Estimating the supply and demand function in Kerala

[reddin01]

The estimated overall supply of land shows that it is positively related to the land price and negatively related to the commodity price. The signs of the coefficient of land price are positive, whereas the signs of commodity price are all negative in all the sub-markets as hypothesized in a recent analysis. When analyzing the trends in Real Estate Kerala state seems to follow a different pattern in land value appreciation. The land price seems to be more important than the commodity price in determining the supply of land and subsequent developments.

However, the estimated demand function of land depicts a negative relationship with the land prices at each market and a positive relationship with the land prices in the land markets nearer to the fringe areas. The signs of the coefficients of both the variables in the fringe areas are in line with our hypothesis and significant at one percent level. The relative significance of the two variables shows that the coefficient of price has more explanatory power in determining the demand for land in a specific location compared with the near price of land prevailing in the particular location.

However the estimated demand function for the urban areas has shown the wrong signs. The wrong signs can be explained in terms of the expectations of consumers regarding future prices of land in certain markets. A higher current land price may lead to an increase in current demand for land, if the consumer expects the future price to be even higher and vice-versa.

Thus the estimated values of the simultaneous model of the demand and the supply of land in the urban fringe land market appear to be working satisfactorily except in the urban areas of some cities. Most of the results substantiate the basic assumptions regarding the behavior of buyers and sellers in the market. As far as the related importance of the various variables in influencing the behavior of buyers is concerned, the price in a specific location turned out to be more important than the price prevailing in the nearer markets. On the supply side, the current price is more significant in explaining the supply response of the farmers who are giving up their agricultural lands for real estate development.

[mkp]

You can tell me about the real estate trends in Kerala. It is funny how when you go to sell your land it seems as if land has no value and when you go buy it seems you will wipe yourself out of any money you might ever hope to have in the name of investment. I actually sometimes contemplate going for flats though I very well know that the prices are bound to depreciate on that front.

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