The “land” factor, just like “capital”, is separable from the identity of a particular owner. Thus, one person can be the owner of the land, while completely different people are engaged in its exploitation. In other words, the owner of the land has the right to provide for a fee the possibility of exploiting the land to the tenant engaged in agricultural products, as well as from the proceeds from its sale is already paying the landowner. A similar payment for the so-called factor of production is land rent, and it is on this basis that the land market is based.
Types of rent
Land rent is divided into two main categories:
- absolute;
- differential.
All land plots that the land market has are located in various climatic zones and also have different operating conditions. Similarly, they differ from each other in location, that is, some are located in close proximity to large cities or important transport routes, while others are located in remote areas.
At the same time, one should not forget that the land fund of each country is limited, that is, in principle, there is always a limited amount of land, as well as of some plots of a certain quality.
Differential
Those farms that are on better land or for which the land market is as close as possible, are in a better position than those located in remote or less quality plots, since in this case there are much lower costs. Thanks to this, the owner can extract additional income, called differential rent.
Absolute
Absolute land rent is a consequence of a completely inelastic supply of land in conditions when there is a certain private property on it. On the one hand, in this case the possibility of free flow of capital towards agriculture is completely excluded, but the number of land that is suitable for agricultural use is limited.
In this case, landowners require a certain rent for any land, while tenants set a higher cost for agricultural products so that they have the opportunity to pay rent.
The land market represents absolute land rent as a unique economic mechanism by which a prudent attitude to land is ensured.
Types of annuity
Also, the land and rent market is distributed among the production entities depending on the type.
The first type of differential annuity provides for a situation in which the rights to a particular land belong entirely to a particular landowner, since he is set to rent at the level that takes into account the quality of the proposed land.
At the same time, the differential market of land and rent of the second type represents the efforts of the tenant, as a result of which they are fully assigned to them.
Absolute rent is assigned by the landowner in the form of rent for the possibility of using a certain limited resource.
Pay
The rent is a fee that is provided to the owner for the use of a certain plot of land or the buildings that are located on it, including all kinds of inventory and equipment.Payment for all these components is already considered as interest, because in this case capital is transferred for use, not land.
Under these conditions, the rent acts as the market price at which the rights to use the land are transferred to another person, as a result of which it has the most significant effect on the volume of supply and demand on the land market.
Pricing
Leasing operations, as well as the purchase and sale of various land plots - this is what includes the land market. The price of land is determined by two main factors.
First of all, the value of land is directly proportional to what it brings to its owner the rent. At the same time, it is inversely proportional to the norms of loan regular income over a long period of time. A person with a certain amount of money can put this amount on a deposit, and then constantly receive income in the form of a certain percentage, but at the same time he can spend this money on the purchase of a land plot. Thus, the analysis of the land market shows that the price of the land is the present value, calculated similarly to the receipt of physical capital, bringing income to its owner.
Landowner income
As you know, ownership of a land plot has certain costs and benefits, when compared, it can be determined whether it is advisable to preserve this property or whether its alienation will be more relevant. Having at his disposal land, the owner does not apply any other options for generating income. In other words, for example, he could not invest in land, but put available money in a bank in order to receive interest in the future.
Thus, the landowner's income is the ratio of the rent received to a certain market interest rate on loans.
The cost of land allows you to determine how much money you can put in the bank so that at the current market interest rate, you can get an income that is equal to land rent.
Pricing Features
The volume of land rent is formed in the process the interaction of supply and demand, which characterizes the land market. In Russia, the specificity of the market is that, within the borders of the national economy, the provision of land, as well as various natural resources, is completely inelastic. A similar situation has arisen because the amount of resources is a fixed value.
Demand in the land market shows how much people are willing to rent land at different available levels of payment for its use. Accordingly, in conditions of high rents, the amount of land that is leased will be an order of magnitude less than low.
Marginal revenue land directly depends on how productive is the natural resource present on it. If the offer on the land market provides for a sufficiently high rental payment, then in this case only sufficiently productive lands are leased, because paying high rents in the presence of the tenant's profit is possible only in case of a high marginal income. If land rent decreases, then over time even interest in less productive lands will begin to show interest.
Features of the land market as such
Unlike the vast majority of markets, land market surveys have shown that it is less organized and different from the competitive one. Estimating the cost of land, it will be necessary to take into account many features of the land market:
- On the land market there is a rather complicated standardization, sorting and purchase of objects according to samples, since each individual plot has its own location, as well as physical characteristics. Among other things, the value of each individual site directly depends on its environment.
- Demand and supply are unbalanced, while there are extremely limited possibilities for bringing them into equilibrium.
- As a commodity in this market, there is a right to an object, while the land plots themselves have a fixed location. Conducting transactions with land is associated with a large number of legal formalities, in connection with which it is necessary to ensure documentary registration, as well as mandatory state registration. It is for this reason that the land market provides a lot of costs when conducting operations necessary to verify registration and property rights.
- There is far from the greatest openness of information on this market, which cannot be compared with the markets for consumer goods or securities, because quite often all kinds of real estate transactions are conducted confidentially, and the risks of investors in this regard increase significantly.
- Conducting transactions with land involves large investments, as a result of which the development of the land market directly depends on the possibilities of borrowed financing, including the cost of attracting loans necessary for land development.
- This market is very heavily regulated by state authorities, as well as various legislative standards. Of course, effective local governance contributes to a significant increase in the investment attractiveness of the territories, as a result of which it is actively used in large cities.
Features of the market in Russia
The Russian market differs from others in the relatively low liquidity of various objects of purchase / sale in comparison with various developed countries. In particular, this is due to the peculiarities of the process of formation of land management, and first of all, the separation of state ownership of land and the lack of development of many market segments, which helps to curb market development, and also limits the implementation of the main principle - the most efficient management of property.
