What is Real Estate?
- In general real estate is defined as a land.
- The ownership of real estate carries certain rights, known as the set of rights.
- The set includes the right to use, posses, exclude and dispose. These rights are not total they can be legally modified by private restrictions and government regulations and laws.
- In short, real estate or real property is land and improvements and the rights associated with the ownership of same.
What Is Real Estate Economics ?
- Real estate economics is about people and how their actions affect real estate values.
- A formal definition would be; real estate economics is a study that uses economic principles, both macro and micro, to analyses the impact that national, regional, community and neighborhood trends have on real estate values.
- Real estate economics focuses on the economic principles that affect real estate values.
- Investment is related to the giving up of a capital sum in the hope for a profitable return in the future whether in the form of rent, interest, dividend, bonus, increase in value and others.
- An investor would consider the security of capital and the return expected from the investment.
- Other qualities that would be considered are liquidity of capital, security of income from the aspect of stability in the purchasing power and the prospect of capital appreciation.
Characteristic of Real Estate Investment
- The supply of land is limited.
- Land is man’s basic need for any type of activity.
- Real estate ownership brings pride and status to its owners.
- Real estate is physically durable with low rate of depreciation.
- The site on which the property sits cannot decay, be destroyed or stolen. On the contrary, its value will appreciate through time and it can be a good avoidance against inflation.
- A property is unique and different from other properties in terms of location, design, area, structural condition and others.
- In general, a real estate investment has a more stable performance compared to other types of investment.
Factors Lead to Growth of Economy
- Labor - Human beings supply labor and when they get skilled and specialized in managing resource combination they supply entrepreneurial ability.
- Capital - Takes the form of implements, plant and machinery, seed, fertilizers, and other materials which must be used in the process of production
- Land – agricultural and other natural resources i.e: soil, mineral resources
Concept Of Land Economic Studies
- The basic fundamental of land economic is related to ownership, land usage, and characteristics of land.
- Land ownership means “provides a power to the land owner for the maximum utilization of the land in order to produce a maximum returns by time, and also to improve the economic value of the land.
- The concept of “land ownership” is inclusion in the land/property. Therefore, the land ownership is important for the future development of the land.
- Land ownership: Free hold, Lease hold, Rent, Mortgage. Land ownership have an impact on value of land. Therefore determination of land ownership is important for land value / market.
Why study real estate or land economics?
- To help people to understand what causes fluctuation in real estate activity and how these changes can affect local real estate markets.
- To understand what impact today’s real estate actions will have on future real estate values
- To provide information related to social phenomenon on land usage and land division
- To observe any problems related to cost, price, land value, return from land and land usage control
- To develop an indicator system, for the purpose of assessment for land usage and land division, based on economic fundamental.
Land Economic Content
Rural Land Economic
Emphasis on vacant land and agricultural land
Emphasis is given on problems solving that related to land issues another
Urban Land Economic
Emphasis on space economic on reals estate economic
Characteristic Of Land
- Land is immovable. Land is indestructible.
- Land is permanent.
- Land is passive factor of production because it cannot produce anything by itself.
- Land is primary factor of production in every kind of production. We have to make use of land.
- Land is limited in supply other factors of production can be increased in supply to a greater or lesser extent but it is impossible to increase the supply of land.
- Free gift of nature land is a gift of nature given to man free of cost.
Why Real Estate Market Is Difference Compared To Other?
- Property market needs real estate experts such as agents and property consultants for sale and purchase transactions and giving professional advice to reduce imperfect knowledge.
- Property market is complex due to the different objectives and intentions of investors in different property transactions.
- Transfer of ownership in property market re time consuming and costly involving among others legal fees, stamp duty and real estate property gain tax. On the contrary, transfers of ownership in general investment market does not take a long time and are not costly.
- The property market is unique and this would create some problems to the investor. With the exception of property units trust, property cannot be bought in smaller units. This is different from investment in stocks and shares.
Land Resources Supply And Demand
- The sufficiency of land resource resulting request for frequent use and thus causing supply and demand
- Then interaction of demand for land and supply of land determines the “market” price or land value in any particular area
- The supply of land for specific types of activities will be seen to depend on how much such land is available in specific location s in relation to cities, natural resources, natural features and other diverse human activities – for their optimum operation.
- Demand for food production and raw material such as palm oil, rubber, rice in the market may cause a rise in the demand for agricultural land that is used in the production of these products.
- Demand for professional services such as lawyers, architects, accountant, land economist can causes increase in the demand for office space in which to positioned all these professional and there are demand for land situated in towns.
The Valuation And Use Of Land
- Land use and valuation was an important concern in the early decades of modern economics, beginning in the late 18th century
- In a sense, the study of land economics was the beginning of the economics of natural resources.
- Land is clearly an important input factor into many economic activities agriculture and forestry, residential commercial and industrial uses and mineral exploration. It also supports on massive variety of ecosystems.
- Land ownership was also being the key to personal wealth and social power. Our focus is on the economic principles surrounding the efficient use of land as natural resource. The determination of the value of land, and how difference types of ownership of land affects land use and value.
Type Of Ownership
- Freehold
- Leashold
- Rent
- Mortgage
Factor Affecting Land Value
- Land value represents the measure of supply and demand forces acting on a insufficient source
- Land in urban areas has greater value compare to rural areas
- Generally, the larger the populations associated with urban areas, the higher the land values
- The most valuable urban land is generally associated with the Central Business District.
- Zoning provides the overriding control on land use and the determination of where particular activities locate.
- Rural land on the periphery of urban areas possesses inherent potential related to future demand and opportunity for urban development
- If the distance from urban area increases, land values tend to decrease
- Land with most profitable activities able to justify the highest land value.
- The value of rural land is directly tied to its capabilities and potential.
Factor Affecting Suitability Of Land
Topography
Geology
- Land is completely unsuitable for all land uses . In these cases money has to be spent to adopt land to the required uses
- Sometimes consumption lot of money compared to the proposes return, that is not worth
- No matter how close land is to the best location, it may still be unsuitable for any development.
