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Property Development: Demand & Supply

In a “For-Sale” Property Development Project, the developer usually has some idea of the end customer anticipated from the early stages of the development process. The law of demand and supply is an economic principle that explains the relationship between demand and supply for a good or service (property, in this case) and how the interaction of the two affect the price of that good/service. In simple terms, the law of demand and supply simply states that when there is high demand for a product, the price of the product will naturally rise and if there is over-supply of that product, without sufficient demand to cover it, then the price naturals falls. In real estate, the four-quadrant model (DiPasquale and Wheaton) is a widely used tool which explains the factors connecting markets of value, space market for rents, construction and stock adjustment (e.g. the effect of demand growth in space market or asset market). In relation to the property development sector, simply put, if construction increases then the supply of assets increase and, if this supply exceeds demand, then prices and rents will naturally be driven downwards.