THE NATURE OF REAL ESTATE MARKET

When it comes to the characteristics of real property investments, each parcel of real estate is unique and thus requires an individual investment analysis relevant to its specific geographic attributes. However, all real property has certain prevalent characteristics that affect its market value, which include:

1. Fixity. The property is fixed in location and as a result, its values are affected by any political and economic activities which occur in the immediate vicinity (surrounding area).

2. Longevity. The property is considered to be a long-term investment because of the durability of improvements and the permanence of the land. Consequently, this enables investors to estimate with some degree of reliability and the present value of a future stream of income from the property.

3. Permanence. It is the attribute that forms the basis of long-term mortgage-debt amortization. The investment occurred in this stage involves a relatively large amount of money which requires complex financial arrangements. These complexities, in turn, entail the expertise of lawyers, accountants, brokers, property managers, consultants, and other specialists.

4. Risk. The investment of real estate property is a relatively high-risk venture that reflects the uncertainty of somewhat unpredictable market. Unlike the stocks and bonds, there is no readily identifiable or organized national market for real estate.

5. Market segmentation. The fractured aspect of its unorganized and unregulated market is further exacerbated by the lack of standardization of the product aside from the fact that many of the market’s participants react intuitively and giving little attention to formal feasibility of marketing studies. Although the real estate investment market is divided into sub-markets such as retail, warehouse, residential and others, however, the investor who seeks for qualified help and takes advantage of protective measures can often mitigate some of the risks inflicted.

On the other hand, many government activities also possess either direct or indirect influences on the property values. At the federal or regional level, for example, income tax laws are often perplexing and frustrating. As a result, the power of government’s regulation and control of money effectively dictates the extent of real estate activity through manipulation of the supply as well as the cost of mortgage money.

Meanwhile, local political attitudes regarding zoning and growth restrictions have further contributed to the rise of real estate prices which create a monopolistic position for the property owners. Fueling the real estate property values with such political attitudes is the anti growth philosophy of citizens in some areas where property taxes and other public costs are rising at an alarming rate to serve an ever-increasing population. Therefore, the utterance to the saying "Not in my backyard!" has often become the slogan in some of those troubled cities which are heavily impacted by political attitudes.