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Real Estate Economics

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Real Estate Economics
Prepared by:
Augusto B. Agosto, EnP, REA, REB
Faculty, University of San Carlos
PARCS Continuing Edu...

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Origin of the word Economics
 Derived from the Greek word Ο?κονομία
(oikonomia) from οiκοs (oikos, "house")
and νόμος (no...

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What is Economics?
The study of allocating SCARCE
resources.
Using those scarce resources to
produce, distribute and con...

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Real Estate Economics

  1. 1. Real Estate Economics Prepared by: Augusto B. Agosto, EnP, REA, REB Faculty, University of San Carlos PARCS Continuing Education for Real Estate Practitioners St. Mark Hotel, Cebu City
  2. 2. Origin of the word Economics  Derived from the Greek word Ο?κονομία (oikonomia) from οiκοs (oikos, "house") and νόμος (nomos, "custom" or "law"), hence "rules of the house (hold for good management)
  3. 3. What is Economics? The study of allocating SCARCE resources. Using those scarce resources to produce, distribute and consume goods and services.
  4. 4. Two Main Categories of Economics: Macroeconomics is the study of the national economy and its various segments, such as national income, output, employment and growth. Microeconomics is concerned with the individual units within the general economy such as business firms and households.
  5. 5. Macroeconomic Indicators: are statistics that indicate the current status of the economy of the state depending on a particular area of the economy (e.g. industry, labor market, trade)
  6. 6. What is Real Estate?  Land and attachments  Appurtenances  That which is immovable by law
  7. 7. REAL ESTATE ECONOMICS  a study that uses economic principles, both macro and micro, to analyze the impact that national, regional, community and neighborhood trends have on real estate values.  It is the link between general economic theory and applied real estate practice. Real Estate Economics General Economics Principles and Theory Real Estate Principles and Practice
  8. 8. Why study REAL ESTATE ECONOMICS?  Real estate economics helps people understand what causes fluctuations in real estate activity and how these changes can affect real estate markets.  Investors and licensed agents make real estate decisions that influence that shape, form, and value property in a given community.  Real estate decisions made today will be reflected in real estate values in the cities and neighborhoods of tomorrow.
  9. 9. The main participants in real estate markets  Owner/user: These people are both owners and tenants. They purchase houses or commercial property as an investment and also to live in or utilize as a business.  Owner: These people are pure investors. They do not consume the real estate that they purchase. Typically they rent out or lease the property to someone else.  Renter: These people are pure consumers.  Developers: These people prepare raw land for building, which results in new products for the market.  Renovators: These people supply refurbished buildings to the market.  Facilitators: This group includes banks, real estate brokers, lawyers, and others that facilitate the purchase and sale of real estate.
  10. 10. Real Estate Market ZONES(DISTRICTS) - A zone or district is a group of homogenous land uses. NEIGHBORHOODS - is a group of complementary land uses.
  11. 11. Real Estate Market  Law of Supply - Producers will offer more products and services for sale as prices increase and fewer as prices decrease.  Market –any structure, institution or system whereby buyers and sellers meet and exchange goods and services with value at negotiated prices. It facilitates the trade and enables the distribution and allocation of resources in a society.  Perfect Market – when there are many sellers and buyers competing against each other  Imperfect Market – when there are more sellers and few buyers or more buyers and few sellers
  12. 12. Peculiarities of the Real Estate Market Immovability of the product Durability of the product High Transaction costs Supply-Demand Time Gap Investment or consumption Heterogeneity
  13. 13. Demand for housing The main determinants of the demand for housing are demographic. But other factors, like income, price of housing, cost and availability of credit, consumer preferences, investor preferences, price of substitutes, and price of complements, all play a role.
  14. 14. Agents of Production  Land and Natural Resources - the real estate component, the “raw material” needed to produce new products like residential homes, industrial factories, commercial spaces, etc. It is compensated by rent/lease, mortgage and taxes.  Labor - the human physical work required to convert a parcel of land into a property with improvements. It is compensated by wages and direct/indirect costs (benefits, allowances).  Capital - Any man-made instrument that increases production of goods (e.g. machineries, tools, mechanical lifts). It can also mean the cost of borrowing money in order to forego production. It is compensated by interest.  Entrepreneurship – The process of orchestrating land, labor, and capital to produce an item. It is a type of coordination or management. It is motivated by profit.
  15. 15. Real Estate Life Cycle growth, stability, decline, and revitalization.
  16. 16. Types of Imperfect Markets: Monopoly – Market in which there is only one seller Oligopoly – Market in which there are only few sellers Monopsony – Market in which there is only one buyer Oligopsony – Market in which there are only few buyers
  17. 17. Seller’s Market and Buyer’s Market Seller’s market – there are more buyers and few sellers Buyer’s market – there are more sellers and few buyers
  18. 18. Thank you.

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