Final answer:
The characteristics that create value in real estate are scarcity and utility. Real estate must be scarce and provide usefulness to have value. Investment in real estate has a moderate return rate and risk, with low liquidity due to the effort needed to sell a property.
Step-by-step explanation:
The characteristics that create value in real estate are scarcity and utility, as described by economists. This means that for real estate to have value, there must not only be a limited supply (scarcity), but it must also serve a useful purpose or satisfy needs (utility). A property's utility entails its ability to provide benefits or satisfaction to a consumer, such as shelter, rental income, or the potential for capital appreciation. The scarcity of a piece of real estate drives its value up, as there is a finite amount of land and property available, which can't be increased to meet demand.
Investing in tangible assets such as real estate has a moderate rate of return, especially when nonfinancial benefits like living in the house are taken into account. However, there is also a moderate risk factor for housing, as values can fluctuate based on market conditions. Additionally, real estate investments are not highly liquid; it takes considerable time and effort to sell a property and realize any capital gains.