MAS - Real Estate Market Flashcards
How do households choose a location (macro, micro, apartment)?
macro:
POI, taxes, transport infrastructure (accessibility), price level
micro:
distance to POI, transport infrastructure, noise
apartment:
size, view, price, means
Why do investors keep developing & acquiring multi-family houses in peripheral regions, although the number of vacancies has been rising at an alarming rate for the last few years?
The lifespan of buildings is 100+ years, investors need to have a long-term view. Population is expected to grow in the next years to 10 million, those people will need housing
Advantages of hedonic pricing model
Fast, applicable nationwide, works very well for standard types of property
Disadvantages of hedonic pricing model
Not applicable for unique properties (farms, luxury, properties with easements etc.)
Why do rising interest rates lower the market values of commercial properties?
They cause a decrease in demand, leading to higher vacancy rates and potentially reduced property value. As interest rates rise, borrowing cost increases, impacting cash flow and financial performance. (Rents stay the same, discounted with higher interest rate = lower value)
How do rising interest rates affect housing cost?
Housing cost increases as well
How do rising interest rates affect yield expectations?
Yield expectations rise as well
How does increasing housing cost affect demand?
Demand for housing decreases
How do the market values of investment properties affect the demand for investments?
They have no effect on demand, the price is not relevant, the important thing is the yield
How does a rising demand for housing affect supply?
Supply increases but in short-term nothing happens because supply is fixed and apartments have to be built first
If foreign GDP growth declines, immigration…
…increases
If domestic GDP increases, demand for workspace…
…increases
If domestic GDP decreases, house income…
…decreases
If demand for workspace decreases, yield expectation…
There’s no effect on yield expectation. Yield expectations are formed on the financial market.
If household income increases, demand for housing…
…increases
If yield expectation increases, market values of investment properties…
…decrease. Income (rents) stays the same (DCF with higher discount rate = lower value)
If immigration decreases, housing demand…
…decreases
In times of uncertainty, people buy bonds because…
…they are safe (especially in CH)
Why would someone invest in “bad” bonds?
During uncertainty, they are considered safe and return OF money is better than return ON money
Immigration in CH is…
…higher than population growth
Vacancy of condominiums is lower than vacancy of rentals because…
…for new condominium projects 75% of floor space is sold before construction, otherwise no realisation of the project
For the same property now, we pay…
…2x more than 20 years ago
The upper segment is much more…
…volatile than the average & lower segment. When the market is down upper segment faces bigger losses
Between 2010-2020 construction prices were…
…basically the same, but price of building land increased -> scarcity of land
Mobilité spatiale
CH is divided into 106 MS regions with the goal of defining comparable micro-regions
Bonds = the higher the yield…
…the higher the risk
In top locations, the yield of MFH is lower because…
…of lower vacancy risk
Boom phases:
‘80’s: oil price shock was over, people realized buildable land is limited, bought homes in hope of selling at higher price
‘90’s: inflation, multiple banks crashed, less demand
2000-?: low - negative interest rate, high demand
Structural break
Unexpected shift in a time series that leads to a long-term change in trend -> bad for economists because can’t make future predictions
Spatial differentiation
Macro-location: canton (laws, tax), region
Micro-location: commune (neighborhood)
Prospective model
Long-term forecast of demand for residential & office space at communal level (transport, price level, housing quality, zoning law, building zones, household size, …)
Hedonic pricing model
Hedonic pricing is a form of statistical analysis where the price of a property is expressed as a function of a set of characteristics, which determine its quality (e.g. square footage, number of bedrooms etc.)
What determines the utility of an apartment? What qualities of an apartment determine its price?
Location:
- macro
- micro
- within the building
Size:
- number of rooms
- floorspace / size of plot
Standard:
- materials
- facilities
Age / condition
=> information on these factors is needed to construct a hedonic model + information on price
Method for hedonic pricing
Multiple linear regression
Decreasing marginal utility
The more I own of a specific good, the less I am willing to pay for one more unit (same goes for floor space)
About 80% of price variation can be explained by
Loction
What are the main drivers of real estate market trends?
GDP, employment and income levels, interest rates, demographics, supply and demand, infrastructure, policies and regulations
What is the difference between the „value“ and the „price“ of an asset?
Value is fundamental and price is arbitrary. „Price is what you pay, value is what you get“.
