Property Buyer Market
There is evidence to presume that the stretch of time invested by an individual, in regards to completing a transaction are dictated by the significance of the purchase to the buyer's emotional attachment to the product/service in question. These theories have been widely discussed and analysed by Donaldson & Pereira (2003) and Quigley & Shiller (2005) in particular, the Real Estate market does in fact represent the best means to support this hypothesis.
A significant procurement is much more likely to trigger a sentiment of connection, therefore creating a complex high involved decision. In this chapter a systematic clarification of this term will offered in its relation to the property market.
As explained by Kotler (1991) 'high personal involvement ...typically occurs when the buyer does not know much about the product category; but also if the decision is expensive or risky', from this statement we can clearly identify three factors which reflect the property market:
Product Knowledge: A buyers understanding of the residential property market is likely to be relatively limited, lack of information is often the first reason for consumer's high involvement- i.e. lack of information makes the decision a complex decision which then requires high involvement from the seller, O'Shaughnessy (1995) described how in these situations the consumers 'will seek additional information to justify their preference
Cost: The buyers behaviour is often associated with the significance of the purchase, a house is most likely to be everyone's biggest financial purchase during their lifetime, as already seen from the graph earlier, the average price of U.K property adjusted to earnings has nearly trebled within last three decades, according to a recent report by the Mailonline.co.uk an average home will cost around 5 times the salary of a first time buyer. Due to the substantial financial investment, house seekers are willing to grant a higher level of personal involvement.
After all the inclination to buy a property is not simply because of a need for shelter, but also a perception of wealth, property purchasing is a form of wealth which is more concrete and tangible, thus is able to provide an increased level of fulfilment than other forms of wealth.
Risk: This section will be discussed more in detail further this report, but in this case it represents the uncertainty associated with purchasing a property, these may be financial, personal or economic, Insurance and mortgages usually used as instruments to accommodate certain risks. An element of risk will always be associated within this field and as such keep this complex decision a highly involved one.
In many ways property is the ultimate complex decision, the myriads of factors associated with it makes this the definitive high involvement decision, many buyers are willing to spend substantial amount of money take calculated risks and invest large portions of their time for the ideal property, however this is not the only motivation: psychic income i.e. the intangible benefits other than monetary ones which will gratify psychosomatic and emotional needs (prestige, recognition etc...) this seems to reflect the 4th stage of Maslow's hierarchy of needs (Esteem) for instance, somebody who would not spend more than 100.000 for a house may be willing to spend an extra 50.000 if the psychic incomes were high enough; these are synchronized by two factors: 1) the individual's need for recognition prestige, status etc and 2) the intangible incomes that the property can provide him with, i.e. safe neighbourhood, good schools, noise/pollution etc...This, I believe is an important factor to consider, because 'contrary to popular opinion, human enjoyment depends not on the rate of production or consumption but on the psychic enjoyment of life' according to Alexander Maples (2006).
However what we are witnessing in this current economic period is an increased polarisation between those able to purchase a property, satisfy their esteem needs and enjoy the benefits of their psychic income and those who simply cannot afford to; in one hand we have the first time buyer struggling to place his foot in the property ladder and on the other, investors which enjoy substantial money reserves are able to obtain properties enjoy benefit from the tangible incomes. I believe the issue in question is access to capital, the so called credit-crunch has made it more substantially difficult to access mortgages 'The British Bankers' Association (BBA) explained mortgage approvals...plummeted 56% from May 2007, the biggest drop since1997' (The Guardian June 25 2008); as such younger buyers are increasingly less likely own their own property and must rely instead on rental homes which to a certain degree will still satify and benefit from certain psychic income but does not fully gratify the potential buyer cognitive needs. Ironically according to Bennett, Peach & Peristiani (1998) mortgages reduce the percived total risk but also provide the buyer with further motivation to hold a job.
In other words, the credit crunch has made it the perfect time to buy a property, prices are at an all time low which theoretically also makes it the most opportunistic time for a first time buyer, however, and ironically access to capital is also at its lowest for ten years meaning that most people's will only be able to rent and at best rely on part buy-partrent schemes, the buyer's beahviour in this sense is manipulated by the lack of resources available to him and is therefore in an even more higly involved state.
A typical observed just prior of a credit-crunch is the buyers (investors) motivation (and lack of) to search for rapid profits, usually classified as an holding period of between 1-10 months, this rapid profit bias heavely depends on the buyer's knowledge, existing portfolio ,credit score potential-existing liabilities and many other aspects; Van Poucke & Buelens (2002) clearely described why these bias is often related to a considerable shift from capital stock to residential markets, a massive increase in the volume of properties being bought in so called 'low-income, high-crime' areas, but also the rapid increase in home prices in certain areas, these all seems to contradict the notion that residential properties offer a safe long term investment with substantial capital appreciation, it has been noted how between 1995-2003 (in the U.S market) many states particularely in Miami and Las Vegas experienced rapid flacuations in property value because rapid purchasing and selling of property, here we are witnessing buyers showing high-involvment but do not consider it a complex decision, no emotion (apart from greed) is involved so we can call this a 'Simple Decision High Involvment business, the behaviour expressed buy the buyer is a much more detached one compared to a first time buyer, many of them will in fact use the credit crunch to increase the size of their portfolio.
As we have seen the behavioural inclination of buyers will often depend on their own position, professionals tend to keep an emotional detachment from a potential property and are not motivated by psychic income, the property mearly represents an opportunity for income, but most people look for a home instead of a house and are much more likely to be looking for extra fringe benefits.
Kotler, P (1991) Standing room only. Harvard Business Press, Boston
O'Shaughnessy, J (1995) Competitive Marketing: A Strategic Approach.
Mailonline.co.uk (accessed 30-08-2008) Average British house costs more than five. times a first-buyer's income
Maples, A (2006) Sustainable Development: New Research, Nova publishers
the Guardian, Kathryn Hopkins Wednesday June 25 2008 Mortgage approvals slump to record low,
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