Review…

The terms land, real estate, and real property are often used
interchangeably, but there are distinctions.
Examples:
1. A person owns a piece of land and construct a fence to protect the property
since trespassers are prevalent in their place.
2. A person owns a property which includes the surface until the center of the
earth covering the trees, minerals and water, and upward to the airspace.
3. A person improves the land by construction a 10-storey buildings with a
basement.
Understanding Real Estate…

Land refers to the earth's

surface down to the center of
the earth and upward to the
airspace above, including the
trees, minerals, and water.
Understanding Real Estate…
Real estate encompasses the land,
plus any permanent man-made
additions, such as houses and other
buildings.

Includes land, buildings, air rights

above the land, and underground
rights below the land.
Understanding Real Estate…
Real property includes the
land and additions to the
land plus the bundle of
rights inherent to its
ownership and usage.
Types of Real Estate
Residential real estate
Commercial real estate
Industrial real estate
Land
Special purpose
 Characteristics of Real Estate
Economic
• Scarcity
• Improvements
• The permanence of investment
• Location
 Characteristics of Real Estate
Examples:
1. SM develops a mall in a new location. Because of this, prices of land around the
mall increased, and land uses changed from agriculture to commercial.
2. Real estate purchase and/or development requires a long-term commitment.
3. Makati CBD rental rates are at least 30% more expensive than Ortigas Center as
it remains to be the financial center of the Philippines.
4. Even though some locations in Metro Manila are not desirable (e.g. close to
informal settlers), their prices tend to be expensive.
Characteristics of Real Estate
Physical
• Immobility
• Indestructibility
• Uniqueness
Real Estate Market Participants
• Users
• Owners
• Renters
• Developers
• Renovators
• Facilitators
Real Estate Market Participants
Examples:
1. A person buys a condominium unit for investment because prices increase by 10% YoY and
the rental market is booming.
2. A person buys a H&L for investment because real estate is a good investment. His/her
family plans to live in it.
3. The person in #2 is happy in his/her decision to buy and live in the said H&L. He/she
bought a vacant lot a few blocks away. He/she constructed a 3-unit townhouse for sale.
4. __________________ worked with the person in #2 to sell the townhouses by assisting in
marketing, legal processes and financing.
5. After selling all the townhouses, the same person bought another property with an old
house that he plans to flip after improving it.
Why study RE Economics?

Land affects the

economy because it's a critical
driver of economic growth as it is
a factor of production.
Reasons to Study Economics
1. Economics will help you understand the world in which
you live.
• Why is food so expensive?
• Why are the salaries so low?
• Why is it hard to find a job?
• Why is the government inefficient? Corrupt?

Source: Principle of Microeconomics by N. Gregory Mankiw

Reasons to Study Economics
2. Economics will make you a more astute (ability to notice
and understand things clearly) participant in the economy.
• What is your role in the economy?
• What/how can you contribute to economic development?
• How can you spot gaps / opportunities that you can maximize in the
marketplace?

Studying economics will not by itself make you rich, but it

will give you some tools that may help in that endeavor.
Source: Principle of Microeconomics by N. Gregory Mankiw
Reasons to Study Economics
3. Economics will give you a better understanding of both
the potential and the limits of economic policy.
• What is the impact of new taxation?
• What is the impact of the legislated increase in minimum wage?
• As a voter, how or who will you elect to public office who can advance
economic development?

Source: Principle of Microeconomics by N. Gregory Mankiw

What is Economics
• The word economy comes from the Greek word oikonomos, which
means “one who manages a household.”

Source: Principle of Microeconomics by N. Gregory Mankiw

What is Economics
Household Society / Country
A household faces many decisions. Society faces many decisions
BUT… resources are SCARCE.
Scarcity means that society has limited resources and therefore cannot
produce all the goods and services people wish to have.

Just as each member of a household …each individual in a society cannot

cannot get everything he or she attain the highest standard of living
wants… to which he or she might aspire.

