The document discusses the laws of demand and supply as they relate to real estate. It provides definitions and explanations of key concepts like: - The law of demand states that demand decreases with increasing price and increases with decreasing price (1) - Supply increases with increasing price as suppliers seek to maximize profits (4) - Demand and supply curves graphically depict the inverse relationship between price and quantity (3,5) - Demand for real estate is affected by factors like location, amenities, income, availability of land, and more (8-10, 13) - Supply is determined by price, availability of land, builders, credit access, and labor (4, 17) - The relationship

1. 1
DEMAND AND SUPPLY OF REAL
ESTATE
By Nino Josph Mihilli

2. LAW OF DEMAND
2
 The law of demand states that the quantity demanded and the price of
a commodity are inversely related, other things remaining constant. It states that
demand decreases with increase in price and vice versa.
 In economics, the law states that, all else being equal, as the price of product
increases, quantity demanded falls; likewise, as the price of a product decreases,
quantity demanded increases
 There are various other factors that affect the demand for real estate
 Based on these factors we can derive the equation for real estate
D = f {D, I, P, Cb, Cr, T, Ti, Ps}
 D - demand for real estate
 I – income of customers
 P – price of housing
 Cb – cost of borrowing
 Cr – availability of credit
 T – consumer’s preference
 Ti – investor’s prefernece
 Ps - price of substitutes and compliments

3. DEMAND CURVE
3
demand curve, shown in red and shifting to the right, demonstrating the inverse
relationship between price and quantity demanded (the curve slopes
downwards from left to right; higher prices reduce the quantity demanded).

4. LAW OF SUPPLY
4
 Law of supply states that, all other factors being equal, as the price of a
good or service increases, the quantity of goods or services that suppliers offer
will increase, and vice versa
 The law of supply says that as the price of an item goes up, suppliers will
attempt to maximize their profits by increasing the quantity offered for sale
 However, in examining the forces determining the supply curve, we
need to analyze the factors upon which the supply of a good depends
 Factors determining the supply of real estate can be stated in the form of a
supply function
S = f {P, A, B, Cr, L}
 S- supply of real estate property
 P- price of property
 Availability of land
 Efficient builders
 Cr- easy accessibility of credit
 L- skilled labours

5. SUPPLY CURVE
5
 The chart above depicts the law of supply using a supply curve, which is
always upward sloping. A, B and C are points on the supply curve. Each point
on the curve reflects a direct correlation between quantity supplied (Q) and
price (P). So, at point A, the quantity supplied will be Q1 and the price will be
will be P1, and so on.

6. INTRODUCTION TO THE REAL
ESATE INDUSTRY
6
 It comprises of four sub- sectors
 Housing
 Retail
 Hospitality
 Commercial
 The real industry’s growth is linked to developments in the
• Hospitality
• Entertainment ( hotel, resorts, cinema theatre’s) industries,
• Economic services ( hospitals, schools)
• Information technology (IT) enabled services ( like call centres) etc

7. WHAT PROMPTS A PERSON TO
TRY HIS FORTUNE IN THE FIELD
OF REAL ESTATE SECTOR?
7
 The first and foremost is that the real estate business is riskless
 Second, the ever growing housing needs filled by low interest
 Last but not the least is investing in the sector `where everywhere else does can also
be cited as one of the important factors leading to heavy investment in this sector

8. WHAT ARE THESE
FACTORS WHICH DRIVE
REAL ESTATE PRICES ?
8

9. MAJOR DEMAND FACTORS THAT
AFFECTS THE PRICE
9
 LOCATION
 AMENITIES
 INFRASTRUCTURE
 COMMERCIAL REAL ESTATE
 DISPOSABLE INCOME
 AVAILABILITY OF LAND
 AFFORDABILITY
 STRUCTURE
 CUSTOMIZATION

10. LOCATION
10
 Buildings, real estate and properties, located in commercial and market areas, hold
higher value than their counterparts in the residential areas
 It is common to find brokers quoting a higher price for buildings in well developed
and approved colonies and areas as against those in the lesser developed and
upcoming areas
 Similarly buildings which are constructed on freehold land tend to command a
higher valuation than those on leasehold plots

11. AMENITIES
11
 The valuation of properties with better infrastructural capabilities and modern
amenities are costlier than those which fail to provide proper
 Electric connections
 Telephone lines
 Water sewerage facilities
Other infrastructures
 Community centres
 Children parks
 Swimming pools
 gymnasiums
 Parking lots
 General stores
 Valuation of property is clearly based on the availability of necessities and
facilities connected with comfortable housing

12. INFRASTRUCTURE
12
 Infrastructural development is one of the most important factors which influence
real estate prices in USA
 The presence of roads, airports, flyovers, malls and bus terminals and other
facilities in the vicinity of the property, helps in value escalation of the same
 It is a known fact that connectivity is one of the most important requirements for
investors looking towards purchasing land or property
 This leads to the concept which explains a rise in the valuation of property which is
well connected to
 Entertainment hubs
 Medical facilities
 Educational institutions
 Retail markets
 Business centres
 Along with other day to day facilities

13. DISPOSABLE INCOME AND
AVAILABILITY OF LAND
13
DISPOSBALE INCOME
 Properties which are located in agricultural areas or those dominated by
manufacturing units attract a lower price than those situated near the IT hubs
 The valuation of property is in direct proportion to the quantum of disposable
income in the hands of the purchaser or the majority of population in that area
AVAILABILITY OF LAND
In places where there is ample land available for residential purposes or
development of real estate, the graph reflecting the valuation of property shows
a slower rise than in areas where land is comparatively scarce.

