Housing market and ownership
Market value for housing is referred as the price at which an owner is happy to sell property and a buyer is willing to buy. Assumption is that there is sufficient activity in the marketplace to generate sufficient buyers and sellers so that neither party controls the price.
It is also defined as the highest price a willing buyer would pay and a willing seller will accept. It is expected that both parties are fully informed and the property being exposed for a reasonable period in the market. Market value can also be defined as the price at which a willing seller would sell a property and a willing buyer would buy, neither being under abnormal pressure.
Market value is the price that a home is likely to change hand in the market, based on comparisons to comparable homes that have recently sold. This is treated as the best price that a ready, willing and able buyer would pay and the lowest price a prepared, willing and able seller will accept.
It is a dollar figure at which there is a meeting of the minds, said Baum et al (1989). Other researchers such as Ling and Archer (2005) referred the market value of a property as the most probable selling price, assuming normal sale conditions. It can be viewed as the value typical and imaginary participant would place on a property.
It would mean that there are willing buyers and sellers freely bidding in competition with one another. In the situation where the real estate markets were competitive, market value would be equal to most recent sale price.
On the other hand, some researchers believe the market value is the estimated amount for which a real property can exchange hand on the date of valuation between two parties (buyers and sellers) in an arm’s length dealing.
This is possible after proper marketing in which both parties have each acted knowledgeably, prudently and without any compulsion. Market value is an objective valuation of identified ownership rights to specific property as of a given date. Being illiquid commodity the real property requires relatively longer period to market and to achieve a price that represents the market value. Market value as the name implies covers the essential features of dealing between two independent parties (buyer and seller) under normal market condition (Prag, 2003).
A market value would mean to produce a figure as close as possible to what the property would be sold for under ordinary market condition. One must disregard any special factors that have influence on the price paid in a particular circumstance.
The housing market very much depends on the price paid for the land by the house builder and the timing of the scheme in relation to the land and the housing market cycles (Barlow,J. 2000).
Builders need to secure a steady flow of sites to meet their immediate business plans and to fulfil the conditional contracts for long-term strategic plans. Reserve of land owned either outright or under contract could help to increase development profit by maintaining low land cost relative to house prices. Some contractors make efforts to produce housing that are customised, but restricted by the company policies and building regulations.
Customization is also constrained by construction lead times, the approach to the development process adopted by a house builder and economic and institutional factors. Sometimes the lenders and valuers are concerned about the property resale prices and this might restrict a potential buyer’s chances of obtaining loan for a customised home.
It would be a concern for house builders as to how the additional cost will increase the housing price. Due to the real estate's uniqueness and immobility, the housing market adjusts gradually to the forces of supply and demand. Incases when the supply is low, a higher demand not met immediately because development and construction are a lengthy process.
Even when supply and demand forecasted, some events such as political unrest can disrupt market trends. Such changes in financial markets or local events such as employment opportunity can disrupt a stable market as well. Purchasing a home offers several financial advantages to a buyer. If the property value increases, a sale could bring in more money than the owner paid and a long-term gain. As the total mortgage, debt reduced through mortgage payments, the owner’s equity in the property increases.
On the other hand, a tenant renting premises accumulates nothing whereas the homeowner’s mortgage payment builds equity and increases the net worth. People buy their own homes for psychological as well as for financial reasons. For many people, home ownership is a sign of financial stability. An investment appreciates and is an edge against inflation.
Homeownership also offers benefits that may be less tangible but are no less valuable, such as pride, security and sense of belonging to the community.
Mori Financial Services (2003) annual housing survey in England revealed that over 44 per cent of the Great Britain population sees the reward of owning a home as an investment. Fewer than 37 per cent sees as being more secure and three out of 10 were of the view that once the housing mortgage is paid off the property would be theirs. One in five believed that home is an asset that can pass on to the future generation. Others felt that there are risks in owning a home. Those risks include keeping up with mortgage repayment through illness or unemployment, affordable maintenance and repairs and increasing costs/repayments due to an increase in interest rates.
The demand for housing stimulates (Nenno and Brophy,1982) new housing schemes to meet changing household requirement. It shifts pattern of economic growth, development and increasing competition for capital. These demands create new search for housing responsibilities, policies and management. An increase in the number of households demands for an expansion in the housing supply.
On the other hand, the high interest rates caused by inflation, rising cost of building material and land tend to constrain housing construction and increases the price of new housing.
This would reduce the availability of new housing and increase the cost in the existing supply, making it difficult particularly for the low income families to buy.
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