1.

0 INTRODUCTION

Land is unique because its supply and demand is limited while the demand keep increasing from time
to time. The existence of demand and supply factors has resulted in the price of land being
determined similar to other commodities in the market. Nevertheless, the price of land depends more
on demand factor in addition to the market response towards current economic scenario.
Real estate prices depend on the law supply and demand. When the demand for property is high
but the property like land is scarce, prices skyrocket and it becomes a seller’s market. When the
number of properties increases to glut the market, the prices typically dropped. The supply and
demand in real estate not easy to balance. This is because creating more saleable properties takes
time, considerable work, and lot of effort. Its not possible at all in time to meet consumer demand
(James Kimmons, 2019).
In law of supply have over supply and under supply. We can usually expert drop in prices when
there is an over-supply of houses or land in a given area. Beside that, we can’t move the overage to
another area to keep prices stable. Scarcity causes prices to rise when there not enough of land if
there not enough of houses in a given area. If land is available on which to build more houses or
building, the times it takes to construct them cannot meet immediate property need, so demand will
remain constants or rise.
Many forces that might have little or no impact on the other regions influence local markets and
vice versa. It is because pay attention to the factors that influence your local market especially in
Malaysia. We will watch a local businesses and make note of up sizing and downsizing trends if do
business in a market that has jobs and many workers relocating there. Factor like divorce rates, death
rates and demographics can greatly impact supply and demand. Trends the impact discretionary
income have more of an influence on this type of market than others.
In addition the trends in interest rates, national homes prices, new housing starts, and many
other economic indicators can influence real estate markets as well.These national events might not
typically move the real estate supply and demand directly, but they can render it less or more
important. The mood and sentiments of buying public cannot be overlooked. Supply and demand
don’t exist in a vacuum. Supply begins surpassing demand by leaps and bounds. The housing market is
glutted and those healthy prices evaporate which is has little to do with local factors except as they an
extension of national woes.
Land parcels are finite influences are the basic fundamentals of supply and demand. We cannot
fill a real estate supply shortage by manufacturing more units of land. Its a finite supply, not
manufacturing commodity. You might be able to create more units within a given space, such as
condos or townhouses, but the land itself is unique and cannot be duplicated to accommodate a short
supply (James Kimmons, 2019). Supply and demand in real estate will always be foremost a local
issue.
2.0 Supply and Demand of Land Toward Market Respond in Malaysia

2.1 Defination of Land

According to the National Land Code 1965, including land surface of the Earth and everything that
became the earth’s surface, the earth below the surface and everything in it, all plants and other
natural products whether or not requires the use of labour periodically to its productions, and up
above or below the surface of the earth, everything that is attached to the earth or the broadest
installed permanently to anything that is attached to the earth either above or below the surface of
the earth and land covered by water. Beside that, land is the transformation of nutrient-minerals and
organic matter in the face of the earth’s land surface (Rachman Sutanto, 2009) and Davy (1913) from
English defines land as laboratories providing elements while crops (nutrients). The principles of
supply and demand are still important factor influencing the value of real estate. It is important to
recognize that the principles operate differently in real estate markets such as:
✓ In a perfectly Competitive Market- Supply and demand react quickly to changes in market
conditions.

✓ In Real Estate Markets- Supply is fixed in the short run and cannot responds quickly to change in
market conditions.

2.2 DEMAND AND SUPPLY FOR REAL ESTATE

Supply and demand is a framework we use to explain and predict the equilibrium price and quantity
of a good. A point the market supply curve shows the quantity that suppliers are willing to sell for a
given price. The intersection of supply and demand determines the equilibrium price and quantity
that will prevail in the market.The supply and demand framework applies to the case that economist
call a competitive market. A market is said to be competitive or more precisely, to exhibit perfect
competition under two condition such as:
a) There are many buyers and many sellers, all of whom are small relative to the market.
b) The goods that sellers produce are perfect substitutes.

In a competitive market, buyers and sellers take the price as given, they think their actions have no
effect on the price in the market.
2.2.1 DEMAND

Figure 1 shows the market demand for housing and we call as market demand curve because it
reflects the choices of many households in the economy. In macroeconomics terms, we typically look
at markets at market at this level of aggregation and do not worry much about the individual
decisions that underlie curve such as this one.

Figure 1: The market demand curve shows the quantity of houses demanded at each price

As the price of housing decrease, the quantity demanded increases. This is an example of the law of
demand, which derives from two effect such as:
✓ As the price of a good or service decreases, more individuals choose to buy a positive quantity
rather than zero.
✓ As the price of a good or service decreases, individual choose to buy a large quantity.