14. AFFORDABILITY
14
 Affordability refers to the cost incurred by the owner in the process of enjoying
or retaining a property
 In layman's term, it is the term which establishes a relationship between
interest rates, property prices and wages
 If any of above three variables reach their maximum level in a particular area,
then the inhabitants start looking towards a better lifestyle elsewhere

15. STRUCTURE
15
THE VALUATION OF PROPERTY IS DEPENDENT ON THE
 Specifications of materials used
 Layout
 Design
 Durability
 Life cycle of the building
FACTORS AFFECT THE PRICE OF A PARTICULAR PROPERTYARE
 The quality and cost of materials during construction
 Size
 Current rates of labour
 Frontage
OTHER PHYSICALATTRIBUTES THAT AFFECTS THE PRICE ARE
 Roof covering
 Height of the building
 Type of foundation
 Waterproofing
 Plinth level also affect the price of a particular property

16. CUSTOMIZATION
16
 The cost of real estate becomes higher in the event of builders undertaking
customization of residential space on the lines of the purchaser's requirements
 For example, some investors may want landscaped terraces or verandas
connected with their apartments, upgraded kitchens, specifically designed
internal stairways in duplex apartments, higher quality paint and flooring, or
other user defined changes
 This leads to an escalation in the ultimate price charged to the buyer
 Before making their real estate purchase decisions, investors should conduct
an analysis of these drivers to get a fair valuation of the property that interests
them
 Careful investigation and homework can lead to better returns, easy liquidity
and more lucrative investments

17. SUPPLY FACTORS AFFECTING THE
REAL ESTATE INDUSTRY
17
 If there is a limited supply of real estate in the market, it will usually push the
prices higher
 Conversely, if there are a lot of properties in the market, the tendency is for the
price to go down
 A balanced market will work well for both sellers and buyers
 Even if the supply is imbalanced, there are other factors that can make the real
estate market performing well
 Builders for example are going to adjust their plans to avoid oversupply of new
homes in their area
 The more they build, the lower the prices would be so they are not going to
build and build without regard for the supply factor
 Another thing that can balance the oversupply of housing is the availability of
land
 Some regions do not have plenty of space for new housing so the risk of
oversupply of properties in the market is not that high

18. DEMAND VERSUS SUPPLY
18
 The higher the demand for real estate, the
higher the prices would be
 Demand for real estate in a particular
area is inversely proportional to its
supply. As the supply or availability of real
estate decreases, the valuation of
property increases
 Changes in population are the key drivers
for demand. Along with an increase in the
number of people inhabiting a particular
area, the popularity of a particular locality
in terms of people wanting to be a part of
the locality also increases its price

19. IMPACT OF RECESSION ON REAL
ESTATE
 Incompletion of previous projects
 Bad debts
 Less demand in all segments
 Cash starvation
Incompletion
of previous
projects.
Bad Debts.
Less
demand in all
segments.
Cash
starvation.

20. BARRIERS IN GROWTH OF REAL
ESTATE
Skill Shortage.
Non Availability of Statistics.
Overvaluation of Property.
Highly Fragmented.
Lack of Transparency.

21. EXPECTATIONS OF CUSTOMERS
21
 Budget of the customer
 Loan amount sanctioned to the customers
 Income returns from the properties
 Locality of the property
 Proper drainage system facilities
 Location of schools, hospitals, markets, bus stops from the property
 Privacy of living
 Quality of building
 Availability of space for car parking
 Location of the floor of the house
 Vastu of the building
 Patta and other approval for buildings
 Safety
 Approach to building
 Approachability of brokers
 Gifts for the purchases of house
 Down payments and EMI
 Location of the recreation and nearby religious places

22. CONSTRAINTS OF BUILDERS
22
 Accidents that recently happened in that particular locality
 Excess budget
 Lack of ventilation in the building
 New government policies
 Inflation
 Location of the recreation and religious centre near by
 Fluctuations in GDP of the country
 Income of the people
 Demographic dividend
 Ambience of the property
 Saturation of growth of the property
 Rescission in the IT and manufacturing sector
 Changing customer preferences
 Level of water table in that locality
 Location of schools and colleges, office near by
 Expenses sent on approval
 Expenses on free gifts and marketing

23. CONCLUSION
23
REAL ESTATE PARCELS ARE UNIQUE AND FINITE
 You cannot fill a real estate supply shortage by manufacturing more identical
units
 Each piece is different and there is a finite supply
 It's not a manufactured commodity
 Though you might be able to create more condos in a give space, the space
itself is unique and cannot grow to accomodate a short supply
REAL ESTATE CANNOT BE MOVED TO FILL SHORTAGES
 If there is a shortage of land for homes in a given area, you cannot move in
more land to alleviate the shortage
 Real estate is where it sits. For this reason, it will always be a local commodity
influenced by local conditions

24. Conclusion contd...
24
OVER-SUPPLY MEANS LOWER PRICES:
 Because of the first two items above, you can usually expect there to be a
fall in prices when there is an over-supply of homes or land in a given area
 You cannot move the overage to another area to keep prices stable
UNDER-SUPPLY MEANS HIGHER PRICES:
 If there isn't enough land or homes in a given area, then prices will almost
always rise
 Even if there is the ability to construct more homes, the time delay cannot
fill the demand and prices will rise
Hence, economic theorists believe that when you have a large
supply of something, such as housing, prices for that something often
decline. Conversely, if supply of something like housing is limited,
prices for that housing often increase. However, you could have a large
supply of housing and if it's also in high demand prices might also rise.