In a sense when considering that the total supply of land is fixed, the price of land can be regarded as being determined by demand alone in the case of Real Estate in Cochin
. Of more immediate concern, however, are the price and use of land in a particular location. Here again, for spatial reasons, land is limited in supply, especially land in the center of the urban area in Cochin.
Nevertheless the supply of sites for any one use cannot be regarded, as being completely inelastic, since alternative sites, although in less preferred locations exists as we move outwards from the center of the city. The number of such sites increases exponentially as the radius lengthens. Thus, any increase in the demand for land for a particular use is capable of bringing forth additional supplies.
Land price forms the most important explanatory variable determining the supply of land in the land market. Besides, the land price, supply of land also depends upon the productivity and profitability of cultivation or net returns from land in the cultivation process. We have no information with regard to the profitability of land in the Cochin region over a period due to the lack of focused studies into this aspect.
Given the productivity of land, commodity price for the agricultural produce produced in a particular type of land is a good indicator of the returns from land. Thus, we can resort to the use of the index of commodity price of coconut, the important crop cultivated in dry land in the region, as a proxy variable, to take account of the agricultural conditions, and the farmer’s response to the market.
The price of coconut keeps fluctuating from year to year depending upon the market demand and supply and various other factors. The farmer when faced with the option of selling land would consider the experience (regarding the returns from land) of more than a year before deciding to sell off his landed property. Therefore, we can take the average of the past three years’ index of commodity price as the relevant variable influencing the farmers’ supply of land in the market. The quantity of land supplied is hypothesized as positively related to the current price in the given market and negatively to the commodity price of land.