Question
1. Briefly explain the definitions on these terms:
i) Real estate
ii) Real estate economics
iii) Land
iv) Investment (10 marks)
2. Briefly explain with example the characteristics or features of:
i) Property market
ii) Price mechanism (10 marks)
Answer
1.
i) real estate defined
as the land, including the air above the land, ground below the land, physical property and improvement affixed on the land.
- physical property including houses and buildings, landscaping, fencing, wells
- ground below the land including the natural resource like water and mineral deposits
- on the land it can be natural resource including uncultivated flora and fauna, farmed crops and livestock,
- improvements affixed including landscaping, fencing, wells, decks and fixtures within the boundaries
- as the people actions / activity affect / change the real estate values
- action / activity is the use of economic techniques / principle and apply to real estate markets
- economic principles including both macro and micro, to analyses the impact that national, regional, community and neighborhood trends have on real estate values.
iii) Land
is a piece of earth
- comprises all naturally occurring resources
- is a real estate or property, minus buildings and equipment (that does not occur in a natural way)
the supply
- is inherently fixed
- cannot be increased
resource
- resource with no cost of production
- no production would be possible without it
intangible space on which development activities take place, contributing to its use and value
- factor of production, along with capital and labor
- productivity of soil
- social and physical entity
iv) Investment
- giving up of a capital sum in the hope for a profitable return in the future
- the return can be rent, interest, dividend, bonus, increase in value and others.
- Thing need to considered are
- expected return.
- liquidity of capital
- prospect of capital appreciation
- stability in the purchasing power
- time frame
2.
i) Characteristic Of Property Market
a) Durability
- Can be durable and build multi- generation wealth.
- There is no maturity in real estate investment. The longer the age of the property, the higher its value.
b) Lack of Transparency
- Investors have access to real-time market information, and area able to make immediate changes to their investments.
- In auction, be sure to take a higher risk into consideration when making an offer. The higher the risk, the higher the outcomes in real estate investments
c) Heterogeneity (no look-alike)
– Every property is being unique in terms of location, physical structure and financing.
– The geographic consultation must be considered in order to have a good investment in real estate.
d). Illiquid ( Not Easy to Sell)
– Refers to the state of a security or other asset that cannot easily be sold or exchanged for cash without a substantial loss in value.
– Illiquid assets may also be hard to sell quickly because of a lack of ready and willing investors or speculators to purchase the asset
e). High Start-up Costs
– Typical costs are purchase/ closing costs, rehabbing and financing.
– it takes money to make money’, thus its limits the nos. of investors, add to stability and have a longterm appreciation.
f). Investment Vulnerability
– Real estate investment is not a static investment but it is requires constant changes as cities and economic changes
ii) Price mechanism
- price mechanism is the manner in which the prices of goods or services affect the supply and demand of goods and services, principally by the price elasticity of demand.
- A price mechanism affects both buyers and sellers who negotiate prices.
- Property market is complex due to the different objectives and intentions of investors in different property transactions.
- The property market is unique and this would create some problems to the investor. With the exception of property unit trusts, property cannot be bought in smaller units. This is different from investment in stocks and shares.
