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By in Principles of real estate management with 1 Comment


In this article there are seven basic functions of real estate are described. Each of them results from real estate characteristics such as immobility, significant market value and so on, which cause that most of the properties hold different functions like: income, pledge, location, fiscal, technical, profiteering and social.  

As far as the role of the real estate is concern the utility value of each property is crucial. Real estate value is usually an objective category, measured by: usable floor space of the apartment, office or warehouse space, parking lot spaces and so on. So called usefulness of each property is being estimated by each market participant interested in buying or renting a space. Often market players while choosing a property take into consideration not only objective utility values, but also their subjective opinions. Mainly because of its’ utility values each property can be used during a period of time by many entities. Each real estate is a consumer good and can be for example sold/bought, rented, leased on the market like any other product. Owner and real estate occupier could be the same person. But even when real estate is not presented on the market by the principal to be sold or rented it has a value. Due to that fact basically anytime real estate owner is able to make a decision to put his offer on the market and sell/lease his property. Each property type responds to customers demand for different kind of surface 

such as residential, commercial, and industrial. Utility value of real estate could be different for each market player and will depend mostly on needs and personal point of view. Relatively high value of each real estate against other consumer good available on the market means that properties play a very important role among all assets. Properties belong to the fixed assets usually purchased for a long-term in order to gain profit and avoid depreciation. Gaining a profit on the real estate market would not be possible without the demand, which is affected by the role of real estate in our personal and business life. Significance of properties is caused by their: 

  • Profit- making function, which means that real estate, brings profits to its owner. It could be rented. Rent is considered as an owners benefit from the property. According to A. Doliwa “benefits obtained from a piece of property or from rights entitling to use this property in frames of properly functioning market should not lead to overuse and loss of benefits source”.
  • Benefits obtained from a piece of property 
  • Natural benefits, like agricultural products, mineral excavation. 
  • Civic benefits, “ income created on basis of legal relation” may have a form of pecuniary profit or tangible goods.
  • Benefits obtained from rights entitling to property use, which is simply an income created by these rights in accordance with social and    economic rules.  

All benefits created by the property belong to person entitled by law to collect them. It is a basic element of property law, and especially ownership law. Each real estate may be a source of income for its owner. If property owner use it only for own purpose them it does not bring additional income, but does not create alternative costs- for example costs of renting necessary space.  

Income range may differ- it depends on factors like: location, size, physical condition, design etc. and current market situation, owners or manager’s skills and talent to negotiate prices, also exploitation costs. 

  • Pledge function. In order to secure loans and credits properties are often used as a subject matter of a pledge. Real estate immobility causes the fact that location of the property remains the same, it can not suddenly disappear or be stolen. It could be sold or rented on the market, which means that it is possible to get the cash back from the investment. the mortgage which is a loan secured on real estate- usually a long-term loan.   Potential buyer is entitled to make sure by checking the book if real estate is being used as a loan security and to receive details concerning the mortgage, so that decision about buying or not would not cause unexpected cost such as a mortgage to be paid for the next 30 years.
  • Investment function. Monitoring a long term real estate market trends we can observe an upward tendency in the growth of property and land prices. Real estate is often considered as a long term capital investment, which brings benefits to the seller. Especially when inflation rate is growing up real estate is being considered as a safe investment, against other forms such as stock exchange, gold and so on. Real estate is even more valuable during the recession period when it could be rented and brings a profit to the owner.  Current market trends and fast changing business environment requires from companies, especially those with significant assets, to review their strategic decision and often to invest in the real estate market during a long period of time in order to gain secure profit.  
  • Fiscal function- real estate is the wealth of a physical or legal person. Property ownership does not only bring benefits, also expenditures. Some of them are legally required. In every country property tax is a part of state (or local government) income. Taxes are:
  •  Compulsory 
  • Non- returnable 
  • Gratuitous 

Property taxes may have different forms and names. There is a group of income taxes calculated on basis of income created by the property; other group of taxes is calculated on property value basis.   In case of property value tax- it must be paid regardless of the owner’s actual abilities to pay it. Classic example is residential estate used by the owner, which does not generate an income.  

In Turkey property taxes are determined by size and type of property. Tax rate is calculated per square meter. Lowest rate is paid for residential space. Taxes paid for the parking space use may be a couple times higher than paid for the housing space. Separate property tax rates are calculated for each type of property.  Rate multiplied by actual size of property (square meter) indicates amount of tax due. 

It is important to stress out that in Turkey property tax is a commune’s income (gmina). Gmina is responsible for tax rate calculation, but the maximum level is regulated by the state.  

Such calculated property tax does not have anything common with property value, therefore does not take into account location factor.  

  • Technical function of the real estate is connected with a possibility to use physical features of the property to be a shelter, place to rest or work or a piece of land to be used for agricultural activities/causes. From everyday life point of view, real estate which is not only a land property but also includes buildings has a more significant technical meaning for users. Where the user and owner does not have to be the same person at all. At every stage of real estate life cycle it could be rented, modernized or extended to increase its technical usefulness.    
  • Real estate speculations (profiteering). Many times purchase of the real estate is being made for profiteering purpose. Decision is usually made on the basis of prospective growth of real estate utility value as well as market value. For example when buying a an agricultural real estate on the outskirts of the city there is a possibility that this parcel will be qualified in the future as a land for commercial or residential estate, which leads to its significant  price growth. Profiteering from the real estate could be risky, but no more than any investment on the other markets. What differs speculations on the real estate market from other markets is a relatively high cost and length of this process.  
  • Social function. Real estate market is important from the social point of view, because private and public properties play important role in our every day life. Privately owned properties are often residential real estate used for housing for individuals. Public properties like parks, theatres, swimming-pools, hospitals as well as roads, airports or highways are supposed to be used by society in general. Usually large groups of people have an access and right to use public real estate.     

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