BALTIC REAL ESTATE MARKET DYNAMICS
||BALTIC REAL ESTATE MARKET DYNAMICS
||17th Annual European Real Estate Society Conference in Milan, Italy
||Real estate market is usually being analysed in terms of supply and demand factors definition and estimation in a certain geographical area at a certain period of time. Moreover, local real estate markets are often being compared with markets of other countries, usually similar in size. Market activity, price dynamics, market maturity are traditionally key factors for real estate market research. The importance and significance of the latter – market maturity - suggests to discuss the following issue – can we reasonably compare several markets representing different level of maturity. Part of the countries usually used for comparison (in most cases Scandinavian countries) have formed significantly earlier than Baltic real estate market and, moreover, operate under different conditions over long period of time if compare with the whole existence of the Baltic states market. Therefore, it is relevant to analyse Baltic real estate market functioning and make forecasts taking into consideration fundamental differences of markets, formed mainly due to different surrounding (economic) systems. This would help to reduce inaccuracy of any forecast important for market participants’ expectations and decisions. Qualitative market formation analysis was performed by reviewing and comparing two real estate distribution mechanisms – Soviet era distribution-based mechanism and market economy-based mechanism – and their major elements (property rights, participants, functioning of distribution mechanism, environment). The analysis provided several conclusions: - In almost twenty years Baltic real estate market and its residential segment developed fast; residential real estate distribution mechanism improved significantly and currently matches characteristics of market economy distribution mechanism. - Today, first of all due to economic recession, inconformity between purchasing power and real estate prices forms clear demand for financial intermediation. Effective demand is close to zero and has very low impact on real estate market functioning. - Despite distribution mechanism characteristics, most of which meet market mechanism criteria, it is irrelevant to compare homologous different markets, which have formed in totally different economic systems and were functioning under different conditions. This suggests applying different patterns for prognosis. Major part of residential property fund represents very low quality (more than 60% of total residential property is build in the period of 1961-1990), and forms need to renovate old buildings and build new ones. The volume of need mentioned-above may have impact for growing demand for financing, and shall fasten recovery of real estate market and general economy more quickly and significantly than in matured markets, where qualitative parameters of real estate meet needs of majority market participants and are not depreciated considerably.
||real estate, real estate market and its functioning, market participants, functioning mechanism, surrounding environment
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||Market Research, Analysis & Forecasting (3)
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