Download Market, Land and Real Estate

Typology of markets
Meaning of marketAny body of persons who are in intimate business relations and carry on
Extensive transactions in any commodity.
According to french economists market is not only a place in which things
Are bought and sold but the whole of any region in which buyers and sellers
Are in such interchange with one another that the price of the same goods
Tend to equality easily and quickly.
The essentials of a market are:(a) Commodity which is dealt with;
(b) The existence of buyers and sellers;
(c) A place, be it a certain region, a country or the entire world;
(d) Such interchange between buyers and sellers that only one price should
Prevail for the same commodity at the same time.
Classification of markets
Markets may be classified a:
(a) On the basis of area as local, national and world markets;
(b) On the basis of time, as market price on any particular date or moment,
Short period price, long period price, or secular markets covering a
generation and;
(C) On the basis of nature of competition obtaining therein as perfect and
Imperfect markets.
Market structure:It refers to the framework of different markets or it refers to different types of
market in which the producers or sellers operate.
Different type of market structures:• Perfect competition
• Monopoly
• Monopolistic competition
• Oligopoly
Perfect competition –
It is the form of market where there is a large number of buyers and sellers of a
commodity.
Homogeneous product is sold with no control over price by an individual firm.
There is one price that prevail in the market and the firms sell the product at that
price.
E.g. Wholesale vegetable, fruits market, bicycle parts industry.
Monopoly –
It is the form of market in which there is a single seller or producer of a
commodity.
There are no close subsitutes of the monopoly product and there are
legal,technical or natural barriers to the entry of new firms in the monopoly
Monopolistic competition –
It is the form of market
i. Which like perfect competition, has a large number of buyers and sellers and
allows the firm the freedom of entry and exit and
ii. Which would also allow product differentiation and partial control over price
of the product.
E.g.. Different brands of toothpastes or different brands of soaps.
Oligopoly –
A form of market in which there are a few big sellers of a commodity, like
The automobile industry in India.
Factors on which market structure depends –
1) Number of buyers and sellers:
- when there is a large number of buyers and sellers of homogenous
commodity, it is a situation of perfect competition.
- When there are large number of buyers and sellers but the product is not
homogenous, then it is monopolistic competition.
- When there is one seller but a large number of buyers of a commodity, its a
sitution of monopoly.
.
2) Nature of commodity:
- In a perfectly competitive market, commodity must be homogenous.
- In monopolistic market, the commodity is differentiated.
- In monopoly, product may or may not be homogenous.
3) Degree of price control:
- Perfect competition is said to exist, when the producer has no control over
the price.
- In contrast the monopolist has full control over the price.
- Monopolistic is characterized by partial control over price.
4) Knowledge of market:
- In case of perfect competition, buyers and sellers have perfect knowledge of
the market. In other forms of the market, there is imperfect knowledge of the
market.
5) Mobility of factors:
- Perfect mobility of the factors is another unique characteristic of perfect
competition. It is not an essential feature of other forms of the market.
Size of the market
The size of the market depends upon several factors:
(a) Character of commodities:
In order to have a wide market a commodity must be
(i) Portable
(ii) Durable
(iii) Suitable for sampling, grading and exact description and;
(iv) Such as its supply can be increased. Such commodities are wheat, gold,
Government securities, etc. Bulky articles like bricks and perishable
Articles like fresh fruit and vegetables have narrow market.
(b) Nature of the demand for the commodity
A commodity which is in universal demand (e.g. Gold and silver) will have
A wide market. Commodity of general consumption is bound to have a
wide market.
(c) Development of the means of communication and transport
this has enabled things to be carried long distance and has widened the
Market. Extension of transport system necessarily leads to the
extension of the area of the market.
(d) Peace and security
Obviously goods cannot be marketed in distant place unless peace and
order prevail. In war time, due to insecurity in war zones, markets get
Restricted. Thus the extent of the market depends on peace prevailing
In the region.
(e) Currency and credit systems
If the currency and credit systems are well developed, marketing can be
conveniently and profitably carried on over extensive areas.
The extent of the market very largely depends on the state of the currency.
(f) Policy of the state
Markets may be restricted by the policy of the state. Prohibitive duties and
Quatas restrict the market. Thus, government policy can affect the extent
of the market.
(g) Degree of division of labour
We know that division of labour is limited by the extent of the market. The
converse of this is also true. The extent of the market, also , in its turn,
Depends upon the degree of division of the labour. The greater the division
Of the labour, the cheaper the article and wider the market.
Perfect and imperfect markets
A market is said to be perfect when all the potential buyers and seller are promptly aware
of the prices at which transactions take place and all the offers made by the other
sellers and buyers, and when any buyer can purchase From any seller and
conversely.
Under such condition, the price of a commodity will tend to be the same( after allowing
for cost for transport including import duties) all over the market.
