01_Introduction

Question 1

segmentation of real estate market
on Demand Side
on Supply side

Answer 1

On Demand Side
- users require specific types of space
- require specific locations

on Supply Side
- buildings are built for specific uses and are fixed in location
- thus we often talk of geographic or property usage submarkets

Question 2

Where does Kink in Demand and Supply Curve occur?

Answer 2

• occurs at price equal to marginal cost of adding new space to submarket
• in short run it takes longer to build new space and existing space lasts longer

Question 3

What does Marginal Cost include
in context of Supply and Demand Curve

Answer 3

• site acquisition costs
• construction costs
• developer’s necessary profits

Question 4

4 Quadrant Model
What happens in case of deman increase in space market

Long Run

Answer 4

• demand curve shifts to right
• price increase in property market
• increase in construction
• increase in equilibrium stock of space

initially price increase in asset market, then fall back a bit as market returns to long-run steady-state due to new constructions

Question 5

4 Quadrant Model
What happens if demand increases in asset market (lower cap rate)

Answer 5

• flatter valuation curve (for same rent participant accept higher price)
• price increase in property market
• increase in construction
• increase in equilibrium stock of space
• decrease in equilibrium rent

Question 6

Real estate cycle

Answer 6

1. Recovery
2. Expansion
3. Hypersupply
4. Recession

Question 7

Expansion

Real Estate Cycle

Answer 7

• rent rise
• shorter time to sell property
• property prices rise
• yields fall
• more new starts
• hot topic in media

Question 8

Recovery

Real estate cycle

Answer 8

• increased rents and cash flows
• time to sell reduces
• property prices begin to increase
• much confisuion in media reigns about whether recent property value growth is sustainable
• many potential property purchasers delay buying because the evidenced value falls or a slow market in the preceding slump

Question 9

Recession

Real Estate Cycle

Answer 9

• increase vacancies of rental properties
  -** reduced cash flow for investors**
• property values fall
• time to sell increases
• doom and gloom about proeprty values
• completion increases