A fascinating trend from an economic perspective is the growing popularity among consumers to purchase a second home. Whether it is being used as a vacation cottage, it is rented out or is merely an alternative to one’s primary address, the purchase of a second home is typically viewed as a Status Good. Additionally, this trend runs exactly opposite to the Theory of Marginal Utility and it thus makes the discipline of Real Estate the great exception to the general rule.
In every society, from the Marxist to the Capitalist, there is a fairly sizeable minority class which always has a surplus of cash from income or an ability to borrow sufficient for its expenditure to have stimulative effects on the general economy. Whereas in past historical times this minority class consisted mainly of the royalty and the aristocracy, it now comprises something like 25 percent to 30 percent of the population of a developed country. Because the education system in advanced countries is as egalitarian and selective as it has ever been in history, and because the skill requirements of a modern advanced economy are higher than ever before, this minority class tends to be clearly divided from the remainder of the population in terms of intelligence, educational attainments and cultural tastes
With extra spendable resources at its disposal and a fairly higher degree of education, knowledge and experience, it comes to a point where this minority class focuses its energies and resources to the acquisition, holding, perusing, renting and reselling of consumer items which are out of reach of the remainder of the population at large. As such, these items have a distinctive connotation denoting a higher status within society - if none other than in the minds of the beholders, and are called Status Goods. A second or subsequent home is possibly the crown jewel of all consumer goods and the quintessential status symbol.
More specifically, a Status Good is a purchasable item which becomes fashionable enough to have an effect on consumer spending, sufficient to produce a significant boost to the general economy of a nation, or a region, or a culture. The main motivation driving its purchase and use is that of denoting high status in society. Because of its desirability the price of a Status Good is able to carry a high profit margin and thus new providers enter the scene quite quickly with competitively high prices. This explains the recent development of resorts areas throughout the world. Here in British Columbia, for example, Whistler is already a world renown ski resort and site of the 2010 Winter Olympics. The real estate development of Whistler and Blackcomb Mountain in this past decade has seen land prices multiply exponentially from an average of CAD $75,000 in 1995 for a standard residential lot to CAD $750,000 in 2005 for the same lot. Anyone who owns an interest in land in Whistler these days definitely fits the foregoing definition and profile of status consumer.
As stated before, the purchase of a second or subsequent home runs exactly opposite to the Theory of Marginal Utility. “Marginalism” is the economic line of thought that postulates the notion that what is most important for decision-making and to determine economic value is the marginal or last unit of consumption or production. For example, one automobile is very useful for getting around. An additional automobile might be useful in case the first is being repaired, or for spare parts, but it is not as useful as the first. A third automobile has even less utility than the first two. Given the price of cars, one would not expect many people to own three cars because the benefit they receive on the third car would be unlikely to exceed the price. In essence, “marginal utility” is the additional benefit that a consumer derives on an additional unit of a commodity output. Such additional output is said to have economic value if the additional benefit exceeds the price of the output. The concept grew out of attempts by 19th-century economists to explain the fundamental economic reality of price.
As it relates to real estate, therefore, the usefulness of a second or subsequent home should diminish and, in accordance to the Theory, so should its price, so that second or subsequent homes should not possess economic value and, thus, demand for them should be minimal to none. Clearly, this is not the case in that real estate is not viewed as a disposable commodity but, rather, it is perceived as an appreciation-generating vehicle - a real capital asset. As proven empirically, second homes as Status Goods are a vital component of consumerism, in that they stimulate demand and production and, thus, economic growth.
Luigi Frascati
Luigi Frascati is a Real Estate Agent based in Vancouver, British Columbia. He holds a Bachelor Degree in Economics and maintains a weblog entitled the Real Estate Chronicle at http://wwwrealestatechronicle.blogspot.com where you can find the full collection of his articles. Luigi is associated with the Sutton Group, the largest real estate organization in Canada, and is based with Sutton-Centre Realty in Burnaby, BC.
Luigi is very proud to be an EzineArticles Platinum Expert Author. Your rating at the footer of this Article is very much appreciated. Thank you.
Tags: economics, holding, home trends, investment, marginalism, real estate
The Traditional Favourites
Over the last five to ten years, UK investors buying property abroad have
generally stuck to the traditional favourites Spain, France and Italy. With
prices a fraction of those in the UK and a guarantee of more sunshine, these
markets offered plenty of scope for capital appreciation, rental return and
holiday home use. However as prices have steadily risen in these
countries, yields have hardened in response and an eventual over-supply
particularly in parts of Spain has occurred. In today’s environment property
investors are looking further East for yield and capital appreciation
opportunities.
Emerging Markets
A year ago ten more countries joined the EU, expanding not only the
Union, but the hunting ground of the international property investor. Most
investors have come to the conclusion that the market cycle here in the UK
is at it’s peak, and the more sophisticated investor has already started
moving his money into the new EU countries. Many astute investors started
buying there a year or two before EU accession, particularly in more
developed cities like Prague and Budapest where the real estate markets were
relatively more mature. So prices in these cities had already increased by
up to 25% in the year up to May 2004, however there is still a long way to go
especially in the other capitals of this region.
