Is it possible to control property markets?

As the worldwide economy comes under yet more pressure with political and economic turmoil across Europe, concerns about the US economic recovery and a slowdown in Asia, property markets are not yet reacting to these growing concerns. In some places, such as the London property market, there is a growing impression that property markets are ultimately uncontrollable and dictated to by investor sentiment and simple supply/demand ratios.

Many governments and regulators around the world have been trying to control property markets for many decades, are they fighting a losing battle?

Money flows

As concerns in certain areas of the world, with Europe perhaps more prominent at the moment, continue we have seen a significant switch in money flows. Just a few weeks ago it seemed that investors were looking towards Spain and other “bombed out” property markets within Europe but the ongoing concerns with Greece have muted this expected recovery. The UK property market is not growing as quickly as it has been but there is still significant overseas interest in areas such as London.

This despite the fact that politicians across the UK seem determined to push through what is now known as the “Mansion tax” to effectively penalises those with relatively expensive properties. The idea had been that increasing the tax on properties above a certain threshold would slow down the markets and make some investors think again. However, initial signs are that this impact is not yet being felt by the market.

Investor sentiment

It is easy to forget that during these troubled economic times investors are still looking for relative safe havens where they can “park their assets”. Property has for many years been seen as a safe haven and with the demise of gold as perhaps the ultimate “safe haven” this impact is growing. When you bear in mind the significant rental income available on some properties across the UK, far in excess of 0.5% base rates, as well as the potential for long-term capital growth, would any short-term tax implications really make a difference?

There will come a time when investors will begin to cash in their UK property chips, and other markets which have done relatively well, but the short to medium-term outlook for the European economy and the worldwide economy is uncertain to say the least. We will therefore likely see stronger money flows moving towards property markets such as the UK, and in particular London, for some time to come.

Protecting property markets

While politicians will huff and puff about taxes for expensive properties across the UK the fact is that the property market as a whole will continue to be protected going forward. When you bear in mind that directly and indirectly the UK property market impacts every person this is most certainly in the forefront of political minds as we approach the election. The simple fact is that politicians will attempt to give the impression that they are in control of the property market but ultimately it is investors and the financial environment which overpower any political impact.