MODUL MINGGU 1
PENGANTAR REAL ESTATE
INTRODUCTION TO REAL ESTATE
Disusun oleh Hasan Nuryadi, M.Ec. B.Sc(Hons)
1. Definition of Real Estate
1.1 Real Estate
Land and all physical property on, below or attached to the land. Houses, sewers,
trees and fences are all real estate.
Land and the property permanently attached to it, such as buildings, houses,
stationary mobile homes, fences and trees. In legalese, real estate is also called real
property.
1.2 Real Property
All immovable property such as land and the buildings or other objects permanently
affixed to the land.
Real estate is a business, not a profession. Real estate is sometimes inaccurately
spoken of as a profession, but it is essentially a business. A profession applies
science, art or learning to the use of others, the profit to the professor or person
applying it being incidental; whereas a business is engaged in primarily for profit, and
the profit is to the one engaging in the business.
A profession implies professed attainment in special knowledge. A person may
engage in business with or without special knowledge and no one else is concerned
with the question whether he has any knowledge of the business, because no one
else is affected by the result. If he is successful the rewards are his; if he fails he
bears the loss. But let him attempt to practice a profession and, if he be unskillful,
others are directly affected, and the fact that his reward is diminished thereby is
merely incidental to the fact that others suffer. Ethics of the business. But whether
real estate be a business or a profession has no connection at all with the body of
ethics governing it.
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Every business can be conducted upon a plane ethically as high as the ideals of any
profession, and the men who have been conspicuously successful in the real estate
business have attained success because they have applied to their business the
highest ideals of commercial fair dealing. This does not mean that there is any ethical
requirement for the seller or the purchaser to give away anything which belongs to
him, or for either one to disclose to the other his necessity for selling or his
requirements for buying; but the bargain having been made, it is absolutely
necessary that it be lived up to by both parties, according to its intent; and, if there be
any doubt of the intent of the bargain as it is expressed in writing, that the spirit of the
transaction be carried out rather than that the catch words of a written instrument
should govern. Cases are frequent of men who to their own detriment perform the
thing which they have promised to do although not legally obligated, and the bigger
and more successful the man who makes the promise the more surely will it be
carried out.
Important obligations are often incurred upon the mere promise of a well-known man
to sell an important piece of property at a definite price, although no legal and
enforcible obligation exist ; and the promise is always redeemed if it is made by a
man who knows the business, and it is redeemed not merely from altruistic motives,
but also for purely business reasons.
Divisions of the business.—The principal divisions of the real estate business are
investment, operation and agency. These differ from one another according to the
aims of the persons engaging in them and the methods by which those persons
expect to make their gains. To conduct either of the first two divisions of the
business, investment or operation, actual money capital is required. The most
important capital in the agency business is the good will of its customers, and that
can be husbanded, increased and made very valuable.
Investment is the employment of capital in the acquisition of real estate or interests
therein for permanent ownership or actual use of the person acquiring it. Operation is
the employment of capital in the acquisition or improvement of real estate or interests
therein for commercial operations. Agency is dealing in or with real estate on behalf
of others.
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Investment in real estate is generally made for either of two purposes :
(a) to derive an income,
(b) to hold for resale in expectancy of an increase in value.
1.3 Investment for income may be for one of two purposes,
1. the derivation of rental—that is, the direct return for the use of real
for
property
definite periods, or
2. the obtaining of income through others upon money lent on the security of
real property.
Operation.—Real estate operation may be carried on
a) for the purchase and sale of land,
b) or the purpose of building,
c) for the purpose of lending money upon mortgages.
The purchase and sale of land is that branch of operation which concerns itself with
dealing in land as a thing to be bought and sold for profit and loss. It may be divided
into two parts :
1. Speculation, pure and simple, by which land is bought in the
hope of a rise in value and resold when that hope is either
realized or known to be unfounded.
2. Development of land, the most conspicuous part of which is
the development of vacant tracts by buying them wholesale
in their wild condition, making them marketable by bringing
them to such a state of development as is implied by putting
streets through them, pre-paring them for use and then
selling them in small parcels. This is a most important and
useful part of the commercial side of the real estate
business, and has resulted in the development and
settlement of many parts of the country.
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Hasan Nuryadi, M.Ec. B.Sc
PENGANTAR REAL ESTATE
That portion of real estate operation which concerns itself in building may be similarly
divided into,
a) Speculative building which consists in building structures primarily for sale,
and not necessarily for the use of the constructor, and
b) Building for investment which consists of the erection of structures for rental
or primarily for the use of the person conducting the operation.
