Notes 1.1: The concept of property
The concept of ‘property’ has several different meanings and interpretations that are all relevant to the
study of the property industry. The following are seven interpretations of the concept of property:
1. A material immovable (fixed) object
2. Immovable business (matter)
3. A natural resource
4. An economic product
5. A legal relationship
6. An economic activity, job opportunity or career
7. A study field, study direction or field of knowledge
These will now be separately discussed.
A material immovable object
There is a difference between movable property and real estate or land/property:
Real estate (land/property) is described as a material immovable object consisting of ground
and/or permanent improvements to the ground. The object cannot be physically moved
without harming it or materially altering its nature. The basic immovable object is ground.
Anything attached to the ground in such a way that it will be harmed or the ground will be
harmed if it is removed, is also considered as immovable and is described as permanent
improvements to the ground. Permanent improvements, such as house and water pipes,
become part of the ground and thus form part of immovable property. Examples of real estate
include a farm, a house, a factory or an office.
Movable objects are objects which regardless of their mass, can be moved from one place to
another and still maintain their form. Examples are cranes, steamships, chairs and a loaf of
bread.
The term ‘property’ in the property thus implies tangible immovable objects like ground and/or
improvements. In this sense, ‘fixed property’, ‘immovable property’ and ‘property’ are used in the
same sense. Clearly, there are two dimensions involved in the concept:
(a) A material object, and
(b) Immovability as a characteristic of that material and tangible object.
Real estate as a tangible, immovable object consists of three components:
(a) Ground: This includes the surface itself, the minerals like gold and coal and other substances
under the found, as well as the airspace above the ground.
(b) Permanent improvements like buildings: These improvements can be divided into
(i) Structural improvements of buildings which consist of the following two main
types:
Buildings like houses, flats, sectional-title units, and
Non-residential buildings like shops, offices, stores and garages.
(ii) Non-structural improvements are all improvements other than buildings such as
dams, pipes, railways and reservoirs. In an urban area this includes roads, sewerage
systems and electricity systems, as well as something like a swimming pool inside a
residential property.
(c) Movable objects which serve a permanent purpose to the immovable object (such as
keys).
,An immovable matter
In the sense of ‘immovable matter’, property has a legal meaning that is even more comprehensive
and precise than the interpretation attached to property as an immovable object. With the term
‘matter’, the legal definition gives the following characteristics:
(a) Impersonality: An object outside man himself.
(b) Materiality: The object must be perceptible with one of the five senses (smell, taste, sight,
touch or hearing).
(c) Independence: It must form an independent entity and not just be an independent part of
another matter.
(d) Legal controllability: Man must be able to control and dispose of it.
(e) Usefulness and worth: The object must be of use and have worth. Worth need not be
economic use, it could indicate sentimental value.
The term ‘immovable’ has the same meaning as in the case of property as a tangible, immovable
object.
The concept of ‘immovable matter’ includes fixed property as a tangible physical object but can also
include legal right which is intangible. Property as an immovable matter plus people’s capabilities and
powers in connection therewith form the basis of trade in property rights.
A natural resource
Something can be described as a natural resource if:
(a) It can supply human needs with no or few changes
(b) Man has or will have the skill and technology to use it
(c) It is readily available or, within economic limits, can be made available using other resources
Natural resources are objects in nature or the surroundings (such as ground, vegetation, minerals and
water) that are useful to man. Ground as a natural resource is one of the components of fixed property
and is one of the four usually scarce resources (ground, capital, labour and entrepreneurship) which
economists consider necessary for the production of goods and services.
An economic product
An economic product/service is something that is useful to man and which is scarce relative to the
demand for it. Fixed property satisfies basic human needs and is scarce relative to the demand for it.
This is true if the fixed resource is in the form of the natural resource (ground) but especially so if its
usefulness has been developed and increased by the application of labour and capital.
The usefulness of fixed property thus lies in the fact that it can bear fruit (a return or income). This
fruit is borne regularly while the fixed property remains intact. The fixed property, whether ground or
ground with permanent improvements, falls into two categories:
(a) Organic fruit and agriculture which refers to the natural return of fixed property according
to the laws of nature with or without man’s intervention (labour and capital). This type of
return can be used by the owner or sold. Examples are usually physical products, such as the
increase in the numbers of game or the production of sweetcorn.