In addition, in the case of the market for housing, the first of these is more important. Most of people
own either zero houses or one house. As houses become cheaper, more people decide that they can
afford a house, so the quantity demanded increases. A few people might decide to buy an additional
house, but they would presumably be in the rich minority.
Shift in demand

When we draw a demand curve, we varying the price but holding everything else fixed. In particular,
we hold fixed the level of income, the prices of the other goods and services in the economy, and the
tastes of households. If these other factors change, then the market curve will shift, the quantity
demanded will change at each price. A leftward shift of the market demand curve for houses, as
indicated in Figure 2 shows a shift in the market demand curve could be caused by many factors,
including:

1) A decrease in the incomes of households in the market.

2) Concerns about the future health of the economy

3) A reduction in the price of a typical apartment rental

4) An increase in the interest rates for mortgages

5) A change in social tastes so that buying a house is no longer viewed as a status symbol

Figure 2: Shift in Demand

2.2.2 SUPPLY

The counterpart to the market demand curve is the market supply curve, which is obtained by adding
together the individual supply curves in the economy. The supply curve slopes upward as prices
increases, the quantity supplied to the market increases. As with demand, there are two underlying
effects such as:

1) As price increases, more firms decide to enter the market that is theses firm produce some
positive quantity rather than zero
2) As price increase, firms increase the quantity that they wish to produce.

Figure 3: The Market Supply of Houses

The market supply curve shows the quantity of houses supplied at each price. It has a positive slope
which is as the price of houses increases, the number of houses supplied to the market increase as
well.
Shift in supply

When we draw a supply curve, we again vary the price but hold everything else fixed. A change in any
other factor will cause the market supply curve to shift. A left shift of the market supply curve for
houses, as indicated in Figure 4 shows a shift in supply of houses could be caused by many factors
including the following:

✓ Increases in the cost of production, such as wages, the cost of borrowing or the price of oil
✓ Bad weather that delays or damages construction in process
✓ Change in regulations that make it harder to build

Figure 4: A Shift in Supply of Houses

If there is decrease in supply curve of houses, the fewer houses are supplied at each price. The supply
curve shift leftward.
2.2.3 Market Equilibrium: What Determine the Price of Housing

We now put the market demand and market supply curve together to give us the supply and demand
picture in figure 5 Market Equilibrium. The point where supply and demand meet is the equilibrium in
the market. At this point, there is a perfect match between the amount that buyers want to buy and
the amount that sellers want to sell. Equilibrium in a market refers to an equilibrium price and an
equilibrium quantity and has the following features:

✓ Given the equilibrium price, sellers supply the equilibrium quantity

✓ Given the equilibrium price, buyers demand the equilibrium quantity.

Figure 5: Market Equilibrium

In a competitive market, equilibrium prices and quantity are determined by the intersection of the
supply and demand curves. The equilibrium happen because is a balancing of the forces of supply and
demand in the market. At the equilibrium price, suppliers of the good can sell as much as they wish,
and demanders of the good can buy as much of the good as they wish. There are no disappointed
buyers or sellers. Because the demand curve has a negative slope and the supply curve has a positive
slope, supply and demand will cross once, and both equilibrium price and equilibrium quantity will be
positive.
 The primary factor influencing demand for housing is the price of housing. By the law of
demand, as price decreases, the quantity of housing demanded increases. The demand for housing
also depends on the wealth of households, their current income and interest rates. While the primary
factor influencing supply of housing is the price of housing. As price increase, the quantity supplied
also increases. The supply of housing is shifted by changes in the price of inputs and changes in
technology. The quantity and price of housing traded is determined by the equilibrium of the housing
market.

2.2.4 Short Run Impact

A fundamental principle of real estate economics is the recognition that the total amount of land is
fixed. The land surface cannot be increased or decreased according to the whims of demand.
However, the intensity of land use change and in time this will increase or decrease the supply of real
estate. Besides that, any change in the intensity of land use take time. If the demand of residential or
other real estate projects were suddenly to increase, developers would need considerable time to
acquire land and obtain permits and financing. Figure 6 illustrates a down-slipping real estate demand
curve, intersecting at equilibrium.

Figure 6: Real Estate Demand Curve with A Short Run Fixed supply

If the supply of real estate is fixed in the short run, any change in current market prices and rents
will be determined by local changes in demand. When the demand goes up, prices and rents rise
as buyers and renters attempt to outbid one another for a fixed supply. While when the demand
goes down, prices and rents decline because in demand creates some vacancies and owners and
landlords attempt to fill these vacancies by lowering prices and rents.
 Figure 7: Illustrate How Increase In Demand Increases Prices Or Rents

Figure 7 illustrate how an increase in demand increases prices or rents, but this short run increase
cannot immediately increase the supply of real estate. Therefore, the prices or rents level of the
existing real estate supply increase from P1 to P2.

