Tuesday, December 15, 2020

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.




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