The prevailence of the same prices form the essential characteristics of a Perfect market.
On the other hand, a market is imperfect when some buyers or sellers or both Are
not aware of the offers being made by the others. Therefore different prices come to
prevail for the same commodities at the Same time in an imperfect market, whereas in
Perfect competition
It is wider in its scope and it has the following conditions.
(i)
(ii)
(iii)
(iv)
(v)
Large number of buyers and sellers
Homogeneous product
Free entry or exit
Perfect knowledge
Degree of control over price
(i) Large number of buyers and sellers
There should be a large number of buyers and sellers in a market so that, no
single producer or purchaser will be able to influence the market price,
because the output of any single firm, is only a small portion of the total output
and of the total demand. Hence the market price has to be given and
unalterable.
(ii) Homogeneous product
The articles produced by all firms should be standard and identical. This
ensures that the same price rules in the market for the same commodity. The
product of each firm is a perfect substitute of the products of all other firms in
the industry.
(iii) Free entry or exit of firms
Freedom of entry means that there are no artificial barriers like patent rights,
copyrights, legal restriction etc in the way of new firms entering the industry.
Similarly there are no natural barriers like huge capital expenditure required to
start a new firm.
Freedom of exit means no barriers in the way of firms deciding to leave the
industry like labour laws, government rules etc.
iv. Perfect knowledge –
buyers and sellers are fully aware of the prices and costs prevailing in the
market.
v.
Degree of control over price –
sellers have no control over prices because they are price takers and price is
determined by industry by the forces of market demand and market supply.
•Real
estate is a legal term that encompasses land along with anything permanently
affixed to the land, such as buildings, specifically property that is fixed in location.
•Real estate is a part of an asset & determines the growth & economic strength of
country.
•The main source of capital used by individuals and small companies is to purchase
and improve land . A significant fraction of the total wealth is in the form of land and
buildings.
•The word Real is derived from "royal”.
For hundreds of years the Royal family / King owned the land, and the
peasants paid rent or property taxes to be on the Royal's land. Today, just like
hundreds of years in the past, we pay property taxes, or rent to be on the
government's land or the Royal Estate.
Business Sector
•With the development of private property ownership, real estate has become a major
area of business. Purchasing real estate requires a significant investment, and each
parcel of land has unique characteristics, so
the real estate industry has evolved into business field. Some kinds of real estate
businesses include:•Brokerages: A fee charged by the mediator who facilitates a real estate transaction
between the two parties.
•Development: Improving land for use by adding or replacing buildings
•Property management: Managing a property for its owner(s)
•Real estate marketing: Managing the sales side of the property business
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Real estate investing: Managing the investment of real estate
Corporate Real Estate: Managing the real estate held by a corporation to
support its core business—unlike managing the real estate held by an investor
to generate income.
Real estate economics is the application of economic techniques to real estate
markets. It tries to describe, explain, and predict patterns of prices, supply,
and demand.
It depends on partial equilibrium analysis (supply and demand).
The main participants in real estate markets are:
 Owner/User - These people are both owners and tenants. They purchase
houses or commercial property as an investment and also to live in or utilize
as a business.
 Owner - These people are pure investors. They do not consume the real estate
that they purchase. Typically they rent out or lease the property to someone
else.
 Renter - These people are pure consumers.
 Developers - These people prepare raw land for building which results in new
product for the market.
 Renovators - These people supply refurbished buildings to the market.
 Facilitators - This includes banks, real estate brokers, lawyers, and others that
facilitate the purchase and sale of real estate.
The owner/user, owner, and renter comprise the demand side of the market
while the developers and renovators comprise the supply side.
The unique characteristics of the real estate market must be accommodated.
These characteristics include:
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Durability - Real estate is durable. A building can last for decades or even
centuries, and the land underneath it is practically indestructible. Because of
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Heterogeneous - Every piece of real estate is unique, in terms of its location,
in terms of the building, and in terms of its financing. This makes pricing
difficult, increases search costs, creates information asymmetry and greatly
restricts substitutability
High Transaction costs - Buying and/or moving into a home costs much more
than most types of transactions. These costs include search costs, real estate
fees, moving costs, legal fees, land transfer taxes, and deed registration fees.
Long time delays - The market adjustment process is subject to time delays
due to the length of time it takes to finance, design, and construct new supply,
and also due to the relatively slow rate of change of demand. Because of these
lags there is a great potential for disequilibrium in the short run.
Both an investment good and a consumption good - Real estate can be
purchased with the expectation of attaining a return (an investment good), or
with the intention of using it (a consumption good), or both.
Immobility - Real estate is locationally immobile (save for mobile homes, but
the land underneath them is still immobile). Consumers come to the good
rather than the good going to the consumer. Because of this, there can be no
physical market-place.