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• The course focuses on the economic evaluation of projects and is instructed by Prof. Giulia Datola.
• This particular lesson discusses the nature of the real estate market.

Outline of Topics

• Theory of demand and offer
• Real estate property characteristics
• The real estate market
• The Real Estate Operators
• Sources of information

Demand and Offer Theory

• Microeconomics examines how individuals, businesses, and organizations make economic choices to satisfy needs with limited resources.
• Two main economic agents exist within a market, consumers (buyers), who constitute demand, and producers (sellers), who represent supply.
• A market is where relationships between buyers and sellers establish, facilitating the exchange of goods and services.
• Exchange is the basic concept of the market.
• Principles of demand and supply will be examined in the context of an perfectly competitive market to provide a clear understanding.
• Focusing on a perfectly competitive market allows separate analysis of consumer and producer behaviors, leading to a theoretical model of behavior

Demand Curve

• Demand refers to the quantity of a particular good requested by an individual or group at a specific price and time.
• Demand is impacted by the price of the specific good, consumer income, and the prices of similar alternative goods.

Offer Curve

• Supply refers to the quantity of a good that a producer is willing to produce and sell at a specific price.

Demand and Offer: the equilibrium price

• The point at which supply and demand curves intersect determines the equilibrium price in a market.
• Only one price exists (Px) at which the quantity demanded equals the quantity supplied otherwise the market will adjust to sell the products.

Feature of real estate properties

• Real Estate is an Economic good, anything that is capable of satisfying a need and that is available in limited quantities, and is also referred to in economic science as a utility.
• Appraisal is the discipline for estimating the value of particular economic assets, namely real estate assets.

Characteristics of real estate properties

• Immovability: Real estate assets are fixed to a specific location, making their value sensitive to local economic conditions.
• Location: The location is a main factor affects a property's value.
• Scarcity: The limited availability of land restricts the supply of real estate assets.
• Duration: Land has an unlimited duration, making real estate a potentially long-term investment.
• Illiquidity: Real estate properties can remain on the market for extended periods due to high unitary value and heterogeneity.

Extrinsic Characteristics

• Characteristics of the environment that affect a property's value.
  • Location relative to the city center.
  • Accessibility via public transport.
  • Availability of services such as schools and hospitals.
  • Access to private services.
  • Environmental quality.
  • Socio-economic factors.

Intrinsic Characteristics

• Characteristics of the property itself that affect the value.
  • Real estate unit exposure, view, light, floor, natural ventilation
  • Size, age, architectural style, condition of decay , windows, areas, potential for changes, elevators
  • Limitiations, Seller, Payment, Occupancy, Equipment, Common areas

Nature and rationality of the economic players

• Economic players purchase property for self-consumption, direct use of the building, or as an investment
• Self-consumption benefits derived from the building are influenced by economic, financial, and extra-economic reasons, where real property is a consumer good.
• Investment is the purchase of a property to generate future income, where real property is considered a capital good.

Features of Real Estate market

• Multidimensional use nature: Consumer vs Capital good
• Immovability of buildings and land = limited duration
• Spatial dimension of the local market = evaluated by location effects

Multidimensional Use

• Buildings depend on offered services and benefits, a building can be considered for consumer or a capital good.
• Properties intended as consumer goods can meet primary needs like housing or secondary needs like expression of status.
• Properties are also indirect goods, acting as instrumental factors of production (ex: warehouses) or generate income- (ex: shopping center).
• The utility value of a property in the market is directly proportional to demand and inversely proportional to supply.

Immovability and Land

• Scarcity, production factor costs, and limited land restricts the nature of real properties.
• Urban land is unlimited and thus is subject to rent over a duration.
• Urban rent has aspects: a differential effect (attractive quality and services) and an absolute effect (cost effectiveness of an investment)
• Urban rent involves physical, regulatory, and economic conditions that can increase value.

Space Dimension

• Real properties include non homogeneous fixity location effects derived from a variety of characteristics.
• Unique usefulness depends on location and influence.
• Immovability means the market of property is limited in space.

Segmentation

• The Real Estate Market can be split up in submarkets based on supply and demand curves.
• Properties inside of a sub segment have substitutes where if the price of property A is higher, so will property B.
• Price formation involves location and destination.
• Includes Location - Quality of geographical boundaries of the market area
• Destination of property - Commercial, residential. and offices
• Building Typology - Shape and functions to the property's location
• Quality of Construction - Elegant, luxury, or high value.
• Tenure status- Free Market Lease Status

Typologies of real estate

• Consists of Land, Residential, Retail, Offices, Industrial, rural, Special and Public real estate.

Cyclical trends

• The Real Estate Market Cyclical Trend model, which consists of first where prices are stable and transaction volumes grow.
• Second, supply reacts to increase in prices and draw new investors.
• Third, the price for the property slowly decreases, where demand is unable to reach expectations.
• Fourth, values drop and demand significantly decreases.
• Overall Supply is rigid and is determined and not the the markets equilibrium.

Market Characteristics

• Real Estate is an imperfect market and has several characteristics.
• Close monopolistic market structure
• Price searching behavior
• Heterogenous Properties, Lack of Transparency, and cyclical trends

The Real Estate Operators

• The investor and the consumer participate in economic activities.
• Construction, Processing, management, administration, selling, brokering, and promotions are related to real estate as investment property.

Function of operators

• Leaseholders are consumers who may choose non-proprietary for economic reasons.
• User-owners enjoy estate properties
• Small property owners derive income to hedge against inflationary effects.
• Real estate companies profit from rental.
• Real estate funds are also similar to real estate companies.

Emerging trends in Real Estate

• Includes sector prospects, rankings, and transaction volumes by country.
• Trends that impact Real Estate - climate, social changes, age of the population.

Real Estate Trends in the European Market

• Emerging trends in European real estate highlights where investments are ranked
• In 2024, the real estate market sectors of growth start with the investments into transportation and energy.
• Some of these trends are in migration, digitization and geopolitics

Real Estate Trends and sources of information

• The real estate values fluctuate based on trends in data sets across the market.
• Italian data sets fluctuate, where there is a significant interest in the Italian real estate market.

Types of resources for data

• Direct Resources is obtained from a survey
• Indirect surveys are databases like websites, institutional databases or private.
• Italian sources of information - Ministry of Finance, Real Estate Agencies, Technical centers.