Source: Principle of Microeconomics by N. Gregory Mankiw

What is Economics
 Scarcity and the Basic Economic Questions

ECONOMICS is a social science that focuses

on the production, distribution, and
consumption of goods and services, and
analyzes the choices that individuals,
businesses, governments, and nations make
to allocate SCARCE resources.

1. What to produce and what quantity to

produce?
2. How to produce?
3. For whom to produce?
Real Estate Economics
Economics is the study of how society manages its scarce
resources.

Real estate economics is the application of economic

concepts and techniques to real estate markets. It tries to
describe, explain, and predict patterns of prices, supply and
demand.
Thinking like an Economist
• Learning to think like an economist will take some time.
• It is helpful to have an overview of how economists approach the world.
• What does it mean to think like an economist?

The Economist as a Scientist. They:

• devise theories (an idea or set of ideas that is intended to explain facts or events)
• collect data, and
• analyze these data to verify or refute their theories.

Source: Principle of Microeconomics by N. Gregory Mankiw

The Scientific Method (OBSERVATION, THEORY, AND MORE OBSERVATION)
• Isaac Newton’s observation of an apple falling from a tree
led to development of the theory of gravity.
• An economist might live in a country experiencing rapidly
increasing prices and be moved by this observation to
develop a theory of inflation.

Source: Principle of Microeconomics by N. Gregory Mankiw

The Scientific Method (OBSERVATION, THEORY, AND MORE OBSERVATION)
But unlike a physicist, economists find conducting experiments often difficult
and sometimes impossible. Why?
Physics Economics
Conduct and repeat experiments to Are not allowed to manipulate, select
prove a theory or freeze data and policies simple to
conduct studies.
Can choose what materials and • Rely on real life events (e.g. war,
variables to include in the study weather conditions, crisis) to
explain how the world works.
• Make assumptions to simply things
and conduct studies.
Source: Principle of Microeconomics by N. Gregory Mankiw
The Role of Assumptions
• Assumptions can simplify the complex world and make it easier to
understand.
• To study the effects of international trade, for example, we might
assume that the world consists of only two countries and that each
country produces only two goods.
• In reality, there are numerous countries, each of which produces
thousands of different types of goods.
• Ceteris paribus is a Latin phrase, meaning "other things equal"

Source: Principle of Microeconomics by N. Gregory Mankiw

Economic Models
Economists also use models to learn about
the world, but instead of being made of
plastic, they are most often composed of
diagrams and equations.

The Circular Flow Diagram

Source: Principle of Microeconomics by N. Gregory Mankiw

Who studies
economics?

Source: Principle of Microeconomics by N. Gregory Mankiw

Economic Terms
Microeconomics is the study of how
households and firms make decisions and
how they interact in specific markets.
Source: Principle of Microeconomics by N. Gregory Mankiw
Macroeconomics refers to how the overall economy
works; how the decisions of consumers, business,
investors and governments affect key measures such
as inflation, unemployment and gross domestic
product.
Economic Terms
Price
The amount of money or resources that must be paid to
purchase a good or service.

Market
A place or mechanism that brings buyers and sellers
together to exchange goods or services.

Source: Principle of Microeconomics by N. Gregory Mankiw

 Supply and Demand

Shift in the demand curve

 Supply and Demand

Supply – pertains to how much goods

and services producers are willing and
able to sell at each possible price
during a given period.

Law of Supply – Quantity supplied is

directly proportional with the price.
Supply and Demand

Discussion: How does the pRICE cap

affect the:
1. Demand of rice?
2. Supply of rice?
Supply and Demand
Supply and Demand
 What is research?

Research is the systematic investigation into and study of

materials and sources in order to establish facts and reach new
conclusions.

Research is a systematic inquiry to describe, explain, predict, and

control the observed phenomenon.
 What is research?