That form of operation which is concerned with the lending of money upon real estate
security is divided into two parts,
(a) the making of permanent loans,
(b) the making of building or temporary loans.
Permanent loans are moneys lent upon mortgages at current rates of interest, the
security being deemed by the lender sufficient to afford an ample margin between the
amount of the loan and the actual value of the property, the sum being loaned usually
for a definite time.
Building and temporary loans are moneys lent for investment in property, to aid either
in putting structures upon it, repairing structures or in the development of wild tracts,
the intention being that the money be repaid when the development or reconstruction
is finished.
Because of the greater risks in the operation and the greater necessity for
supervision by the lender, there is compensation in an increased rate of interest over
and above the fair value of the loan of the money. For that reason it is to the interest
of the borrower that the loan be made permanent and not temporary as soon as may
be.
Agency.—Agency is that branch of the real estate business which engages the
attention of the greatest number of persons who are concerned with the business,
and in that respect it is of prime importance. It is divided into two parts, brokerage
and management.
A broker is a person who for compensation, usually proportioned to the value of the
subject-matter, brings about transactions between principals.
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Brokerage has two divisions according to the kinds of business which usually engage
the attention of the broker.
The sales broker is a broker who devotes his time and attention to the bringing about
of the sale or exchange of real property.
A loan broker is one who gives his attention to the obtaining of loans upon the
security of real property.
One man may practice both branches of the business, or a specialist may devote
himself to either of these branches.
Management, the second branch of agency, is the operation of deriving income and
caring physically for real estate structures. It concerns itself not only with the deriving
of income, but with the keeping down of expenses and the care in making
expenditures. It is popularly known as "Agency."
Real estate, property and real property defined.—Real estate is a form of property.
Property is the right to possess and use. Real property, a technical legal word, is the
right to possess and use land for a time which may last for a life or lives or longer. All
other property is, in the eyes of the law, personal property. A lease for 999 years,
which is not measured by any life, but which must expire at a definite time, is less in
term of time, in the eyes of the law, than a conveyance of a piece of land, the
duration of which is measured by a life or by several lives.
When we speak of real property we use the words in their technical legal sense.
When we speak of real estate as a commodity and as a business, it embraces the
various parts of the business which engage the attention of those who follow it as a
vocation, and includes interests which in the eye of the law are not real property, as
for example, leases, mortgages, etc.
Every business has in view finally, commercial transactions resulting in the transfer of
property of some kind; so in our study of the real estate business we have in mind
the transfer of title to real property, and among the various subjects we shall
consider, are the interests which there may be in land, limitations on ownership, the
making of a contract, the conveyances used, the liens which may affect a piece of
property—all of which have an important relation to a final commercial transaction,
the transfer of title to real property.
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The methods of dealing in real estate and the laws governing it are not arbitrary and
were not made for the mystification of others or for the purpose of multiplying legal
fees. All systems of law are expressions of two things, the historic customs of the
people whom they affect, and the modification of those customs, as changes made
those modifications advisable.
2. Leasehold Estate in Real Estate
In this type of lease, there is a defined specific beginning date and an ending date for
a specific term. This means that no notice to vacate is required, as the ending date of
the lease is when the tenant should vacate the property.
The lease cannot be terminated before expiration unless both parties agree. The
rights and obligations of the owner or landlord and the tenant are spelled out in the
lease.
This type of lease is quite common, with a definite specified beginning date and
ending date. When the lease expires, the tenant is expected to vacate the property
without the need of notice. Payment of rent can be any specified frequency, with the
defining characteristic of this type of lease being the definite beginning and ending
dates.
2.1 Estate from Period to Period: Also known as "periodic tenancy", estate from
period to period is a lease that doesn't spell out an ending date, but does specify
periodic periods of tenancy and rent payment, such as month-to-month. Notice to
vacate must be given, as there is no defined termination date for this type of lease.
2.2 Estate at Will: The most unstructured of the lease agreement types, there is no
specified ending date, nor a defined periodic tenancy such as month-to-month in the
estate at will type of leasehold estate.
3. Elements of Real Estate Lease Agreements
What is the Term of the Lease?
Generally, leases specifically state a beginning and an ending date for the lease to
be effective. This period, when set both front and back end, would mean that no
notice to vacate would be needed. The tenant would vacate on the prescribed ending
date unless a new agreement is reached.
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Leases can run for months or years. Some states prohibit very long leases in excess
of 100 years, but it's OK in others. Generally the term is stated with a beginning date
and an ending date and the total period. Example: The lease will run from January 1,
2006 through December 31, 2007, a period of two years.