(b) Non-organic fruit (civil fruit) which includes all other types of return of fixed property,
which comes about due to the intervention of man. This type of return is associated with
services and can also be used by the owner himself or used to make money. An example of
, this civil fruit includes housing and space for a shop, factory, leisure activities and roads. For
example, the owner can live in the house himself or he can rent it out.
In an economic system based on private ownership, immovable property becomes equivalent to
movable property which can be sought and sold, and it can be compared to other economic products
traded on the market. From this viewpoint, fixed property is an economic product or commodity
allotted and divided by market mechanisms. It includes fixed property as a tangible physical object as
well as the fruits of the property which can be traded separately.
During the lifetime of permanent improvements the non-organic fruits (such as housing) are used up
as they are produced. Such ‘property services’ cannot be stored for later use. It can therefore be said
that this type of fruit is a product bound by time and space and can “spoil” as easily as natural organic
fruits. As an economic product, fixed property has a number of interesting characteristics:
(i) As a physical product, fixed property is a durable product with a long economic life.
Ground is physically indestructible while buildings can be used for decades (although
buildings can be rendered useless by fire, flood or extended use). Because it is immovable
and durable, property is ideal as security for a mortgage. On the other hand, the internal
design is usually fixed and can only be changed at great cost. This problem can be
mitigated with the help of modern material and construction methods, but not overcome.
(ii) Fixed property has a high value. When compared to other products, the value of the
economic unit that can be bought and sold is large. A partial explanation for the fact that
fixed property has a relatively high value is that it yields income over a long period. Thus,
in a certain sense the present value is the present value of the discounted value of the
stream of future net returns that will be obtained from the property.
(iii) The selling transaction itself is a multi-faceted and complicated event.
(iv) The use of foreign capital for buying fixed property is the rule rather than the exception.
This is due to the relatively high value of the product and the fact that the buyer usually
does not have enough capital, as well as the fact that from an investment viewpoint it is
often advantageous to use foreign capital in addition to one’s own.
(v) In order to yield a return, capital and labour must usually be added to the ground
(therefore not only money is used).
(vi) The cost (in terms of money) of permanent improvements that are added to the ground at a
specific point of time, are often higher than the market value of the ground alone.
Because ground is in its nature immovable, its productivity or net return must be used at a certain
geographic point, and cannot be transported from one place to another. Demand must flow to that
particular plot or unit of ground. For this reason, fixed property is very sensitive to changes in the
location network and to changes in demand and supply. Deterioration in the immediate surroundings
of a property can often have a big negative influence on the productivity of the property.
Fixed property is a heterogeneous product. No two properties are precisely identical but always differ
regarding one or more of the following characteristics: The physical nature of the ground and
improvements will differ, as well as private and public law controls. No two ground units are situated
in exactly the same place. Permanent improvements differ regarding surface, floor-space ratios,
construction materials and design.
There is much interdependence between public and private property. For example, streets (public
property) are essential as a link network for private property.
,From the viewpoint of the economist or practical businessman there is little difference between fixed
property as an economic product and the legal identification of fixed property as an immovable
matter. From the legal viewpoint the concept ‘immovable matter’ is more precisely defined and
includes the concept of ‘economic product’.
A legal relationship
The concept property does not only refer to the material or bodily immovable matter like fixed
property, but also to the legal relationship that exists between a person and such a matter. In informal
speech a person refers to “my property” and means thereby that it belongs to him and that he can rule
over it and dispose of it. In this case, property rights (or dominium or ownership) is a legal condition
or legal relationship between a specific person and a specific property. In this case, property is an
independent right which endows the owner with comprehensive power over the fixed property.
The capacity included in property (as a right) is considered as a unit by the law. The contents of
property are, however, indefinite in the sense that it is not possible to make a full list of all the
characteristics and powers included in property. However, it is possible and interesting to mention
certain specific powers that are usually included in property unless specifically surrendered:
(a) The right to enjoyment (to enjoy the fruit of your property)
(b) The right to use (to use the property without changing its nature materially)
(c) The power to dispose, ie. all activities in connection with the following:
(i) The capacity to alienate,
(ii) The capacity to possess,
(iii) To change the property materially,
(iv) To prevent encroachment, and
(v) Even to neglect or destroy the property (within the limitations of private and public
law).