Research is conducted with a purpose to:

• Identify potential and new customers
• Understand customers
• Setting of goals
• Develop productive market strategies
• Address business challenges
• Put together a business expansion plan
• Identify new business opportunities
 Characteristics of Research

1. A good research follows a systematic approach to capture accurate

data. Researchers need to practice ethics and a code of conduct
while making observations or drawing conclusions.
2. The analysis is based on logical reasoning and involves both inductive
and deductive methods.
3. Real-time data and knowledge is derived from actual observations in
natural settings.
4. There is an in-depth analysis of all data collected so that there are no
anomalies associated with it.
5. Accuracy is one of the most critical aspects of research. The
information must be accurate and correct.

Provide input for
preliminary project
planning
Generate inputs for
financial feasibility analysis
Demonstrate the potential •
for a new product or an
unproven location • The idea of what constitutes the most desirable office space,
RE Market Research
• Developers usually require a market research to exercise an option
on a parcel or to proceed with land planning for a project.
• The purpose is to analyze the location’s advantages and disadvantage,
identify the types of uses that would be appropriate, and provide
benchmarking of rents or sales prices that could be achieved given
current market conditions.
• The market study’s conclusions regarding possible rents and sales
prices, any other potential income from project amenities or
upgrades, and absorption and vacancy rate forecasts are important in
determining projected cash flows and returns on investment.
Locations that others considered remote, unsafe, or inaccessible can
become desirable.
shopping center, or housing can change overnight, forcing owners
and managers to upgrade older buildings or lower their price points.
 RE Market Research

Attract equity investors, • Partners, lenders, and other parties that are providing capital for a
debt financing, or project need evidence that the developer’s expectations are well
government funds founded, and that the proposed project can generate an attractive
return, carry its debt load, and justify participation by government
agencies.
Create a better, more • Market studies can help fine-tune the product by revealing the
marketable product characteristics and demands of the market.
• The input of market analyst in early stages of planning can have an
impact on how the market will appreciate the product.
Produce input for public • Government agencies also monitor real estate markets.
sector housing or • The government has its own overarching framework for urban
economic development development and housing, consisting of vision, policy statements and
planning strategies, and encompassing core development sectors and spatial
elements.
 Market
Analysis
Types of
Data
 Market
Analysis
Sources of
Data
 Data - Information - Insight

Data is the raw and unprocessed facts that we capture

according to some agreed-upon standards. Data could be
a number, an image, an audio clip, a transcription, or
similar.
 Data - Information - Insight

Information is data that has been processed, aggregated,

and organized into a more human-friendly format.

Data visualizations, reports and dashboards are common

ways to present information.
 Data - Information - Insight

Insight is gained by analyzing data and information in order

to understand the context of a particular situation and
draw conclusions.

Those conclusions lead to actions you can apply to your

business.
Data - Information - Insight
 Insights

• Insights are the key to understanding your audience, creating

better products, and discovering new markets – how do we
recognize them? What makes an insight impactful, actionable,
valuable?

• A great insight tells a story. It is interesting and unique to your

brand. It presents new ideas for your company and for your
customers.
 Insights
How to Get Powerful Insights
Research is the road to great insight – but it doesn’t stand alone. These few steps
can get you started on the path to putting information to work for your business:

• Set your goals – What does your company hope to achieve through research?
• Collect – Gather your data through qualitative and/or quantitative research
methods.
• Analyze – In this critical stage, you “humanize” the data and give it context. What
is it telling you about your customers, employees, product satisfaction, etc.?

What do the data mean to you and/or your clients?

What is the end goal?
• Action – Now it’s time to take the insights gained from analysis and put them into
action.
 Steps in Conducting RE Market Research

Define the Data Supply,

Identify the Conclusions
gathering Demand,
Purpose Focus Data
and Competition and
Area Required Analyses
Recommendations
inspections
 Economic Principles

How people make decisions?

1. People face trade-offs
2. The cost of something is what you give up to get it
3. Rational people think at the margin
4. People respond to incentives

How people interact?

1. Trade can make everyone better off
2. Markets are usually a good way to organize economic activity
3. Governments can sometimes improve market outcomes

How the economy works as a whole?

1. A country's standard of living depends on its ability to produce goods and
services
2. Prices rise when the government prints too much money