Academic journal article International Journal of Management

Supply and Demand Determinants: An Empirical Study of Residential Properties in São Paulo, Brazil

Academic journal article International Journal of Management

Supply and Demand Determinants: An Empirical Study of Residential Properties in São Paulo, Brazil

Article excerpt

This paper applies hedonic pricing models in a sample of 1,860 residences launched in 2005, situated in districts of low, middle and high income of the São Paulo Metropolitan Area. Using Box-Cox transformations applied at stage two of Rosen's equations, the model identifies attributes that influence supply and demand real estate conditions and compares the relative importance of each of these attributes whenever there are changes in social classes. Based on this analysis, we conclude that an understanding of consumers and players behaviors relative to real estate attributes can improve strategies for each kind of real estate.

The urban transformations that have been occurring in the Säo Paulo Metropolitan Area, especially in the last 20 years, have been often observed and documented. Those who live a long way away from work or from school face a number of difficulties to cross the city; the traffic jams in the streets and building garages, the rising number of places with the same appearance, the alternative uses of industrial warehouses, the proliferation of security guard booths that block passageways and control access to residential complexes, and the sudden verticality of streets and districts that were formerly distributed horizontally. In addition they have to deal with highways that look like avenues due to a huge increase in the flow of vehicles, and avenues that acquire speed control equipment to keep them from becoming highways. All of these characteristics point to new types of occupation and social, spatial and temporal journeys within the metropolitan territory, which increasingly has taken on a dual behavior, as one can clearly identify modern, functional and structured aspects of urban occupation as well as precarious ones. (Meyer, Grostein & Biderman, 2004).

Thus, the population, including the potential consumers of the services, has a differentiating perception of the many possibilities of characteristics, based on what is seen as a priority. In this way, a given consumer can pick his "bundle" of characteristics from those available for each type of article of trade or service, based on his perception of their utility. Therefore, when the market of property launches in a metropolis like Säo Paulo is analyzed, one must take into account the characteristics of each property and not only the property itself, since consumer perception differentiates the residential units that are being launched based on the relative utilities found in each of them.

In this article, the market of property launches in the São Paulo Metropolitan Area is studied and analyzed, focusing on the both the intrinsic and the extrinsic attributes of each residential unit, in order to find out which attributes or "bundle" of attributes is most important in the composition of the supply and demand instruments. To this end, this work uses hedonic price models, which enable one to analyze the relative importance of each attribute as a function of different social-demographic profiles.

The results lend themselves to two main objectives; they allow one to observe, firstly, the power to adapt of the functional form determined for the hedonic models used in this study and secondly, if the analysis incorporates the different spatial dimensions used to evaluate the relative importance of the residential attributes of the different areas of the Metropolis studied.

First, we briefly present the classical theory, relating it with the handling of the attributes and with the concepts of market equilibrium proposed by Rosen (1974). Then, the concepts concerning hedonic pricing are addressed. Following this, we present a discussion on the method employed. Later, in part 4, the results are presented and analyzed. The implications of the hedonic analysis and the possibilities of future studies are discussed in the conclusions.

Classical Theory and the Attributes Approach

As is often discussed, classical consumer theory is somewhat deficient in defining the relationship between goods, as the character of the presence or not of substitution or complementarity is seen as an intrinsic property. …

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