MAS - Real Estate Market

Question 1

How do households choose a location (macro, micro, apartment)?

Answer 1

macro:
POI, taxes, transport infrastructure (accessibility), price level

micro:
distance to POI, transport infrastructure, noise

apartment:
size, view, price, means

Question 2

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?

Answer 2

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

Question 3

Advantages of hedonic pricing model

Answer 3

Fast, applicable nationwide, works very well for standard types of property

Question 4

Disadvantages of hedonic pricing model

Answer 4

Not applicable for unique properties (farms, luxury, properties with easements etc.)

Question 5

Why do rising interest rates lower the market values of commercial properties?

Answer 5

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)

Question 6

How do rising interest rates affect housing cost?

Answer 6

Housing cost increases as well

Question 7

How do rising interest rates affect yield expectations?

Answer 7

Yield expectations rise as well

Question 8

How does increasing housing cost affect demand?

Answer 8

Demand for housing decreases

Question 9

How do the market values of investment properties affect the demand for investments?

Answer 9

They have no effect on demand, the price is not relevant, the important thing is the yield

Question 10

How does a rising demand for housing affect supply?

Answer 10

Supply increases but in short-term nothing happens because supply is fixed and apartments have to be built first

Question 11

If foreign GDP growth declines, immigration…

Answer 11

…increases

Question 12

If domestic GDP increases, demand for workspace…

Answer 12

…increases

Question 13

If domestic GDP decreases, house income…

Answer 13

…decreases

Question 14

If demand for workspace decreases, yield expectation…

Answer 14

There’s no effect on yield expectation. Yield expectations are formed on the financial market.

Question 15

If household income increases, demand for housing…

Answer 15

…increases

Question 16

If yield expectation increases, market values of investment properties…

Answer 16

…decrease. Income (rents) stays the same (DCF with higher discount rate = lower value)

Question 17

If immigration decreases, housing demand…

Answer 17

…decreases

Question 18

In times of uncertainty, people buy bonds because…

Answer 18

…they are safe (especially in CH)

Question 19

Why would someone invest in “bad” bonds?

Answer 19

During uncertainty, they are considered safe and return OF money is better than return ON money

Question 20

Immigration in CH is…

Answer 20

…higher than population growth

Question 21

Vacancy of condominiums is lower than vacancy of rentals because…

Answer 21

…for new condominium projects 75% of floor space is sold before construction, otherwise no realisation of the project

Question 22

For the same property now, we pay…

Answer 22

…2x more than 20 years ago

Question 23

The upper segment is much more…

Answer 23

…volatile than the average & lower segment. When the market is down upper segment faces bigger losses

Question 24

Between 2010-2020 construction prices were…

Answer 24

…basically the same, but price of building land increased -> scarcity of land

Question 25

Mobilité spatiale

Answer 25

CH is divided into 106 MS regions with the goal of defining comparable micro-regions

Question 26

Bonds = the higher the yield…

Answer 26

…the higher the risk

Question 27

In top locations, the yield of MFH is lower because…

Answer 27

…of lower vacancy risk

Question 28

Boom phases:

Answer 28

‘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

Question 29

Structural break

Answer 29

Unexpected shift in a time series that leads to a long-term change in trend -> bad for economists because can’t make future predictions

Question 30

Spatial differentiation

Answer 30

Macro-location: canton (laws, tax), region

Micro-location: commune (neighborhood)

Question 31

Prospective model

Answer 31

Long-term forecast of demand for residential & office space at communal level (transport, price level, housing quality, zoning law, building zones, household size, …)

Question 32

Hedonic pricing model

Answer 32

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.)

Question 33

What determines the utility of an apartment? What qualities of an apartment determine its price?

Answer 33

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

Question 34

Method for hedonic pricing

Answer 34

Multiple linear regression

Question 35

Decreasing marginal utility

Answer 35

The more I own of a specific good, the less I am willing to pay for one more unit (same goes for floor space)

Question 36

About 80% of price variation can be explained by

Answer 36

Loction

Question 37

What are the main drivers of real estate market trends?

Answer 37

GDP, employment and income levels, interest rates, demographics, supply and demand, infrastructure, policies and regulations

Question 38

What is the difference between the „value“ and the „price“ of an asset?

Answer 38

Value is fundamental and price is arbitrary. „Price is what you pay, value is what you get“.