Real Estate Development
By: Chris Siddell, Halal Incorp
So, what is real estate? Real estate is the land along with any lasting improvements affixed to the land. This can either be natural or man-made and includes water, trees, minerals, buildings, homes, fences, and bridges, just to name a few. A real estate is a form of real property. This is different from personal property, which is things not permanently attached to the land. Examples of these include things such as vehicles, boats, jewellery, furniture, and farm equipment. Real estate is a class of “real property” including land and anything constantly connected to it, this could either be natural or made by man. When it comes to real estate there are five main categories.
The five main categories of real estate are residential, commercial, industrial, raw land, and special use. An individual can invest in real estate directly by securing a home, rental property or other property, or indirectly through a real estate investment trust (REIT).
Real Estate Development
Understanding real estate may come across as complicated or intimidating, however, when broken down it is simple to understand. Individuals frequently use the terms land, real estate, and real property interchangeably, however, there are some subtle distinctions. The term land is used when referring to the earth’s surface down to the centre of the earth and upward to the airspace above. This includes the trees, minerals, water, etc within that area. When the term real estate is used it is within reference to the land, plus any lasting man-made additions. These additions can include things such as houses and various other buildings. Real property, which is one of the two most prominent classifications of the property refers to the interests, benefits and rights inherent in the ownership of real estate.
When speaking broadly, real estate involves the actual physical surface of the land, what lies above and beneath it and what is permanently attached to it. In addition, all the rights of ownership are involved, including the right to possess, sell, lease, and enjoy the land. However, real property should not be mistaken for personal property, which encompasses all property that doesn’t fit the definition of real property. The main characteristic of personal property is that it can move. Examples of personal property are boats, vehicles, furniture, clothing, and smartphones. These are just a few of many examples.
There are numerous physical characteristics of real estate. Land for example has three main physical attributes that differentiate it from other aspects of the economy. The first of which is immobility. Although some parts of the land are removable and the topography can be altered, the actual geographical location of any piece of land can never change. The second characteristic of land is the fact that it is indestructible. The land is durable and indestructible, meaning that it’s being there is permanent. The third noticeable characteristic of land is its uniqueness. No two plots of land can ever be identical. Even though two separate pieces of land may share similarities, every parcel differs geographically.
Real Estate Development also has multiple economic characteristics. The land has numerous distinct features that impact and influence its value as a financial investment. One example of this is scarcity. Although the land isn’t considered uncommon, the total supply is fixed. Another characteristic is potential improvements. For example, any additions or changes made to the land or a man-made structure that impacts the property’s value are labelled as an improvement. The permanence of investment is yet another example of an economic characteristic of real estate. Once land is enhanced, the total capital and labour which was used to create the improvement represent a sizable, fixed investment.
Although a building can be razed, enhancements like drainage, electricity, water and sewer systems tend to be permanent because they can’t be removed (or replaced) economically. Location or area preference is a great example of a specific real estate characteristic. Location indicates people’s choices and desires regarding a specific area, based on factors such as convenience, reputation, and history. Location is one of the most significant economic characteristics of the land and has a huge influence on a person’s decision when buying or investing.
When it comes to real estate, there are five main types. These are residential real estate, commercial real estate, industrial real estate, land, and special purpose.
Residential real estate refers to any form of property being used for residential purposes. Examples of this include single-family homes, condos, cooperatives, duplexes, townhouses, and multifamily residences with fewer than five individual units.
Another type of real estate is commercial real estate, and this type of real estate includes any form of property that is used specifically for business reasons. This could include examples such as apartment complexes, petrol stations, hospitals, hotels, offices, parking facilities, restaurants, shopping centres and theatres.
Industrial real estate is another example of a type of real estate. Industrial real estate is the name given to any property being used for manufacturing, production, distribution, storage, and research and development. Examples include factories, power plants, and warehouses, to name a few.
The land is yet another form of real estate. This includes undeveloped property, unoccupied space, and agricultural land. The agricultural land could include orchards, numerous types of farms, ranches and even timberland.
The fifth and final main type of real estate is ‘special purpose’ real estate. This is usually property which is used by the public. Examples of special purpose real estate can include government buildings, libraries, cemeteries, parks and schools. The list goes on, but these were just a few common examples.
So how does the real estate industry even work? Regardless of the extent and complexity of the real estate market, many individuals have the idea that the industry involves only brokers and salespeople. However, vast quantities of people in fact earn a living through real estate, not only in sales but also in appraisals, property management, financing, construction, development, counselling, education, and several other fields. Countless professionals and businesses, including accountants, architects, banks, title insurance companies, surveyors, and lawyers, also rely on the real estate industry. Real estate is a crucial aspect of economic growth. Investors and analysts keep a watchful eye on housing stats. This is because the numbers can provide a general sense of economic direction.
There are multiple ways in which you can invest in real estate. Examples of the most frequently used ways in which people invest directly are homeownership, ‘house flipping’ and rental properties. If you decide to purchase physical property such as rental properties or house flipping, you can create money in two different ways: revenue from rent or leases, and appreciation of the real estate’s value. Unlike other investments, real estate is severely impacted by its location. Factors such as employment rates, the local economy, crime rates, transportation facilities, school quality, municipal services, and property taxes can have huge effects on the price of the property.
Like with anything, there are both pros and cons when it comes to investing in real estate. Examples of the pros include it offers a steady income, offers capital appreciation, diversifies portfolio and can be bought with leverage. However, examples of some cons are it is usually illiquid, it is influenced by highly local factors, it requires a big initial capital outlay and it may require active management and expertise.
Disclaimer: The view of the author does not necessarily represent the views of Halal Incorp.