It’s Just Economics!
Putting your money into an emerging market surely has to be profitable
because by the very definition of ‘emerging’, you should assume growth, and
therefore return. EU accession is a massive catalyst to the growth of an
economy as the EU is committed to backing these countries in a bid to
creating comparable economies to those of it’s current members. Government
incentives, new political regimes and tax reforms are creating an ideal
climate for foreign direct investment, higher employment and GDP growth,
which all directly affect the property market.
The relative attractiveness of the older EU capitals from a corporate
location point of view is changing according to a DTZ report on the Emerging
EU economies. The report concludes that Bratislava, Berlin, Prague and
Budapest will be the main beneficiaries in this new economic geography
mainly due to their location and catchment areas, the associated low costs
especially labour, skills base and the economic growth prospects of these
four cities. In less than a year since the 10 countries joined the union
this is already evident, particularly in Bratislava as Slovakia wins some of
the biggest foreign investment contracts in the region.
Going Forward in 2005
I think most would agree that for long term steady growth complemented by
relatively few risks investing in bricks and mortar at home in the UK cannot
be beaten for a good solid pension plan. Over the last 10 years the more
adventurous have strayed off the beaten path to Spain, Italy and France in
search of holiday homes and to diversify their portfolio. There is now however
a new and far more exciting playground for us property investors which is
sponsored by the European Union, has the most diverse culture in the world, it’s
experiencing unrivalled GDP growth and it’s property market is currently way
undervalued.
Not only has the UK property market levelled out, it looks to stay that way
for the next couple of years and the traditional overseas investment spots
seem to have lost momentum and have been overshadowed by something bigger.
The pioneers have cleared the stones from the road to Eastern Europe and 2005 is a
great time to arrive at the party!
Bruce Stronge is one of the founding partners of Slovak Investments, a company
offering the complete Slovakian property investment solution for foreigners.
Newsletters, European property market news and new deal alerts are available at the
company website http://www.slovakinvestments.com
An important yet sometimes overlooked aspect of investing in the stock market or other investment markets is the payment of dividends by the investment. Many people who invest only part-time or have investment plans through their workplace may not even be aware that dividends exist; they may even be confused by the sudden payment of dividends that appears periodically.
For those individuals who aren’t sure what dividends are or what you should do with dividend payments, this guide is for you.
Below you’ll find some basic information on what dividends are, as well as ideas of when you should reinvest your dividends and when you shouldn’t.
Defining Dividends
At its most simple, a dividend is an additional amount that an investor receives when the stocks or bonds that they are invested in perform well enough so as to give a profit to the company that they are issued from.
Many companies pay dividends based upon a portion of their profits, which is that portion divided up among all of those who have invested in it as a way to thank their investors for having faith in them and to share their profits with those who help them to stay in business.
Dividends are paid per share, so the more shares of a particular stock that you have the more you’ll receive when dividends are paid usually quarterly, as that’s when business report their earnings and profits or losses.
Some dividends are also paid on certain bonds or other investments that are done through a money market account; these dividends are a form of interest for the investment. In most cases, dividends are paid into a money market account so that you can choose to reinvest or withdraw them per your prerogative.
Some investments automatically reinvest all dividends paid, however, and many investment firms give you the option of having all of your dividends reinvested automatically into the stock or investment that paid them.
Reinvesting Dividends
Reinvesting dividends is an easy way to make more money off of a particular stock or investment after all, the investment is doing well enough to be paying dividends, and the reinvestment means that you have more of the stock or investment than you did before.
If the dividends that you receive are paid to a money market account, you may also choose to reinvest them into other stocks or investments than the one that originally paid them this can be especially useful if you are receiving dividends from one of your investments that you have a lot of shares in, but you have another investment that you don’t have much of.
You can use the dividend from the larger investment to slowly build up the smaller one, or you can split the dividends among several different investments so as to build them all up over time.
When Not to Reinvest Dividends
Sometimes, however, it’s just as wise to not reinvest your dividends. This is especially true when you’re holding a balance in your money market account to take advantage of a high interest rate that’s being paid to it, or when you’re receiving dividends from short-term investments that you’re going to cash out soon anyway.
Even if you decide not to reinvest your dividends, they are still an advantage of investing in certain companies or certain types of investments.
Remember to check and see whether your investments pay dividends and to investigate the options available to you in regards to reinvesting or gaining interest off of any dividends that are paid from your investments.
You may freely reprint this article provided the following author’s biography (including the live URL link) remains intact:
About The Author
John Mussi is the founder of Direct Online Loans who help homeowners find the best available loans via the http://www.directonlineloans.co.uk website.
Tags: bonds, dividends, investment, reinvestment, stocks