Adrian Tamayo
University of Mindanao
Introduction
The real estate market remained a narrow focus of analysis in the broad field of economics. However, with the growing population and limits of geography, urban economics was developed along with it is the new field we now call as real estate economics. In some literatures, real estate economics and housing economics were indistinguishable as brought by the dictates of their time. Nowadays, real estate means a lot of things. In fact, the young real estate sector is 2 percent of the country’s GDP.
There seemed to be evidence of the skewed development of real estate industry in the Philippines which is urban-centered. This is expected as indicated by strong rural-urban migration happening in the country. This development depicts the demand structure for housing. The bureaucratic bottlenecks, land-ownership of the foreigners, property rights issue are peculiar characteristic of this market. However, there is an observed increase in the number of home ownership of poor and non-poor, Davao City, in particular reflected a 33 percent probability of owning a house than renting.
A probe into the real estate
Real Estate economics is the application of the economic concepts and theories on real estate market in order to explain, evaluate, forecast the patterns of prices, building, production and the consumption of it. A sub-topic of this approach by which focuses narrowly on the residential estate markets is known as the housing economics. Contemporary economic analysis of the housing market evolved into classifying the commodity as bundles of attribute, as a product that is heterogeneously composed. Over some time, housing market only considers housing product as homogenous commodity, that is the structure in itself and the buyers only seek out for it primarily for its price attribute. The basis of this economic theory is due to the long–run equilibrium solution which indicates that overtime, all housing inputs (size, complementary renovations) are all variable (changeable) except the accessibility (Kain and Quigley, 1975)
On the contrary, the heterogeneity and the non-standardized valuation of the real estate lead into the trouble of pricing real capital assets such as the standard market value for single–family homes, apartments, and office buildings (Englund et al., 1999) this is a fact in the United States that these variations lead to distort the cost of programs for the public in order to promote home possession which bears impact on the cost of living index due to the composite transfer payments of project of the government [Englund citing Quigley(1995)]. Alternatively, the buyers of the real estate may likewise postpone its investment in order to acquire exact information on the market price of the real estate.
Some parametric models were developed to predict the relationship between housing investments and housing prices and the expected return on investment. This is a particular interest to us because when the buyers (owners/renters or renters) consider the variability of the market, asset values might be altered causing a bubble value otherwise crashing it. Along this line, Kain and Quigley developed a “hedonic” regression model in order to predict the price of the house as determined by its characteristics. As such, valuing the asset in the market is determined other than keeping it arbitrarily as burdened by its unique quality. The model employed the physical attributes of the structure such as age of the structure, year built, number of rooms, etc; this is in addition to the geographical location, and the neighborhood amenities, and some measure of time .
The stochastic analysis made in the real estate market in the United States indicate that the period of construction follow a significant effect on the selling price of the asset, however, it was noted that there occurred no significant variation in the selling price of the asset that were sold twice or three times, also, the size of the lot influences the market price but not with the interior size of the house, and that the market value of the assets are auto-serially correlated which means that the current selling price of the real estate is systematically influenced by the most previous market value of it. With the introduction of the housing financing, the variability of the price of the real estate is moderated through mortgage. Warnock and Warnock (2007) emphasized with the supplement of a study of 17 countries that mortgage finance is a critical factor in generating housing demand, as well as it functionally influence the housing market supply.
Real Estate Market and Other Sectors of the Economy
An ordinary sized family will have the spending for housing eating up a greater piece of the income pie, and in fact considered as the most important asset (Warnock and Warnock, 2007). The family will spend considerably for a healthy and secure place for a home for the family to live decently and comfortably. A dynamic and active housing market reflects a vibrant economy because of its causal consequence into the other sectors of the society aside from the housing sector itself. Health of the citizens and the control of diseases can be improved by a functioning and responsive real estate market.
A dependable housing market can stimulate growth of the economy as well as cohort measure of the vigor of an economy as a result of the process of exchange in the market, the jobs that were generated, and the added value of the assets, and the strengthening of the social ties and social cohesion that it could facilitate as a result of the aesthetic effect of a decent, comfortable property delivered on the time when price premium is high for the seller and the utility is best for the buyer through a responsible facilitation of the banks and brokers and other intermediaries.
