RE-160 Lecture Notes - Lecture 1: Affordable Housing, Ask Price, Transaction Cost
22 Dec 2020
School
Course
Professor
Document Summary
Re is a physical asset that generates cash flows. No standardised price (different quality -> different price) Markets for a given quality are thin (specific properties lack clear substitutes) Properties are bundles of land and capital tied to a specific location, supply of space at that location cannot easily be changed. Traded in direct search markets (no exchange for it) Buyer & seller motives are not coordinated in an exchange. Possibility of making a poor trade since reservation prices not revealed. Search costs, large unit size (not unitized investments), legal complexities, Total cost of trading = (bid price ask price) + transaction cost. Commercial properties are traded either directly or indirectly in securities market via property trusts -> multiple pieces of information that needs to be understood and analysed for the same asset. Long-term investment due to high transaction costs, no central marketplace/exchange, hence trading is infrequent. Immobility and tangibility of re makes it suitable to mortgage finance.
