Understanding about real estate markets reduces risks

Professor of Real Estate Informatics Heidi Falkenbach works in the research group that studies real estate economics with the aim to improve understanding about real estate markets. The group develops methods that utilise location-specific data from real estate properties and their surroundings.

- The amount of location-specific data that we can get from a built environment has increased explosively in the past few years. It gives us increasingly better possibilities to interpret the markets and provide information to support decision-making, says Falkenbach.

Economic information is collected from investors and market operators. In addition, methods such as laser scanning are used to gather information. As the amount of information has increased and its quality improved, researchers can apply econometric methods on real estate markets.

Falkenbach mentions real estate tax, which can be determined more fairly when the information is more accurate. For example, the impact a transport infrastructure has on the nearby real estate market can be estimated more accurately than before.

International investors

These are important matters as two thirds of the national wealth in Finland is tied to real estate. The field employs about one fifth of the workforce. Real estate management and use are also an important factor when society attempts to adapt to climate change. A large proportion of pension money has been invested in real estate.

It is important to provide the most reliable and relevant information possible about real estate markets.  This way we can facilitate the way capital gets directed and improve the possibilities for companies to develop their business operations.

The more reliable market information is and the better it can be distributed to planners and decision-makers in the public and private sectors, the more efficient the operation will be and the smaller the risks.

- Our work is not glamorous like, for example, designing space rockets or other smart devices.  However, the real estate markets are a rewarding research target as the field has links everywhere. Everything that is done in the field is important, says Falkenbach.

The financial crisis that spread across the world from the United States reveals the significance of real estate markets. The crisis began when the banks financed real estate investments for more than they were worth. The bubble burst in the end.

The Finnish real estate market has become more international within the past ten years. About one hundred large foreign investors have arrived in Finland, and their targets and strategies are all different.

- Internationalisation and a more diversified investor base is also good for those people who use the premises. The downside is that fluctuations in the global market are also reflected here, says Falkenbach.

The markets have opened for small-scale investors. The investor no longer needs a thick stack of notes but can for example buy shares in a real estate investment company or real estate investment trust.

- The number of instruments for investing in real estate has grown. I believe it is a continuing trend, Falkenbach says.

One area of interest is privatising public real estate. The question is should the state, cities and municipalities own real estate and bear the risks involved. Would it be more sensible to sell some of the properties to the private sector? Aalto University is also contemplating this question.

Introducing the dynamics

Falkenbach teaches topics related to real estate investment and market modelling to Master’s students and doctoral candidates.

- Markets are modelled because otherwise we cannot understand their mechanisms.

The most important goal in the teaching is to help students understand the dynamics of real estate markets and to give them the tools to analyse this dynamics.

- Students must understand the basic dynamics and the theories well; everything else, including special cases, can be learned in working life regardless of what position they will apply to.

Graduates are mainly employed as cadastral surveyors the National Land Survey of Finland, or analysts or advisers in the real estate markets in the private sector. They can then move up to higher positions.

According to Falkenbach, the employment situation is excellent because the field is growing and developing.

Contact information:

Professor Heidi Falkenbach, [email protected]