9/16/2021

INTRODUCTION TO
REAL ESTATE ECONOMICS

Real Estate Economics

MWF, 06:15pm-07:15pm

Chapter Outline

A. Definition of R.E. Economics

B. Categories of Economics

C. Importance of R.E. Economics

D. Economic Resources in R.E.

E. Estate and Categories

F. Land, Real Estate and Real Property

G. Categories of Property

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DEFINITION
Introduction to Real Estate Economics

What is Real Estate Economics?

• A study of people and how their actions

affect property values.

• Application of economic principles and

techniques to the real estate market.

• Develops theories and models that help

people think through the complicated
dynamics of property, value and
exchange.

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What is Real Estate Economics?

General
Real Real Estate
Economics
Estate Principles
Principles
Economics and Practice
and Theory

Real Estate Defined

• Land and attachments (buildings).

• This refers to land or land improvements,

and the rights of use associated with the
ownership.

• Property, land or fixtures whose nature is

definable and whose ownership rights
are specifiable through law. (Book II,
Property, Ownership, And Its Modifications, NCC)

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Economics Defined

Economics deals with how individuals

and societies choose to allocate and use
scarce resources to produce, distribute,
and consume goods and services.

CATEGORIES OF
ECONOMICS
Introduction to Real Estate Economics

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Two Categories of Economics

• Macroeconomics

• Microeconomics

MICRO VS. MACRO

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Let’s Check Your Understanding!

• Type your answer in MS word or

notepad and send the answers to my
email at
[email protected] with
subject: QUIZ 2 - REALECON

• Determine whether each of the

following cases on real estate
economics is a concern of
microeconomics or macroeconomics.
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Macro or Micro?

1. The percentage contribution of real estate segment in

the increase of GDP.

2. Mr. Cruz’s decision whether to rent an apartment or

buy a housing unit.

3. Occurrence of real estate bubble in recent years.

4. The determinants that affect the supply of retail spaces

in SM Malls.

5. The price to be charged for a three-night stay in a

luxurious resort.

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Macro or Micro?

1. The percentage contribution of real estate segment in

the increase of GDP. MACRO

2. Mr. Cruz’s decision whether to rent an apartment or

buy a housing unit. MICRO

3. Occurrence of real estate bubble in recent years.

MACRO

4. The determinants that affect the supply of retail spaces

in SM Malls. MICRO

5. The price to be charged for a three-night stay in a

luxurious resort. MICRO

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IMPORTANCE OF
R.E. ECONOMICS
Introduction to Real Estate Economics

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Why Study Real Estate Economics?

• Understand value fluctuations

• Estimate real estate values
• Solve real estate problems
• Understand fluctuations & changes to
local real estate markets.
• Personal reasons
• Professional reasons

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Why is Real Estate Economics

so Interesting?

• Everything that we do also involves

real estate.

• Today, almost every other newspaper

headline involves issues in real estate
economics.

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ECONOMIC
RESOURCES IN R.E.
Introduction to Real Estate Economics

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Economic Resources in
Real estate

Economic resources in real estate are

inputs used by developers in the
building or construction process. These
may include the following:
1. LAND
2. LABOR
3. CAPITAL
4. ENTREPRENEURIAL SKILLS

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• Land includes all the natural resources found in nature

a country possesses, such as water, minerals, animals,
and forests.

• Labor is the work time and work effort that people

devote to producing goods and services.

• Capital refers to produced goods that can be used as

resources for further production.

• Entrepreneurship is the human resource that

combines the factors of production creatively and
efficiently.

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Let’s Check Your Understanding!

• Type your answer in MS word or

notepad and send the answer to my
email at
[email protected]

• Determine what category of resources

in real estate sector does each of the
following belong.

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Let’s Check Your Understanding!

6. Cement and bricks

7. Ranch

8. Operations Manager

9. Heavy Duty Machines

10. Construction Workers

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Let’s Check Your Understanding!

6. Cement and bricks CAPITAL

7. Ranch LAND

8. Operations Manager ENTREP

9. Heavy Duty Machines CAPITAL

10. Construction Workers LABOR

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Land as an Economic Resource

• The category of resources that we call ‘‘land’’

refers not justto the land surface, but to
everything associated with the land—the
natural resources.

