Basics of Real Estate

Real estate refers to immovable property such as land, which also includes rivers or streams that may be part of the land, as well as any physical structures that may be affixed to the land like houses, buildings or commercial establishments.

The terms "real estate" and "real property" are often understood to mean the same thing, although in some circles, real property refers to the rights of the owner over the real estate. Both terms are used mainly in common law, which is further divided into property law, the laws that refer specifically to the property, and contract law, the laws which refer specifically to the rights of the person over the property.

For centuries, people have viewed land as the primary measure of wealth. Even today, land comprises a large part of the fortunes of the wealthiest individuals and nations. Developing countries who are rich in real estate use this to attract foreign investments that can spur economic growth. However, in recent years, economists have noted that the key real estate investments into developing countries have been derailed by the lack of effective laws to safeguard such investments.

The leading source of capital for purchasing and developing land real property is mortgages. These are loans that banks grant to individuals who use the real property as collateral. Mortgages are favorable endeavors for banks because they can't lose: either the borrower successfully repays his loan with interest or if the buyer cannot pay his loan, the bank can claim the rights to the property through foreclosure, which is an action that is decided in a court of law. Once the property is foreclosed, the bank can sell it to recoup its loan.

This is where economists raise a howl. An analysis of international banking and real estate laws reveals that, in many developing countries, there is no effective way for a lender to foreclose. With no legal or institutional protection, many investors are discouraged from investing in real estate in developing countries. Often, the mortgage loan industry is only open to a select few, mostly engaged in by a cabal of well-connected families who frequently use their social connections in matters of foreclosure.