Can we trust governments to look after real estate markets?

For many years investors have looked towards the real estate market for their long-term goals such as pension funds and similar investment strategies. In many ways we have taken on trust that governments around the world will act in the best interests of local economies and real estate markets although events over the last four or five years have shown that this is not always the case. While there is no doubt that the real estate downturn experienced since 2008 was unexpected, was dramatic and not really something that could be predicted, did governments around the world do enough to protect the property market?

These are issues which are being openly discussed by real estate investors around the world amid concerns that the risk factor associated with the real estate investment will increase if there is a lack of trust in the way in which local governments act. What factors do we need to take into consideration?

Political bias

While you can talk to any politician and they will tell you it is not true, there is no doubt in the minds of many investors that property markets are often manipulated ahead of general elections to ensure that the ruling party at the time stands a significant chance of election. We have seen this in America and we have seen this in the UK where interest rates have been set with short-term goals in mind which has often resulted in problems further down the line.

Quote from PropertyForum.com : “Over the last few days there has been much debate with regards to the Scottish independence movement and this now seems to have shifted towards the business arena and commercial property.”

There is growing concern in the UK that the ruling coalition government is looking to increase the feelgood factor associated with the UK property market in order to attract as many votes as possible in the 2015 general election. Is this as far-fetched as many would have you believe? Well, the UK government is not openly encouraging an increase in base rates, has been putting as much pressure as possible on banks to increase their lending and government financial programs such as Help to Buy are certainly fuelling the fire of the hot UK property market at present. Whether or not you believe this is all far-fetched there is also statistical evidence to suggest that governments down the years have manipulated the number of newbuild properties across the UK to ensure there is ongoing demand for existing property. Truth or fiction?

Economies built on real estate

When you bear in mind the types of real estate available around the world from commercial to residential, there are literally trillions upon trillions of dollars invested in this massive market. Indeed for many years now property has been a major element of long-term investment strategies, both direct investment and property fund investment, which shows the enormous impact that property has on our everyday lives. Can you imagine the impact if the UK property market fell by 50%? We would have negative equity, banks left with major financial headaches and you would see a collapse of the UK economy. So, rightly or wrongly we are putting our trust in politicians in the hope that they will protect real estate markets going forward and ignore political bias – are you a believer?