Property rights of fixed property are a legal right and must be differentiated from personal right. The
problem of separating these two rights has not yet been satisfactorily solved, but in South African
judicature two criteria are usually used:
The absolute action of a legal right compared to the relative action of a personal right. This
means that a legal right applies to the whole world while a personal right only involves a
specific person being obliged to comply with a specific right. Flowing from this it can be said
that, with a few exceptions, the object of a legal right is a material matter while in the case of
a personal right the object is an action or performance of a person.
Only legal rights on ground can be registered. This criterion for a legal right was developed from the
problem of determining whether the right involved can be registered or not.
The ownership of fixed property can also be held by more than one person simultaneously. It is then
referred to as joint-property or joint-ownership. The various owners then have a right to property
shares in equal rights. None of the owners can claim a physically identifiable part of the property and
cannot, with the exclusion of other owners, exercise powers over the whole property.
Under the traditional concepts of property (or dominium), ownership of the ground is obtained. The
owner possesses all the permanent improvements by virtue of owning the ground. The Law on
Sectional titles has created a new composite immovable unit. This unit consists of a section (such as a
flat, shop or office) and an undivided share in the collective property determined according to a quota.
,The section and the undivided share cannot be separated from each other. This is known as sectional
property or condominium.
Economic activity, career, work opportunity or business activity
This meaning of property focuses the interest on income-bringing economic activities connected with
ground, the use of ground, the improvement and sub-division of ground, and the buying and selling of
ground. Therefore, the assessor, the property agent, the investor, the property developer and the
property manager are all ‘in property’.
Fixed property as a field of knowledge and study
The name ‘fixed property’ can also refer to one or more field of knowledge or study with property as
a physical object, a right or a career. Being a ‘student of property’ refers to all knowledge that man
has assembled over time about aspects of property as a subdivision or development of ground. In this
case, knowledge refers to all information than man has assembled over time about aspects like the
management of property, rights in fixed property, physical design and making improvements,
subdivision and the development of ground.
Study and the acquiring of knowledge can be undertaken in a variety of ways including involvement
in practice (experience), self-study and reading, formal academic training, in-service training, and the
attendance of symposia, seminars and discussions. The purpose of study and the acquiring and
systematisation of knowledge is to improve decision-making and the taking of action both in the
private and public sectors.
,Notes 1.2: The concept of property
Introduction
Economic activities that characterise the property industry can be summarised under five headings:
Investment
Trade
Counselling
Agencies
Services by the authorities
All these economic activities together form the property business. The property industry consists of all
these undertakings which derive their main income from carrying out one or more of these activities.
These economic activities will now be discussed.
Investment
Investment in property refers to the purchasing of property rights for one’s own use or in order to
obtain a monetary (usually regular) income from the investment). However, trade in property is not
the primary goal of property investment. The property rights most often invested in will now be
discussed.
Property rights
Investment in property rights includes:
The acquisition of property rights in existing improved property (such as houses, flats,
shopping centres and industrial properties) with the purpose of using the space yourself or of
renting it out and obtaining income from your investment.
The acquisition of ground in order to build on it and rent out the space so created.
The acquisition of improved property with the purpose of transforming existing
improvements, and thus modernising or enlarging the property in order to rent it out
eventually and earn money.
Hire/Rental
In the case of hiring the investor does not get property rights but hires the property for the short or
long term. The investor can follow the following strategies:
He can rent out the property and sublet it to other tenants.
He can rent the property and then improve it by modernising, transforming, enlarging or
subdividing it, and then rent out the space at a profit and administer it.
He can rent ground, build on it and rent it out at a profit (and administer it).
Mortgages
A property bond investment is a loan that is assured by a mortgage against a specific property. Bond
investments are not only made by building societies and insurance companies but also by private
undertakings and individuals. It is a common occurrence when the economic cycle is low that sellers
offer first-time mortgages because the buyers cannot obtain finance from other sources. With
investment in mortgages a series of factors are taken into consideration such as the safety of the
investment, desired return on capital, speed of repayment, productivity of the property and the
condition of the property market.
,Other types of investment
Investments are also made in other property rights like mineral rights and water servitude.
Investments by means of shares, preference shares, debentures, and directors’ loans are also made in
companies involved in the property industry and which derive their income from investment and trade
in property, or from the rendering of services like counselling, agencies and administration.
