Real Estate Market Simulations - An Adequate Instrument For Assessing Emerging Real Estate Markets?

Predicting the development of real estate markets has always been a major concern for market participants, especially for investors. The amount and depth of data about a subject market as well as the stability of the market's institutional environment largely impact the quality and difficulty of market forecasts. Therefore, the prediction of emerging real estate markets is especially difficult. Using the case of Poland, this paper explores to which extent simulation techniques can be helpful in the context of predicting the development of an emerging real estate market. It concludes that simulation techniques are reasonably suitable to study the impact of changes in the institutional setting. However they cannot solve the data problem, therefore quantitative statements are not precise. The paper first introduces a broad understanding of the term market development and explains some basics of simulation techniques. Then a common market model is translated into a simulation environment. This model is then adapted and used for studying the case of Poland as an example for an emerging real estate market. The simulation results are confronted with empirical data in order to assess their explanatory power. The originality of this paper is in the application of standard methods of real estate market ananysis to the specific circumstances of emerging markets using the simulation technique.