ECONOMIC
Real Estate Economics
Real estate economics is the
application of economic techniques
to real estate markets. It tries to
describe, explain, and predict
patterns of prices, supply, and
demand.
CONCEPT OF REAL
ESTATE
Realestate refers to land and all
permanent improvements thereon.
CHARACTERISTICS OF REAL
ESTATE
It is heterogeneous.
It is immovable.
Real estate investment is generally
substantial and for a long period of time.
The commodity which is the object of the
transaction is control of space.
ECONOMIC SIGNIFICANCE OF
REAL ESTATE
Mother
Universal
Shelter
Inflation
Collateral
Appreciation
VALUE, COST, AND
PRICE
PRICE - determined by the seller
COST – determined by engineer/appraiser thru
Cost Estimation = an estimate of the amount that
would be required to construct, produce, replace or
reproduce some tangible and/or intangible things
regardless of its ownership at a particular time.
VALUE – determined by appraiser thru Valuation =
a determination of the monetary value of the
property rights encompassed in an ownership at
some specific time or period. (1995, 1998, 1999
Brokers’ Exam)
FAIRMARKET VALUE - The highest
peso amount which the property
should bring in a competitive market
(1998, 1999)
DETERMINANTS OF VALUE (1998,
1999, 2000, 2001, 2002)
SCARCITY (classification, shape,
area)
TRANSFERABILITY (Bundle of
Rights - to dispose, to possess, to
use, to its fruits, to recover)
UTILITY (physical attributes)
DEMAND (Factors/Forces influencing
Values - social, political, economic,
physical) STUD
PRINCIPLES OF VALUE
Principle of Substitution
Principle of Conformity
Principle of Progression
Principle of Regression
Principle of Highest and Best
Use
Principle of Increasing and
Diminishing Returns
Principle of Substitution
1M ?
Principle of Substitution
The value of replaceable property is
inferred from the value of substitute
property, assuming there is no costly delay
in acquiring the substitute.
1M 1M
Principle of Conformity
Principle of Conformity states that the
value of a property tends to be enhanced
when there is a reasonable homogeneity in
use.
Principle of Progression
Principle of Progression states that the
value of a property tends to be enhanced
by its association with superior properties.
Principle of Regression
Principle of Regression states that the value of a
property tends to be adversely affected by its
association with inferior properties.
?
Principle of Highest and
Best Use
Refers to that use which will probably yield
the maximum return as of a given time.
1. Legal permissibility
2. Physical possibility
3. Financial feasibility
nue
4. Maximum
Ave
productive use
1st
Main Street
Principle of Increasing and
Diminishing Returns
Php 2,800 Php 5,000
Principle of Increasing and
Diminishing Returns
Php 3,000 Php 5,000
Principle of Increasing and
Diminishing Returns
Php 4,200 Php 5,000
Principle of Increasing and
Diminishing Returns
Php 5,000 Php 5,000
Principle of Increasing and
Diminishing Returns
States that the net income tends to increase by the
application of more factors of production up to a
certain point, beyond which the application of more
factors of production will tend to decrease net
income. Php 5,000 Php 5,000
REAL ESTATE MARKET
Itis an abstract sphere within which
price-influencing factors tend to
operate and wherein payment of the
consideration is accompanied by
transfer of right rather than by
movement of goods.
KINDS OF REAL ESTATE
MARKET
Sellers Market – a condition
prevailing in a particular area
wherein demand is great but very
few properties are for sale thereby
increasing price.
Buyers Market – a condition
prevailing in a particular area
wherein demand is low while many
properties are for sale thereby
tending to suppress price.
CHARACTERISTICS OF REAL
ESTATE MARKET
Each transaction involves individual
bargaining and negotiation except in
project selling where price and terms
are fixed.
Most residential purchases are for
the buyer’s own use or rental
purposes rather than speculation.
Low down payment and loan
amortization terms creates
competition between “for sale” and
FUNCTIONS OF REAL ESTATE
MARKET
Influences the use of land
Regulates the supply of space
Sets the timing of land development
INDICATORS OF MARKET
ACTIVITY
Registered Sales
Foreclosures
Selling price and listing price
Vacancies
Construction Volume.
LIMITATIONS OF MARKET
INDICATORS
Consideration or Price
Location
Classification
Bonafide Sales
