The real estate market and price formation soil

The real estate market and price formation soil

Economic development implies greater demand for land for the construction of central offices and shops; properly urbanized land and close to shops and services for building homes, and land strategically located generally along the land routes, sea and air access the city, to build factories, garages and warehouses. And it implies, on the other hand, new jobs, and with them the attraction of immigrant labor, which in turn will require land or finished homes to live in conditions within the reach of their possibilities.

Combined with economic development, population growth and migration of vegetation pushes up the value of rents and land prices. The more “well located” the property, the higher its price – regardless of the cost of construction – and the greater its chance of recovery. In such essays and articles, people who have higher ability to pay often choose to purchase a property. In developing countries with relatively weak capital market, the real property tends to be regarded as the safest way to progress equity in the long term.

People who have no savings or borrowing capacity can spend your whole life living “for hire”, ie, paying the owner a monthly income for housing – at the limit of its possibilities – for the right to use it. However,  only a tiny portion of the rent refers to the consumption of improvement. The “Lion” comes from the exclusive right that is the owner of land or have your ideal fraction – that is, its  location  in the city – to the lessee by imposing the maximum price he can afford. The rent paid by the lessee accounts for most, if not all, of what is left of your monthly income after deducting the expenses with consumption of essential goods (food, clothing etc..) And transport services (access to the workplace).

The owner, in turn, is obliged to share that income with the government in the form of property tax and urban land, whose main component is the price of the land. Little land tax means higher prices, higher concentration of private wealth and greater pressure for the spatial concentration of public investment, which is a powerful impulse to the spiral of wealth and urban poverty.

Only a part of the demand for finished property – housing, especially – is met by builders and developers, who only operate above minimum standards of profitability, determined ultimately by bank interest rates. Not coincidentally, the banks are the main partners in the business of real estate developers. This minimum return is faced in the countries of Latin America, with three constraining factors: high interest rates, low ability to pay and access to credit for low-income population and land prices inflated by speculative expectations and behaviors of owners land (high price).

For unskilled workers, it is virtually impossible to pay the rent of a property in the formal market, let alone buy housing, or even a simple site, appropriately located and serviced land. While living with a relative stabilization, and even with significant casualties, the prices of manufactured products – the cell that remains connected to job opportunities with the brick building his own house – the worker never sees lower the price well that is most essential: the land, even that far. Settle, then the land by any means at their disposal, and are worse than the location and urban services, it becomes a necessity.

It is this scenario that arise illegal occupations and slums as well as subdivisions and loteadores illegal. Once installed in the land – either legally or illegally – and gained a minimum security of tenure, the employee shall devote his life savings to build the house – yours, your children and households. The continued pressure of essay demand leads, in turn, that within their own informal communities – particularly those most well located within the urban fabric – the emergence of a small industry of real estate products – sub-rental housing, for example – that little by little might become, as seen in the large slums of major cities in Brazil, a real estate market of products slums on the fringes of urban and state economic regulation.

In all Latin American countries, decades of housing policies and urban informal settlements, more or less intense depending on the season, have had little or no success in preventing the continued growth of informal production of housing and urbanization, that is, the urban settlements lacking minimum housing conditions and services, more or less adequately reflected in the urban standards. The fundamental reason for this failure may be associated not so much the production costs of housing, but the relentless upward price trend of the soil, which, among other effects, can lead to pockets of the owners policy of direct subsidy to the entire demand.


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