3.1 Real Estate Investment Trust (REIT )
An investment vehicle established for the benefit of a group of real estate investors.
A REIT is an unincorporated trust or association, managed by one or more trustees
who hold title to the assets of the trust and control its acquisitions and investments.
Real estate investments commonly include office buildings, apartment houses and
shopping centers.
3.2 Real estate mortgage investment conduit (REMIC )
A entity through which an issuer can sell multiple class securities with call protection
to investors. A REMIC may be a corporation, trust, association, or partnership, but in
order to qualify, it must confine its investments to mortgages, cash, government
securities, foreclosure property acquired in connection with imminent default of a
mortgage, or other REMICs. Typically, a REMIC invests in a pool of mortgages, and
sells interests in those mortgages through securities with one or more senior classes
and a subordinated class that assumes the credit risk of defaults and delinquencies.
This creates a form of self-insurance that increases the investment ratings for the
senior securities. A REMIC does not keep its mortgage assets on its books, but sells
them to investors through its securities.
3.3 Real Estate Owned (REO )
Real estate owned by a savings institution as the result of default by borrowers and
subsequent foreclosure by the institution.
3.4 Realtor
A real estate agent or broker who is a member of the National Association of
Realtors, formerly the National Association of Real Estate Boards.
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3.5 Receiver
A party appointed by a court or regulatory agency to manage property subject to
litigation, or the property and affairs of a bankrupt person or institution. The receiver
maintains and manages the property in the interest of lenders or creditors until a final
disposition of the property is made.
3.6 Receivership
The state of being under the administration of a receiver. A receivership removes the
institution or company in receivership from its owners, who lose their equity. Since a
receivership ends the corporate existence of an institution or company, it stops the
payment of stock dividends and interest on debt.
4. Real Estate Bubble
A real estate bubble or property bubble (housing bubble for residential markets) is
type of economic bubble occurs periodically in local or global real estate markets. It is
characterized by rapid speculative increases in the valuation of real property such as
housing until they reach unsustainable levels relative to incomes and other economic
elements.
As of 2007, real estate bubbles are widely believed to exist in many parts of the
world, especially in United States, Britain, Australia, New Zealand, Irlang, Spain,
Poland, South Africa, Israel, India, Romania, South Korea, and China. U.S. Federal
Reserve Chairman lan Greenspan said in mid 2005 that at a minimum, there’s a little
froth in U.S. housing market. It is hard not to see that there are a lot of local bubbles.
The economic magazine, writing at the same time, went futher, saying the worldwide
rise in house prices is the biggest bubble in history.
Real estate bubbles are in variably followed by severe price decreases also knwn as
a house price crash that can result in many owners holding negative equity mortgage
debt higher than the current value of the property. As with any type of economic
bubble, it is difficult for many to identify except inhindsight, after the crash. The crash
of the Japanese asset price bubble from 1990 on has been very damaging to the
Japanese economy and the lives of many Japanese who have live through it, as is
also true of the recent crash of the real estate bubble in China’s largest city,
Shanghai.
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Unlike a stock market crash following a bubble, a real estate’crash’ is usually slower
process, because sellers prefer not to sell their own homes. Due to inflation, price
generally do not fall in nominal term, rather they stay flat for period of 3-5 years. In
some markets though, housing prices have fallen in real and nominal dollars, such as
Los Angeles during the early to mid 1990’s. however, with the recent rapid run-up it is
possible that national average home prices to drop, because past performance is not
a prediction of the future.
Other sectors such as office, hotel and retail generally move along with the
residential market, being affected by many of same variables (incomes, interest
rates, etc.) and also sharing the "wealth effect" of booms. Therefore this article
focuses on housing bubbles and mentions other sectors only when their situation
differs from housing.
5. Housing market indicators
Robert Shiller’s plot of U.S. home prices, population, building costs, and bond yields
(from irrational Exuberance, 2d ed. Princeton University Press). Shiller shows that
inflation adjusted U.S home prices increased 0.4% per year from 1890–2004, and
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0.7% per year from 1940–2004, whereas U.S. census data from 1940–2004 shows
that the self-assessed value increased 2% per year.
In attempting to identify bubbles before they burst, economists have developed a
number of financial ratios and economic indicators that can be used to evaluate
whether homes in a given area are fairly valued. By comparing current levels to
previous levels that have proven unsustainable in the past (i.e. led to or at least
accompanied crashes), one can make an educated guess as to whether a given real
estate market is experiencing a bubble.
