business in the industry.
Income Level
There is a significant influence on the income levels of the people due top increase in the
interest rates which is a difficult factor for the real estate businesses to face. There are changes in
the spending capacity of the people which has a major effect their overall sustainability in the
industry. The income decreases for the people which is not suitable for the retail industry to
prosper as more people will not be able to achieve a significant amount of success that has a
direct impact on the success of the business (Aalbers, 2019). Due to these aspects the business
may decrease their overall opportunities to grow and prosper.
Credit availability
Availability of the credit decreases in the real estate industry due to these factors which
has a significant influence on the overall performance of the companies in the business