• Rent is considered the resource payment for

land.

• Natural resources are the non-produced

resources with which a society is endowed.

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Renewable vs.
Nonrenewable Resources

• Nonrenewable resources (aka

exhaustible resources) have a fixed
supply that is depleted as the resource
is consumed.

• Renewable resources are non-

exhaustible resources which can be
used repeatedly without depleting the
amount available for future use.
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ESTATE AND
CATEGORIES
Introduction to Real Estate Economics

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Definition of Estate

• …“all that a person owns.”

• The term real estate means all realty owned as a part of

an individual’s estate.

• The term estates in real property is used to describe the

extent to which rights and interests in real estate are
owned.

• A system of modifiers has evolved, based on English

property law, that describes the nature or collection of
rights and interests being described as a part of a
transaction.

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General Classifications of Estates

1. Based on Rights: Estates in

Possession vs. Estates Not in
Possession (Future Possession)

2. Based on Possession and Use:

Freehold vs. Leasehold Estates

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BASED ON RIGHTS: Estates in

Possession vs. Estates not In Position

• An estate in possession (a present estate

in land) entitles its owner to immediate
enjoyment of the rights to that estate.

• An estate not in possession (a future

estate in land), on the other hand, does
not convey the rights of the estate until
some time in the future, if at all. In other
words, represents a future possessory
interest in property.

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Two Types of Future Estates

1. Reversion. It exists when the holder of an estate in land

(the grantor) conveys to another person (a grantee) a
present estate in the property that has fewer
ownership rights than the grantor’s own estate and
retains for the grantor or the grantor’s heirs the right to
take back, at some time in the future, the full estate
that the grantor enjoyed before the conveyance.

2. Remainder. It exists when the grantor of a present

estate with fewer ownership rights than the grantor’s
own estate conveys to a third person the reversionary
interest the grantor or the grantor’s heirs would
otherwise have in the property upon termination of the
grantee’s estate.

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BASED ON POSSESSION & USE:

Freehold vs. Leasehold Estates
• These types of estates are technically distinguished on the
basis of the definiteness or certainty of their duration.

• A freehold estate lasts for an indefinite period of time; that

is, there is no definitely ascertainable date on which the estate
ends.

• A leasehold estate, on the other hand, expires on a definite

date. Aside from this technical distinction, a freehold estate
connotes ownership of the property by the estate holder,
whereas a leasehold estate implies only the right to possess
and use the property owned by another for a period of time.

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Two Types of Leasehold Estates

1. An estate for years is the type of leasehold estate investors

and lenders are most likely to encounter. It is created by a
lease that specifies an exact duration for the tenancy. The
period of tenancy may be less than one year and still be an
estate for years as long as the lease agreement specifies the
termination date.

2. An estate from year to year (also known as an estate from

period to period, or simply as a periodic tenancy) continues
for successive periods until either party gives proper notice
of its intent to terminate at the end of one or more
subsequent periods. A “period” usually corresponds to the
rent-paying period. Thus, such a tenancy commonly runs
from month to month, although it can run for any period up
to one year.

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LAND, REAL
ESTATE AND REAL
PROPERTY
Introduction to Real Estate Economics

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Land, Real Estate and

Real Property

Pangasinan State University

Social Science Department – PSU Lingayen

BACHELOR OF ARTS IN ECONOMICS Econ 127 – REAL ESTATE ECONOMICS

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Bundle of Legal Rights

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Surface and Subsurface Rights

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Other Rights

• Air Rights - The rights to use the space

above the earth may be sold or leased
independently, provided the rights have
not been preempted by law.

• Water Rights - A special common-law

rights held by owners of land adjacent to
rivers, lakes, or oceans and are
restrictions on the rights of land
ownership.

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Characteristics of Land /
Real Estate

1. ECONOMIC
– Scarcity
– Improvements
– Permanence of Investment
– Location or Area Preference

2. PHYSICAL
– Immobility
– Indestructibility
– Uniqueness

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CATEGORIES OF
PROPERTY
Introduction to Real Estate Economics

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Two Categories of Property

1. Real Property

2. Personal Property

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Real Property vs. Personal

Property
Real property (Realty or real estate)
• refers to land and things permanently attached to it.
• Pertains to land improvements, and the rights of use
associated with the ownership.

