Buying Jamaica Real Estate – Understanding the Concepts of need and …
A study of Jamaica real estate markets and their operations discloses several factors that influence need and few factors that affect supply. The influences on supply are associated chiefly with cost. This fact emphasizes the rule that the value received from increased supply must go beyond the total costs of producing the unit supplied.
At any point in time, existing market conditions are a consequence of the interaction of supply and need.
need is defined as the flow of goods and sets which a consumer is willing and able to buy at a given time and at a given price. In other words, it is want backed by money.
The variables related to need are:
1. Price of Jamaica real estate
2. Population numbers and composition
3. Income of consumers
4. Availability of mortgage credit; and
5. Consumer tastes
Price – Whether it is the Jamaica real estate market, the market for agricultural produce or the stock market, one of the most important variable factors influencing need is price. When prices are considered too high, need is not absent, but it builds up and is held in check just as water backs up when held in check by a dam. The general rule is that, need is inversely related to price; consequently as price is lowered more of the item is demanded. When prices are high, need is lowered due to the public’s inability or unwillingness to pay the high prices. When prices are low, people are more willing and able to buy, so need is increased.
Population – Another important variable related to need is population numbers and composition. Most of the transactions in the Jamaica real estate market are residential character transactions. Shelter is a basic need and cannot be ignored for long. However, the need for dwelling space depends upon the numbers and composition of the population in every market area. insignificant population size does not provide sufficient information for precisely estimating the need for dwelling space, nor does a count of families. Modern lifestyles, changes in economic conditions and reduced family size have caused the ‘household’ to become the basis for most population examination. A household may be a single person living in a studio, a husband and wife with four children living in their own bungalow in the suburbs or two unmarried adults living in a one-bedroom apartment. Each consists of a household.
Another important cause of population growth increase has been an in-migration – new residents who have moved from other places. For example, the urban centre of Kingston has always attracted persons from the rural parishes and every reason exists to suggest that this trend will continue.
Income – The third variable that influences need for dwelling space is income of consumers. while price is inversely related to need, income is directly (positively) related to need. That is, as income increases, so does need for abodes. It merely reflects a human desire for more units or an increased amount of space as income permits such desires to be gratified.
Any change in local unemployment rates or salary or wage levels causes a change in need for dwelling space and related loan considerations.
Credit – The fourth variable that influences need is credit for the purpose of mortgage. The availability and cost of credit has been called the barometer of the Jamaica real estate market. Since the buy of most residential similarities involves two or three times the buyer’s annul net income it is easy to understand why more than 90% of homebuyers use credit to position the buy.
When a tight money market develops and interest rates rise, a corresponding drop is reflected in housing need because the amount of money needed to make monthly mortgage payments will increase. The higher the interest rate at which money is borrowed the higher the monthly payment. An increase in mortgage interest rates of already one percent causes a definite drop in need for housing.
Consumer tastes – Different types and designs in the housing market have enjoyed periods of popularity throughout history. Generally speaking, however, lasting changes in consumer tastes occur slowly, over extended periods.
Various designs will mirror patterns of need over the years. For example, in Jamaica there has been a gradual shift in need towards gated communities. Also, most of the basic housing patterns used to create today’s abodes are modifications of residential layouts dating back many years.
Supply is not defined as what is produced but the portion of that production which comes to the market (for sale, lease or rental as in the case of Jamaica real estate).
The variables related to supply are:
1. Price of the product
2. Cost of the factors of production: land, labor, capital and entrepreneurship
3. The introduction of new technology
4. Producers’ objectives
5. Government policies
Price – Generally, the higher the price that can be obtained, the higher the quantity supplied.
Costs of factors of production – The factors of production (or productive resources) are the inputs to the production course of action. They consequently, directly influence the capability of producers to bring products to the markets.
These costs are those relating to land, labor, capital and the entrepreneurs. For example, if the cost of land increases, producers may shift production towards foods that rely less on land and more on other factors of production.
The introduction of new technology – Advances in technology reduce the unit costs of production by economies of extent. This can increase supply capability at each price level.
Producers’ objectives – Micro-economic theory relies on an assumption of profit maximization. In practice, producers can have many different objectives, which distort our perception of how supply behaves.
It is important to observe however, that professionals in the Jamaica real estate business have a responsibility to themselves and to their principals to keep abreast of market activities by continuing study of the local Jamaica real estate market place.