Increased property taxes, growing demand and limited supply
These three terms are the nightmare of real estate buyers around the world and with the United Nations confirming that recent worldwide population growths forecasts are wrong, there is going to be further limited supply, growing demand and governments will take advantage of this. These three terms can very often the associated with an array of buoyant property markets around the world. When you also take into account that the worldwide population currently tops 7 billion and is expected to top 8 billion by the year 2025, how can anybody control the ongoing rise in property values?
There is growing concern that governments around the world are well aware that property will be in short supply and demand will continue to grow. As a consequence, a new property tax (or increase in existing property taxes) would likely be introduced as a means of “reducing demand” and then inevitably this would increase year on year. History shows that many taxes are introduced on a short-term basis and decades later they have still not been repealed.
What can the paying public do about this?
The reality is that there is only so much land around the world, the population is growing and in general property prices are rising. If you look at areas such as London in the UK, the demand for luxury property has literally “gone through the roof” and prices now seem to be detached from reality. There is talk of individuals acquiring properties with a rental yield well below 3% which is historically low but perhaps not as challenging as it seems with base rates also at historic lows.
Quote from PropertyForum.com : “Yes,property funds offer a safer alternative to direct real estate investment as the property costs are increasing it is a great option for investing in real estate.”
The problem with London is that restricted property approval, an ever-growing population and a relatively upbeat economic outlook are all feeding this problem. The UK government has been looking to introduce a new property tax on overseas investors as a means of “reducing demand” but many see this as yet another long-term income stream for the government of the day. The reality is that if people want to acquire property in strong markets, in markets with relatively low supply and relatively high demand then they will have to pay the price.
Shared purchases
Many areas of the world have already seen average property prices move beyond the affordability of the “average citizen” which has increased the number of shared purchases and shared accommodation. There are obvious risks with shared purchases and shared accommodation but in reality many families and individuals have limited options open to them. There has been talk of mortgage approvals at rates in excess of five times annual income as people scramble to climb aboard the UK property ladder.
This may seem relatively risk-free, bearing in mind government financial assistance and low base rates, but what happens when UK-base rates eventually start to move higher? This is when household expenditure will be squeezed, mortgage payments will rise and more and more people will feel the pinch.
Conclusion
Sometimes it is easy to forget the monumental long-term increase in property prices in markets such as Australia, the UK, the US and other parts of the world, despite the problems experienced since 2008. Many governments around the world are already talking about “property taxes” as a means of reducing demand and while they have been described as “short-term solutions” there is every chance they will continue forever and a day. There are many taxes in our everyday life, and indeed the investment arena, which were introduced on a “short-term basis” only to remain decades later. If you were a government with a prosperous property market, limited supply and growing demand, would you be tempted to take advantage of investors?