Personal property (Chattels or Personal)

• all property that can be owned and does not fit the
definition of real property.
• generally refers to everything else: the items which are
movable and not part of the land.
• Examples: chairs, tables, computer, clothing, money,
bonds, and bank accounts.

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Let’s Check Your Understanding!

To which category of properties does each of the

following belong?

11. Clothing

12. Motor vehicles

13. Office building

14. Parking lot

15. Shopping mall

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Let’s Check Your Understanding!

To which category of properties does each of the

following belong?

11. Clothing PERSONAL

12. Motor vehicles PERSONAL

13. Office building REAL

14. Parking lot REAL

15. Shopping mall REAL

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Tangible vs.
Intagible Personal Property
Tangible personal property
• Refers to any type of property that can generally be
moved (i.e., it is not attached to real property or land),
touched or felt. These generally include items such as
furniture, clothing, jewelry, art, writings, or household
goods.

Intangible personal property

• Called "intangibles“. This refers to personal property that
cannot actually be moved, touched or felt, but instead
represents something of value such as negotiable
instruments, stocks, bonds, securities, patents, service
assets.

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Fructus Naturales vs.

Fructos Industriales
Tress and crops (plants) generally fall into two classes:

Fructus Naturales.
• These are trees, perennial bushes, and grasses that do
not require annual cultivation. These items are
considered real estate.

Fructus Industriales
• Annual cultivated crops of fruit, vegetables, and grain
which are known as emblements. These things are
generally considered real estate property.

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Severance and Annexation

• An item of real property can become personal property

by severance. For example, a growing tree is real estate
until the owner cuts it down, literally severing it from the
real estate. Similarly, an apple becomes personal
property once it is picked from a tree.

• It is also possible to change personal property into real

property through the process known as annexation. For
example, if a landowner buys cement, stones, and sand
and then mixes them into concrete and construct a
sidewalk, the landowner has converted personal
property (cement, stones, and sand) into real property (a
sidewalk).
Pangasinan State University
Social Science Department – PSU Lingayen

BACHELOR OF ARTS IN ECONOMICS Econ 127 – REAL ESTATE ECONOMICS

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Fixtures

• Fixture is personal property that has been so

affixed to the land or a building that, by law, it
becomes part of the real property.

• Examples of fixtures are heating plants,

elevator equipment in high rise buildings,
radiators, kitchen cabinets, light fixtures, and
plumbing.

• Almost any item that has been added as a

permanent part of a building is considered a
fixture.

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Attachment

Personal property is converted into a fixture by the process

of attachment. For example, if a piece of lumber sits in a
lumber yard it is a chattel. If the same lumber is used to
build a fence on the land it becomes a fixture to that real
property. In many cases, the determination of whether
property is a fixture or a chattel turns on the degree to
which the property is attached to the land. For example,
this problem arises in the case of a trailer home. In this
case the characterization of the home as chattel or realty
will depend on how permanently it is attached--such as
whether the trailer has a foundation.

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Tests of a Fixture

• Method of annexation

• Adaptation to real estate

• Agreement

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Trade Fixtures

• Trade fixture is a special category of fixtures which includes

property used in the course of business. An article owned by a
tenant and attached to a rented space or building or used in
conducting a business is a trade fixture, or a chattel fixture.

• Some examples of trade fixtures are bowling alleys, store

shelves, and barroom and restaurant equipment. Agricultural
fixtures, such as chicken coops and tool sheds, are also
included in this category. Trade fixtures must be removed on
or before the last day the property is rented. The tenant is
responsible for any damage caused by the removal of a
fixture. Trade fixtures that are not removed become the real
property of the landlord.

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Trade Fixtures vs. Fixtures

Trade fixture differ from fixtures generally in these ways:

• Fixtures belong to the owner of the real estate, but trade fixtures are
usually owned and installed by a tenant for the tenant’s use.

• Fixtures are considered a permanent part of a building, but trade

fixtures are removable. Trade fixtures may be affixed to a building so
as to appear to be fixtures, but the tenant has the right to remove
them on or before the last day of the lease.

• Legally fixtures are real property so they are included in any sale or
mortgage. Trade fixtures, however, are considered personal property
and are not included in the sale or mortgage of real estate.

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