The real estate market is characterized by the number of transactions with objects. It is a complex mechanism for regulating all processes with property and is closely intertwined with other segments. The instruments of real estate market functioning are the rights to own or lease objects.
How the real estate market operates
The real estate market has three directions, which are connected with each other:
- construction and development segment;
- property management segment;
- segment that regulates the processes related to the created objects.
Most legally executed transactions are in the third area, although the first two segments are also based on the transfer of rights to real estate. An example of such interlacing is investment. When investing in the construction of an object, a transaction is made that determines the respective rights to the real estate for the parties. One more option is transfer of some rights to the object to the management company. Without such a procedure, it cannot undertake to find tenants, conclude contracts with them and other issues related to the real estate.
The real estate market includes objects, subjects and infrastructure elements. It depends on demand, supply, cost, which are regulated by relevant laws. Such mechanisms are inherent to all segments of the economy, but the real estate market has its own peculiarities.
It has a local division both by different regions of the country and by regions within a populated area. In addition, the segment is personalized – there is only one buyer and only one seller, which dictate the cost of the object. The real estate market has high transaction costs, which are borne by both parties. To make a deal, a buyer needs to analyze various offers, and the seller – to place an ad, use the services of a realtor, prepare documentation and other troubles. The amount of such costs may amount to 6-7% of the total cost of the object.
The real estate market is characterized by the difference between supply and demand. The reasons for such imbalance may be high requirements of buyers, slowdown of construction of new objects, etc.
Investment in real estate makes the segment obey the processes of the investment market.
Investing in residential or commercial objects requires an impressive capital, and besides, it is necessary to deal with management tasks related to an asset of this kind. It includes the decision of municipal and technical problems, improvement of efficiency of use of objects.
In contrast to financial assets, real estate is less sensitive to the inflation rate. This is ensured by the stability of income from long-term rent.
Functioning of the real estate market takes into account various segments that influence its development.