Property Investment and Valuation: Note 1(b)

Unique Characteristics of Property

Immobility

Land, as space on the surface of the earth, is immobile. For example, the supply of serviced lots in Petaling Jaya cannot be increased by additional lots in Kota Bharu. The immobility of real estate as a commodity also prevents moving it to a better market. One city may have a large number of vacant rental apartments at a time when there is a very low vacancy rate in another. Property owners can only sell their product - shelter - in the market within which the property is physically located.

All properties are different (heterogeneous)

Apart from joint interest in the same property, there will probably never be two interests which are exactly the same - even though there may be rows upon rows of terrace houses which are apparently similar, they will all be on different sites. No two properties are exactly the same.

The uniqueness of each product contributes to the uniqueness of the real estate market. They are different in terms of size, shape, tenure, orientation, zoning, plot ratio, density etc.

Indivisibility of services

The value of a parcel of real property untimately depends upon its usefulness. This usefulness is based on the land and improvements such as buildings, sidewalks, landscaping, underground and aboveground utilities. Elements of value cannot be separated into those derived from the land, the buildings, or the landscaping, since users regard the site as a single unit. This is reflected in the law of real property where land includes the surface of the earth and all permanent improvements attached to it.

Properties is durable in nature

Many goods wear out and deteriorate rapidly, but property normally lasts for many years with very slow rate of deterioration. Even when property is so old that the deterioration is considerable, it is often found that the value of the land on which it stands has appreciated at a greater rate than the rate of depreciation in the value of the building. In this respect, property is quite different from most other investments; it is very durable over time and affords very good security for money over a long period.

Property needs large capital to purchase

In comparison with other goods, a large amount of capital is usually required to purchase property. The result is that the minimum sum required for property purchase is usually quite substantial and it is necessary for a property investor to be able to raise such sum before realising his aim.

Property as a source of income

In this respect it is different from many other durable possesions. Because of this, the ownership of property is often attractive to investors as well as to would be users of the property. Property provides an opportunity for a person to save money and having saved it, to purchase something which then provides a regular income. This income is the direct result of, and the reward for, the original saving or the deferment of immediate consumption.

Property is limited in supply (scarcity factor)

The fundamental attraction of property as an invesment is that it constitutes an essential element in any economic activity and there is therefore a level of guaranteed demand. At the same time the supply of property is limited both physically (by the finite supply of land available) and by artificial restrictions (such as planning controls). The basic laws of economics determine that any commodity for which demand exceeds supply will experience an increase in price. Although property exist within a far from perfect market, it is this economic rational that has formed the basis of property's attraction as an investment medium.