Economic Characteristics and Elements of Risks of Properties
This chapter provides an economic interpretation of properties, illustrating their characteristics and providing a preliminary classification for valuation purposes. In order to estimate the value of an asset correctly, it is essential to start by assessing the economic characteristics that determine the demand from potential users and buyers. These economic characteristics are also fundamental for choosing the correct valuation method, as they identify which market data is required to allow the value of the asset to be estimated.
Even though the myth of bricks and mortar being a safe investment may have waned recently, it is worth describing the main types of risk involved in the real estate sector so that the risk of property investment can in some way be adequately considered. In this chapter an attempt will be made to provide the reader with a description of the main elements of risk, although it would be better to refer to these as uncertainty, in order to identify an overall risk that can be associated with a particular subject property, for which an expected return rate may need to be estimated.