Figure 8: Illustrates How An Decrease In Demand Decreases Prices Or Rents

Figure 8 illustrates how an decrease in demand decrease prices or rents, but this short run
decrease cannot immediately decrease the supply of real estate.Therefore, the prices or rents
level of the existing real estate supply decrease from P2 to P1.
2.3 The Supply of Land Fixed

One of the most fundamental principles of real estate economics is the recognition that the total
amount of land is fixed. The land surface cannot be increased or decreased according to the whims of
demand. However, the intensity of land use can change, and in time this will increase or decrease the
supply of real estate. For example, it may be impossible to increase the number of acres within a
community, but can increase the number of housing unit per acre. If home construction increase, this
will generate an increase in the supply in homes, but not necessarily in the supply of land. In the short
run, land use is also fixed. Any change in the intensity of land use takes time. If the demand for
residential or other real estate projects were suddenly to increase, developers would need
considerable time to acquire land and obtain permits and financing. The state and local permits
process could take years.
Once of building is constructed, it tends to have a long life, regardless of the short run changes in
the real estate market. For example, if the demand for homes within the community declines, a
builder with an unsold supply of houses will not demolish them simply because the demand for the
homes has diminished. Instead, the homes will sit vacant on the market until they are sold. If they
remain unsold, eventually the lender will foreclose and then sell the inventory at discount prices.
If the supply of real estate is fixed, in the short run current market prices and rents will be
determined by local changes in demand. When the demand goes up, prices and rents rise as buyers
and renters attempt to outbid one another for a fixed supply. While when the demand goes down,
prices and rents decline because of decrease in demand creates some vacancies, and owners and
landlords attempt to fill these vacancies by lowering prices.

2.4 HOW THE REAL ESTATE MARKET REACTS TO CHANGE IN DEMAND

An increase in demand for real estate will generally have the following consequences such as an
increase in demand will reduce existing real estate vacancies and this reduction in vacancies will be
followed by an increase in rents and prices, assuming not rent controls, as more people continue to
bid for the fixed supply. Besides that, as demands pushes rents and prices up, a point is reached at
which investors and builders, motivated by profit potential, are drawn into the construction market.
Real estate market reacts to change in demand when assuming favorable economic and
governmental conditions, new construction takes place slowly and the supply of real estate increase
gradually. As this new construction overtakes the increase in demand, vacancies begin to rise.

In addition, this increase in vacancies causes a fall in rents and prices. Price and rent declines
may not be readily apparent, but instead shows up as rent concessions or favorable seller-aided
financing. With lower rents and prices, the difference between building costs and sales prices begins
to narrow, and profits disappear. This process is accelerated because increased construction activity
forces up building costs, catching profits in a squeeze rising costs and falling sales prices.
A decrease in the demand for real estate will generally have the consequence such as a decrease
in demand causes an increase in vacancies, the increase in vacancies will cause rents and prices to
declines, with lower rents and prices, people can now obtain more spacious quarters at no increase in
cost. It may absorb the vacancy. If not, the continued vacancy will eventually force property owners
to abandon their properties, go to foreclosure or demolish the structure. The real estate markets will
remain in this state until demand once again increases.

2.5 THE FACTORS CAUSE SUPPLY AND DEMAND FOR REAL ESTATE TO CHANGE

The change in real estate of demand are caused by:

Change in
population

Personal Factor causes

lifestyle and supply and demand
Income
govermental for real estate to
actions
change

Availability
of mortgage
credit

Figure 9: Factor causes supply and demand for real estate to change

But long-run changes in supply results from change in the rate of construction, conversion and
demolition. However the cause of change can vary for each type of real estate market. The reasons
for changes in the supply or demand for residential real estate are often different from the reasons
for changes in commercial, industrial or rural real estate
3.0 CONCLUSION

In general real estate is defined as a land. The ownership of real estate carries certain right rights,
knows as the bundle of rights. In short, real estate or real property is land and improvements and the
rights associated with the ownership of same. Have two assumption for land economic such as land
factor is a production factor and land demand and land usage are in the continuously demanding
situation because land supply is limited.Land possesses the following characteristic such as free gift of
nature, land is limited where other factors of production can be increased in supply to a greater or
lesser extent, but it is impossible to increase the supply of land. Land also a primary factor of
production where in every kind of production, we have to make use of land. Beside that land is
passive factor of production because it cannot produce anything by itself, land is permanent,
immovable, land varies in fertility, land differs in location and land has many uses scarcity.