NATURE OF REAL PROPERTY
Real property is an important part of corporate as well as individual wealth. As a consequence, the role of the corporate real estate manager has become critically important within the corporation. The real estate manager must be aware not only of the value of land for purchase and sale but also of proper lease negotiation, tax policies and assessments, zoning and land development, and environmental laws.
Real property, also known as real estate or immovable property, consists of any specified portion of land and everything that is permanently built on or below it. That is natural resources and/or human-made structures that include the elements on or beneath the ground. Legally, owning real property requires the package of rights passed from seller to buyer when a property is sold. Usually, these rights control the use, transfer, and/or selling of real estate. Such real estate rights include possession, exclusion, control, enjoyment, and disposal rights.
Different forms of properties, recognised by law, further describe the property rights associated with possession of the land. The form of property depends on the terms of the lease, bond, will, land grant, and/or sale bill from which the property was issued.
The real property market is part of the general market. But die to the following peculiarities of the real property market, there exists the gap between the relative yield from the investment in the corresponding markets:
- Amount of investment:
The real property cab be split up into small uniform sizes only upto a certain extent and the potential purchasers will have either to accept such sizes as are made available or to vacate the market. Thus, the numbert of potential purchaser of real property will be inversely proportional to the amount of investment in the real property. Thus, a large amount will be required for the purchase of a property as compared to other goods. Hence, the potential buyers will usually have to raise substantial sum to realise their ambitions.
- Central market:
There is absence of central market for real properties and the dealing are usually carried out in private meetings, generally through the medium of estate brokers or agents. In most of the case, The price at which the bargains is struck is known only to the buyer and the seller. Hence , there are chances of having different yields on similar real properties in different areas of the town or city. The absence of central market for real properties leads to inadequate information and imperfect knowledge to the potential investors in real properties. Thus, the property market is an imperfect market.
- Clearance of title:
The purchase of real property involves the transfer of rights attached with it and hence, the skilled solicitors will have to be appointed to investing in to the title of real property and to issue the necessary clearance certificate . Thus, the process of establishing proof of ownership sometimes proves to be costly, difficult, and lengthy.
Many properties have several interests existing in them and each of such interest is capable of being transferred. The mere possession of a property may not indicate its ownership as it is not possible to carry a piece of property from one place to the other
The study of legal history of the property concerned reveals the complexities involved and though , in theory , it seems to be possible to complete the transactions of properties in few days, but in practice, it seldom occurs because of the absence of ideal circumstances in all cases. The transfer period in case of properties may run onto weeks, months or even years. The section 55 of the Transfer of Property Act 1882 deals with the law to the rights and liabilities of buyer and seller of an immovable properties.
- Government action:
The real property market is considerably affected by various government specific actions for real properties such as town planning Act, rent restriction Act, etc. Such legislative measures have considerable effect on the income and the value of the real property.
To cut down the speculative aspect of real property in urban areas, the Urban land(Ceiling Regulations) Act, 1976 has been passed by the government and according to this act, the limit has been put over the possession of urban area. The surplus land will be handed over to the government for the use of weaker sections of the society. The government can also exert pressure on real property market by its taxation policy, investment policy, bank rates, etc.
Every real property will have its own features and characteristics because of the heterogeneous nature of the real property. It therefore becomes difficult to compare even two apparently similar real properties. This probably is the main feature of interest in the real property.
If a row of identical house us constructed , each home by itself is located on distinct site. Similarly, in case of residential multi-storeyed flats or commercial centers , the original constructional features may be same . But as soon as the premises are occupied , the owners may carry out certain additions, alternations or modification to suit their habits. Such a minute difference may be irrelevant in market terms, but in some cases, it does lead to a considerable difference in the market values of two apparently similar properties.
- Influence on yields:
In general, the factors which influence the investment market also influence the real property market. Hence, if there is tendency of increase in yield in the general investment market, the same will be reflected in the real property market also. Only in exceptional circumstances , it may be found that the yields in the real property market move in the opposite direction from the yields of the investment market. For instance, if the government increase the rate of interest and of the investors are of the opinion that such an increase in rate of interest will lead to a trade depression , it is likely that they will divert their supply funds for the purchase of real properties.
It is a fact a real property has always a tangible asset behind it and hence , the investors would be satisfied to get return over their surplus funds in the form of rent. In such cases, the demand for real properties will increase and hence, their prices will rise and yields will fall.
It should further be noted that the real property market is so small as compared to the general investment market that the changing conditions in the real property market will have practically negligible effect on the general investment market.
- Joint ownership:
The real property can be concurrently owned by several co-owners and the share of each co-owner may either be equal or unequal. At the same time, the share of each co-owner may either divided with specific physical boundaries or undivided. It is generally recognized that the real property with joint ownership is less attractive to prospective investors than the one which is absolute ownership. It is therefore necessary to allow a percentage deduction, varying according to the number of co-owners, in the final value of the real property. The more the number of co-owners , the higher will be the percentage of deduction for joint ownership.
- Physical inspection:
Practically in all the cases it will be necessary to employ an engineer or a surveyor to ascertain the physical features of the real property. This will increase the cost of conveyance of real property as compared to the other forms of investment.
The property normally lasts for many years. Hence, in comparison with many other goods, the property is durable. It is also found that in most of the cases, when the property deteriorates, the rate of appreciation in land value on which it is standing for exceeds the rate of deterioration of the property. Hence, the ultimate result is that , though the building has deteriorated , the overall value of land and building remains the same and in many cases, it increase with the passage of time. Thus, as compared to other modes of investment, the real properties provide good security for the money over a long period.
Source of income:
The property can be made a source of income. A person save money and with the help of such savings, he purchases the property. If he lets out the property, the rent which he receives is the result of and reward for the original saving or his action of sacrificing immediate consumption. Thus, the property proves to be an attractive mode of investment for those who want to save and to form a source of regular income.
An estate is an interest in real property. Estates are of many kinds, but one generic difference is between ownership estates and possessory estates. Fee simple estates and life estates are ownership estates, while leasehold interests are possessory. Among ownership estates, the principal division is between present estates and future estates. An owner of a future estate has an interest that can be bought and sold and that will ripen into present possession at the end of a period of time, at the end of the life of another, or with the happening of some contingent event.