Supply and Demand as Determinants of Price and Value of a Property

There is an old cliché that there are only three factors that determine the value of a property, namely Location, Location, Location. In that sense, where a property is located is more important than what the property is when determining the value. Locations in short supply and with high demand will command high market values.

 

According to Tim Harford, “scarcity and bargaining strength are the driving forces within any market that determine prices, and land and buildings are no different in this respect to other goods and services. Where there is a shortage of supply and high demand, prices are driven upwards.” (Harford, 2007)

 

Given some thoughts on this, I looked at the land use principles in the Central Business District (CBD) or Zone (CBZ). CBD is an area that has the highest levels of accessibility and complementarity. It is a relatively small sized area and demand from users are intense due to the advantages of its location, it will enjoy peak land values. Commercial uses such as offices, retail and certain leisure uses (example, entertainment and exhibition centres) will gather in this area. Hence, the intense competition for space and high land values will severely restrict the amount of residential property in this CBD area. If those residential units that do exist, they will command high values, particularly if in good conditions.

 

Now, using the principle of supply and demand to find good value of residential property in the CBD area may not be a difficult task for an investor. But, the process of doing it (i.e. from soliciting to negotiating; from transferring of ownership to obtaining financing; and from finding tenants to managing your investment property) is not an individual work. It’s a collective effort.

 

What is your thought on this?

 

Please feel free to share your thoughts and views in my Blog or Facebook Page 

I look forward to hearing your valuable insights. 

Stay safe and keep healthy.

Strategy Deployment in Perth Real Estate Investment

What strategy will you deploy when it comes to real estate investment in Perth property market?

 

Cash Flow strategy or Capital Gain strategy?

 

The common answer which I have gotten from those whom I interviewed was both, that is, they wanted to have cash flow as well as capital gain. Though this answer was not wrong, but, in my opinion, I would deploy cash flow strategy to acquire real estate in my portfolio. For one simple reason, capital gain would follow if tenants are willing to pay rental and rental increment as time period goes. In other words, no capital gain if tenants are not renting the property.

 

Recently, I read a book called ‘Buying Real Estate Overseas for Cash Flow’, and the author was emphasizing to the readers of buying overseas properties for cash flow. Why? 2 main reasons – firstly, for retirement planning and secondly, leaving a legacy for heirs. 

 

There are many ways of planning the retirement. But, many investors like yourself would agree that real estate should always form part of our retirement fund. Real estate is immovable and they are considered as a ‘fixed asset in our balance sheet’. As fixed asset, they should always generate a steady cash flow perpetually for supporting our quality retirement living. Would you agree?

 

As parents, we work hard mainly is because of our children. Thus, leaving a legacy for heirs is always what we hope to give to our next generation. Think about this – how would you feel after a certain number of time periods, the property become free for our heirs. Wouldn’t you be happy to see that?

 

Cash flow strategy is key in finding real deals in real estate investment in Perth property market.

 

What would be yours today?

 

Please feel free to share your thoughts and views.  

I look forward to hearing your valuable insights. 

Stay safe and keep healthy.