Indicators describe two interwoven aspects of housing bubble: a valuation
component and a debt (or leverage) component. The valuation component measures
how expensive houses are relative to what most people can afford, and the debt
component measures how indebted households become in buying them for home or
profit (and also how much exposure the banks accumulate by lending for them).
6. Housing affordability measures
The price to income ratio is the basic affordability measure for housing in a given
area. It is generally the ratio of median house prices to median familial disposable
incomes, expressed as a percentage or as years of income. It is sometimes compiled
separately for first time buyers and termed attainability. This ratio, applied to
individuals, is a basic component of mortgage lending decisions.
According to a back-of-the-envelope calculation by goldman Sachs economists, a
comparison of median home prices to median household income suggests that U.S.
housing in 2005 is overvalued by 10%. "However, this estimate is based on an
average mortgage rate of about 6%, and we expect rates to rise," the firm's
economics team wrote in a recent report. According to Goldman's figures, a onepercentage-point rise in mortgage rates would reduce the fair value of home prices
by 8%.
The deposit to income ratio is the minimum required down payment for a typical
mortgage, expressed in months or years of income. It is especially important for firsttime buyers without existing home equity; if the downpayment becomes too high then
those buyers may find themselves "priced out" of the market. For example, as of
2004 this ratio was equal to one year of income in the UK (Nottingham Trent
University
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Another variant of this ratio measures the ratio of median family income to the
income necessary to qualify for a typical mortgage or a typical home; this is what the
National Association of Realtors calls the "housing affordability index" in its
publications.
The NAR's methodology was criticized by some analysts as it does not account for
inflation. Other analysts, however, consider the measure appropriate, because both
the income and housing cost data is expressed in terms that include inflation and, all
things being equal, the index implicitly includes inflation. In either case, the
usefulness of this ratio in identifying a bubble is debatable; while downpayments
normally increase with house valuations, bank lending becomes increasingly lax
during a bubble and mortgages are offered to borrowers who would not normally
qualify for them (see Housing debt measures, below).
The Affordability Index measures the ratio of the actual monthly cost of the mortgage
to take-home income. It is used more in the United Kingdom where nearly all
mortgages are variable and pegged to bank lending rates. It offers a much more
realistic measure of the ability of households to afford housing than the crude price to
income ratio. However it is more difficult to calculate, and hence the price to income
ratio is still more commonly used by pundits.
The Median Multiple measures the ratio of the median house price to the median
annual household income. This measure has historically hovered around a value of
3.0 or less, but in recent years has risen dramatically, especially in markets with
severe public policy constraints on land and development. The Demographia
International Housing Affordability Survey uses the Median Multiple in its 6-nation
report.
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Inflation-adjusted home prices in Japan (1980–2005) compared to home price
appreciation in the United States, Britain, and Australia (1995–2005).
7. Housing debt measures
The housing debt to income ratio or debt-service ratio is the ratio of mortgage
payments to disposable income. When the ratio gets too high, households become
increasingly dependent on rising property values to service their debt. A variant of
this indicator measures total home ownership costs, including mortgage payments,
utilities and property taxes, as a percentage of a typical household's monthly pre-tax
income.
The housing debt to equity ratio (not to be confused with the corporate debt to equity
ratio), also called loan to value, is the ratio of the mortgage debt to the value of the
underlying property; it measures financial leverage. This ratio increases when
homeowners refinance and tap into their home equity through a second mortgage or
home equity loan. A ratio of 1 means 100% leverage; higher than 1 means negative
equity.
7.1 Housing ownership and rent measures
The ownership ratio is the proportion of households who own their homes as
opposed to renting. It tends to rise steadily with incomes. Also, governments often
enact measures such as tax cuts or subsidized financing to encourage and facilitate
home ownership. If a rise in ownership is not supported by a rise in incomes, it can
mean either that buyers are taking advantage of low interest rates (which must
eventually rise again as the economy heats up) or that home loans are awarded
more liberally, to borrowers with poor credit. Therefore a high ownership ratio
combined with an increased rate of sub prime lending may signal higher debt levels
associated with bubbles.
The price to earning ratio or P/E ratio is the common metric used to assess the
relative valuation of equities. To compute the P/E ratio for the case of a rented
house, divide the price of the house by its potential earings or net income, which is
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the market rent of the house minus expenses, which include maintenance and
property taxes. This formula is:
The house price to earning ratio provides a direct comparison to P/E ratios used to
analyze other uses of the money tied up in a home. Compare this ratio to the simpler
but less accurate price-rent ratio below.
