Real Estate Multiplier Effect-A A +A
Sunday, August 25, 2013
EVER wondered how and why other industries and businesses prosper? What elements and materials comprise the construction of a house, improvements or other infrastructures? Real Estate is the be-all and end-all of man’s activities. From birth to death, man will always be part of being involved within the workings of “real estate.” This means that a person’s life starts with the birth of a son or daughter from the womb of a mother.
Whether he or she is born in a hospital, at home and even unusual places like in a bus, taxi, airplane or other place, these are all within the sphere of the term “Real Estate.” The same is true if man leaves behind his earthly life and goes in the great beyond, he or she shall still be at the conclave of real estate primarily because he or she has to be buried in a cemetery or the remains to be placed at home or a special place like a crematorium. As such, its economic significance in terms of influence outside of the sphere in real estate is tremendous and amazing.
To have an overview of what real estate comprises, it refers to the land and everything attached to it in a permanent manner and includes the surface area and everything above and below it. Often we usually think of land as the surface of the Earth. But, in truth and in fact, it is more than that.
Land starts at the center of the Earth, passes through the Earth’s surface, and continues on into space or the outer parts of the earth. An understanding of this concept and explanation is important because, given a particular parcel of land it is possible for one person to own the rights to use its surface (called “surface rights”), another to own the rights to drill or dig below its surface (called “subsurface or mineral rights”). And still another to own the rights to use the air space above it (called “air rights’). This is the extent of what real estate encompasses if we have to get the whole sphere of the earth as our base point in understanding what the term means and refers to.
The land and/or building or other improvements permanently attached or annexed to the land including the “Rights” and “Interests” thereon and includes rural, urban, suburban land parcels or land subdivision developments such as residential, commercial, industrial, institutional, recreational, agricultural, aquacultural or combinations of such; tourist resorts, land reclamation, building or housing projects either for individual, condominium or cooperative ownership, memorial parks and others of similar nature.
With this understanding and explanation of what real estate is, what are its economic significance or real estate “multiplier effect?” The following could better picture what real estate signifies:
1. It is the “Mother of all Industries” because real estate represents the sparkplug which triggers income opportunities for various sectors and generates a market for the construction and allied industries. Just imagine the allied industries linked to real estate when a person buys a lot through a real estate broker and eventually decides to build a house thereon. From the initial construction up to finishing the structure, various industries will come into the picture.
2. It is a universal commodity. There is a universal and unending need for real estate. Man needs a place to reside, to do business, to relax and a whole gamut of activities, and real estate fills these needs.
3. It satisfies the shelter requirement. One of the basic needs of man, aside from food and clothing is shelter. All people need a place to reside, to do business, to relax and other activities and real estate is the avenue to ensure man’s continued existence and enjoyment of life.
4. It is a hedge against Inflation. From an investment point of view, real estate is a hedge against Inflation. This means that among investment alternatives like bank deposits and mutual funds investments, jewelries collections, stock market investments, commodities trading and the like, “Real Estate” can recover the returns that may have been lost resulting from inflation.
Inflation is the unusual rise in prices of goods and commodities coupled with the weakening of the purchasing power of the peso currency. The tendency is for money or funds to lose its value. As an example, about ten years ago, with two hundred pesos, we can buy two kilos of beef meat. Today, with the same amount and at current prices, we cannot even buy a kilo of beef meat. In such instances, investment in real estate is able to recoup or recover from these price declines since the value of real properties constantly appreciates annually.
5. It is an acceptable collateral or security for loan. Real estate is the most preferred collateral asset and is therefore the major source of capital formation especially for business endeavors. When borrowing from a bank or any financial institution, it is a standard requirement that to be able to avail of its credit accommodation, a borrower has to give an adequate security for any loan applied for.
6. Real estate constantly appreciates in value. Land generally appreciates in value. Thus, the longer land is held as an asset, the higher its resale value becomes. That is a universal rule where real properties are associated with.
Next time a real estate opportunity passes by, like acquiring a parcel of lot, grab it. Aside from the rare chance of owning properties, getting value on it, and when a structure is built, we are also ensuring that other businesses and industries will prosper and will keep our economy growing.
(For questions, inquiries, information and updates, email me at firstname.lastname@example.org)
Published in the Sun.Star Baguio newspaper on August 26, 2013.