Capitalisation of Land and Real Estate

Land and territories are not imported from the Middle East or from anywhere else. These are constant resources, which have their own price. Perhaps land,3 territories and also real estate are limited but we know that they will never be final. Land and territorial resources are not exhaustible, and there is no rush over the willingness to get more land and houses as soon as possible, because soon there will be no land property or cottage to buy.

At the same time the price of the land and of a house depends on several factors. The most important ones include ecology of the area, the distance from an important centre for the buyer or a residential place, the social context, the correlation between prices in other places, comfort and prestige. These factors play an important role in every country and every region.

Prestige and (to a lesser degree) ecology are factors to be considered partly subjective and concerning people who have a high property qualification. The middle class, different in every country and having different incomes, pays more attention to comfort. The middle class buys houses, taking into consideration the income situation of the household and the expenses, which the housekeeping will provoke. For the majority of countries the main expenses are hut taxes and public utilities (electricity, gas, water, sewage, heating). It is well-known that these public utilities are power-consuming, and thus strongly energy-related, in every country. Hence, the cost of housekeeping and the cost of life in a house depend emphatically on the cost of energy. The oil component plays a huge role in electric power production and regulates also the price of the other important resource for electric power production - natural gas. This regulation will remain until an independent mechanism of gas pricing will be created. It is very doubtful if such a mechanism will ever be the case, since the main exploiters of natural gas want to keep the oil price mechanism connected to that of natural gas, especially when the prices of oil are rising.

With the current rising of oil prices domestic costs can be presumed to be undergoing an active transformation phase. This transformation will touch the interests, first of all, of the middle class, which consists of the majority and forms the backbone of developed societies and democratic states.

At the same time there are serious reasons to assume that the rising cost of housekeeping must be studied as a factor, influencing the real estate markets and the mortgage services of the banking sector. So far, no data are available on the changes in public utilities costs in the USA or EU during recent years. This kind of data is useful to assess the probable component of public utilities costs in the 2008 mortgage crisis in the USA or a sudden failure of the real estate prices in some European countries.

3 Here we talk not about agricultural or industrial land, but about the one, which has spatial purposes.

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