The price-rent ratio is the average cost of ownership divided by the received rent
income (if buying to let) or the estimated rent that would be paid if renting (if buying to
reside):
The latter is often measured using the "owner's equivalent rent" numbers published
by the Bureau of Labour Statistics. It can be viewed as the real estate equivalent of
stocks' price earnings rfatio; in other terms it measures how much the buyer is paying
for each dollar of received rent income (or dollar saved from rent spending).
Rents, just like corporate and personal incomes, are generally tied very closely to
supply and demand fundamentals; one rarely sees an unsustainable "rent bubble" (or
"income bubble" for that matter). Therefore a rapid increase of home prices
combined with a flat renting market can signal the onset of a bubble. The U.S. pricerent ratio was 18% higher than its long-run average as of October 2004 (Federal
Reserve Bank of San Fransisco report).
The gross rental yield, a measure used in the United Kingdom, is the total yearly
gross rent divided by the house price and expressed as a percentage
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The net rental yield deducts the landlord's expenses (and sometimes estimated
rental voids) from the gross rent before doing the above calculation. Because rents
are received throughout the year rather than at its end, both the gross and net rental
yields calculated by the above are somewhat less than the true rental yields obtained
when taking into account the monthly nature of the rental payments.
The occupancy rate (opposite: vacancy rate) is the number of occupied units divided
by the total number of units in a given region (in commercial real estate, it is usually
expressed terms of area such as square meters for different grades of buildings). A
low occupancy rate means that the market is in a state of oversupply brought about
by speculative construction and purchase. In this context, supply-and-demand
numbers can be misleading: sales demand exceeds supply, but rent demand does
not.
8. What we can do after study this subject?
•
Have knowledge and must to convident to explain regarding investment
opportunities in the rel estate business. And also can make analysis in the
property marketing.
•
Can explain what’s embairase in the property investment, especially, in global
markets.
•
Identify the way of taking profit in property investment
•
Have knowledge to discuss many factors regarding real estate
8.1 Profession in the Real Estate industry
•
Valuer
: profession and valuation services
•
Broker
: help to buyer and seller in transaction real estate
•
Developer : develop vacant land for uses by extention building or
new buildings
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•
Property Management : manage property for owner of property
•
Real Estate Marketing : manage for marketing of real estate
•
Consultant : advise to clients in the business of property
•
Risk Management : provide and properties analysis for a loan bank
purposes
•
Analyst : analyze property shares in Jakarta Stock Exchange
•
Portfolio Management : make the investment framework to
diversification investment
8.2 Parts of Real Estate
Kind of real estate are profitables
•
Vacant land
•
Houses
•
Condomonium dan town house
•
Flat house
•
Apartement
•
Offices
•
Shopping complexs
•
Industrial and commercial properties
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kind of real estate are not Profitables
•
Mosque
•
Church
•
School
•
Parking area
•
Hall building
•
Orpans house
•
Government buildings
8.3 Investor
As a potential investors we have to interest to look the property enthusiast and
naturally. Considering with long term to investment concept in taking profit in the
transaction property, in real situation must be found suitable properties not only
transaction, but must potential for future. Offcourse, we never invest to anythings
without sufficient knowledge about it. This is to secure capital to loss and maximize
profit taking.
•
Normally, for newcomer investors chose naturally in an residential properties
compare commercial properties.
•
Work in real estate industry to get knowledge, before involve in the real
business
•
Advised to invest in comfort investment to minimize risk
9.The role of Real Estate
Property sector or real estate mempunyai peranan dalam pertumbuhan ekonomi
sebuah Negara. Kejatuhan bisnis real estate akan berdampak negative kepada
pertumbuhan ekonomi, seperti pada tahun 1997 krisis moneter mengakibatkan
kredit macet di dalam bisnis property, yang mana berdampak buruk kepada
perbankan nasional sehingga Negara mengalami krisis yang berkepanjangan. Kredit
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macet yang terjadi ketika itu Rp 75 triliun membuat sektor perbankan ambruk
sehingga menyeret seluruh perekonomian. Bukan hanya pengembang skala kecil
yang ambruk, pengembang besarpun banyak yang berjatuhan.
Jadi jelas sekali peranan bisnis properti kepada perekonomian, dikala bisnis ini
memperlihatkan wajahnya yang cantik akan meningkatkan pertumbuhan ekonomi,
seperti dengan banyaknya properti yang dibangunkan akan menyerap ribuan tenaga
kerja, dan akan mendorong sektor penunjang bisnis ini seperti toko cat, material,
tenaga marketing, notaris dan banyak lagi instansi yang akan terlibat dalam industri
real estate.
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