UNIVERSITY OF GONDAR

INSTITUTE OF TECHNOLOGY
DEPARTMENT OF CONSTRUCTION TECHNOLOGY
AND MANAGEMENT
By Getahun Fetene
  As we have seen above construction has
been developed through time from the
primitive mud huts and monoliths to the
2. Construction current wonders of civilization.
and the
Economy
 In this section we will discuss the role of
the construction industry to the
economy of a nation.
 The construction industry is an
important sector of the economy and
plays a key role in national social and
Economic
Role of the economic development.
Construction The construction products provides:
Sector  Public infrastructure
 Private physical structures
 Employs a large number of people
directly and indirectly
  Output from the construction industry is a
major and integral part of the national output
Cont... in the Gross Domestic Product (GDP) of both
developed and underdeveloped countries.
  It can be defined as construction-related
to the Gross Fixed Capital Formation

Investment (GFCF).
in the  GFCF is an expenditure on fixed assets
construction (buildings, vehicles, machineries, etc)
sector either for replacing or adding to the stock
of fixed assets.
 Real Estate
Development  Real estate refers to land and
associated elements (fixtures)
made permanently a part thereof.
 Fixture: is anything attached to
land. It may be:
 Natural or
 Man-made
 Refers to:
 Legal rights that an individual
possesses: the right to use, sell,
dispose etc.
 Property also refer to rights which
are intangible: E.g. Contract,
Property trademarks, patent.
 Personal property refers to
movable properties and
normally transferred by a bill of
sale.
 Buyers and sellers lack
information
Buyers and sellers frequently
Factors that moves away from equilibrium
Affect Real
Estate Market Real estate is immobile while
price is volatile
Location is the most important
single factor
 The overall market area further

Market defined by “segmentation”:

Analysis  Based on Consumers Preferences
 Based on Market Segmentation
 Segmentation based on consumers
preference is according to:
Segmentation
based on  Income
consumers  Work
preference  Leisure and
 Other lifestyle patterns
  Possible to predict the probable
Segmentation
based on demand
market  Demand of various types
 Prices levels etc.
  It is a study of the number of units of
residential or non-residential property

Absorption that can be sold or leased over a given

Analysis period of time in a defined location.

 Absorption is performed as part of

feasibility study
To allocate existing land resources and interests. Land is
scarce resource – must be allocated b/n the various uses,
needs and requirement arriving at equilibrium price.

To indicate changes in demand for land resources and

interest like expectations of future yields, taxation,
Institutional factors etc. Functions of
To indicate changes in the conditions upon which land
the Real
resources can be supplied Estate
Market
Improving the technique of construction

To “reward” the owners of land resources

*Return on capital – profit
*Economic rent
  Economist distinguishes two
meaning for “investment”
 Expenditure on the purchase of existing
assets = Property investment
 Expenditure on the creation of new
Investment fixed assets = Property development
in Real
Estate
 1. Freeholds

Types of 2. Leasehold
Investments
in the Real 3. Freehold ground rent
Estate Market
4. Mortgages
 Meaning free of obligation, grant ultimate
ownership of land and the properties built on it.

Holder of freehold (owner occupied/renter) –

takes full financial risk of ownership.

1. Freeholds Freehold investment needs management

collecting rent, tenants obligations and
maintenance cost
The management cost has to be deducted
from the rent received to reach at net income

The freeholder may rent the premise he own to

somebody.
 Refers to an asset or property that a
tenant contracts to rent from a property
owner for an agreed-upon time in
exchange for scheduled payments.
At the end of the lease period, it will be
2. Leasehold returned to the freeholder

Yields in lease will be higher than that

of freehold
 FGRs refer to annual payments received
on long term lease

Originally charged for land leased for

development
3. Freehold
Ground Rent Because of inflation they required
periodic rent revision

For less than 50 years – equity

character- value tend to rise
 Mortgages are long term money loans
secured on real property.

Interest payment are the charge

4. Mortgages Unlike leasehold capital are prepaid

Mortgages on commercial and

industrial property are less attractive-
due to inflation
 Real estate finance is
the process of borrowing
or lending, most often From the borrower’s
involving a third party point of view a loan is
that is neither the buyer a debt and liability.
nor seller of the property
in question.

Real Estate
Finance From the lender’s
Financing a real
point of view a loan is
estate transaction
an investment and
involves significant
an asset with the
risk to both the
property serving as
borrower and to the
collateral for the
lender.
loan.
Thank you!