Trade
The trader in property and property rights is more interested in profit out of turnover than in income
earned by the investment. Thus, the main goal of the trader is the selling and buying of property rights
and interests, and making a profit from the transaction. Different methods of trading property rights
include the following.
Possession of property
The trader can follow a series of strategies in order to realise an increase in the resale price (relative to
the purchase price) in order to make a profit.
Speculation: This refers to when the trader buys ground with or without structural improvements
and/or non-structural improvements in the expectation that the price will increase over the short term.
The rise may be due to many factors:
(a) Changes in the general market (such as a recession followed by an expansion)
(b) Extraordinary pressure on the seller (ie. he is forced to get rid of the property at short notice at
a price lower than the market price)
(c) An uninformed seller
(d) Expectation of new big-scale economic activity in the area which will increase the demand
for fixed property (such as the building of new steelworks, a refinery or a deep sea harbour)
Changes in usage rights: The trader obtains the ground while it is zoned as “special residential” and
then applies for rezoning to “general residential” or “commercial”. Thus, the potential productivity of
the property is increased and buyers will be prepared to pay more.
Urban establishment: The trader buys ground (mostly farmland) and establishes a town there. The
establishing process includes the following sub-processes:
(a) A change in zoning (such as from farmland to special residential, general residential,
commercial or industrial).
(b) A subdivision of the ground into plots.
(c) Development of the subdivided plots by installing services (such as water, sewerage or
electricity), streets and storm water drains, and then selling the plots.
(d) The trader (also known as the town founder/developer) hopes to sell the plots for a total
amount of money enough to leave him with a profit after he has paid for the ground plus the
improvements and all his other expenses.
Development of buildings: The trader can use a number of strategies and/or types of development.
(a) Speculation with dwellings: The trader buys a plot and builds a house on it. Although he
would not have made a profit from the resale of the plot, he hopes to make a profit from
selling both the ground and the improvements.
(b) Income-generating buildings: The trader obtains the ground, builds on it, lets the space and
sells the property as a functioning business to an investor.
, (c) Renting/hiring back: The trader erects a building, sells it to an investor and hires it back. In
this way, the trader (or the eventual occupant) gets full financing and development profit is
set free.
(d) Modernisation and reconstruction of existing buildings: Physical or structural ageing can
result in a building not bringing in enough income. The trader that buys and modernises the
building and then hires it out again, can increase the rent and by implication the value of the
property. It is then possible to sell the building at a higher price than the purchase price plus
the costs of reconstruction, and so make a profit.
(e) The use of unused floor space ratios: Sometimes it happens that a building does not utilise the
permitted floor space (floor space ratio is the total permitted floor surface of the building
relative to the surface of the plot).
(f) Sectional title development: In sectional title development, the trader buys an existing block
of flats or erects one. The individual units are then sold.
Hire
In South Africa trading in hire leasing is underdeveloped in comparison to other countries in the West.
In principle it means that the trader enters into a lease agreement and then sells the agreement.
Mortgage
Other than in the case of the investor, the trader grants a bond, not to derive an income from it, but to
make a profit when he sells it. The profit can be from one or both of the following sources:
(a) A levy, usually a percentage of the face value of the bond, and/or
(b) A collection fee or service fee if the trader continues to administer the bond on behalf of the
buyer and to collect the instalments.
Other
Other rights and interests which can be freely traded are options, mineral rights and water servitudes.
The authorities are great buyers of servitudes and other restricted business rights.
Counselling
A counsellor is a person who can (1) analyse a specific property problem, (2) evaluate alternative
possibilities and (3) make recommendations in connection with a possible solution. The demand for
this type of service is increasing rapidly especially as a result of the growing complexity of property
transactions and the increasing control by authorities over and regulating of property affairs.
Counselling can be given in a wide range of aspects but the following are the most important:
(a) Market value (what the property can be sold for at a particular time)
(b) Property investment (identification and choice of investment)
(c) Property development (especially regarding the feasibility of a proposed development)
(d) Financing (including advice about the use of own and borrowed money and sources of
borrowed capital)
Estimates of market value as well as the calculation of other kinds of value are required daily. These
decisions are varied in nature, but the following gives a hint of where valuations can play a role:
(a) The buying and selling of property rights and restricted business rights like servitudes,
surface and mineral rights by means of negotiations or dispossession.
(b) The letting and renting of fixed property and the administration of rent control.
