As the worldwide property market continues to plummet, with expectations that property prices may not recover for anything up to two years, this may be the right time to consider who the winners are in the current economic climate and how exactly they have benefited. As they say in investment circles “Wealth is not created, just transferred” so who are the real winners in the ongoing property market downturn?
This article is a little different from your normal overview of the property market because amazingly there are positive benefits for some areas of the investment arena and some areas of society. Why not have your say on the following forum thread “Who are the winners in the worldwide property downturn?“.
Some factors to consider include:-
Prior to the onslaught of the credit crunch and resulting economic downturn first-time buyers were being priced out of more and more property markets around the world as those on the property ladder pulled up the final rung and waved goodbye to those trying to climb aboard. While it would be foolish to suggest that prices have fallen sufficiently at this moment in time to create an onslaught of first-time buyers into the market there is no doubt that within the next year or so there will be substantially more first-time buyers looking at the property market on a worldwide basis.
It is also worthwhile remembering that as prices fall further and further, future first-time buyers will not be over extended on the financial front, unlike many who were desperate to buy at the top of the boom time and join the market. This should greatly improve the financial well being of first-time property buyers in the medium to longer term – before the next boom kicks in!
Vulture investment funds
While the name says everything, Vulture investment funds are those which prey on depressed and needy areas of the investment sector looking to acquire assets at below market value in areas where there is substantial long-term investment potential. As the skies are always darkest before the morning, the best distressed property assets are always available prior to the dawn of a new investment era. There are many investors who have been waiting years for the ongoing property crash and they have literally billions upon billions of pounds to invest on a long-term basis.
Not only are we seeing worldwide property prices falling but the ability of many people to finance their mortgages has been taken away from them ensuring that there are more and more people looking to sell their properties before they are repossessed and sold at rock bottom prices. Despite the attempts of governments around the world to inject cheap finance into the system it is the short-term prospects for the employment market which are causing most concern.
While many people would argue that the banks have been the biggest losers in the ongoing economic downturn, and specifically the collapse of worldwide property prices, this is not necessarily the full picture if you delve deeper below the surface. How many industries do you know that are able to hide away significant investment losses until such times as they hit rock bottom and governments around the world (and taxpayers) are literally forced to bail them out?
While there is no doubt that financial institutions around the world have been severely weakened by the ongoing recession the vast majority will live to fight another day, whether they remain under the control of shareholders or are taken in-house by various governments. There is no other industry in the world that would even remotely expect to receive the hundreds of billions of pounds (or trillions of pounds if you believe the press) which is being poured into the system in the short term.
The suggestion that governments around the world, including the US and the UK authorities, are also willing to take on toxic assets in exchange for cash is amazing to say the least. If you’re £1 billion investment had fallen to £0 would you expect the government to give you anything in return for the asset?
As property prices continue to fall and more people are finding it a struggle to cover their monthly mortgage costs there has been a substantial increase in enquiries to housing associations and shared property schemes. As many of these are backed by the government, the ongoing property downturn has effectively played into their hands as they are not overly concerned about the short-term fluctuations in property assets because they have the backing of taxpayers money.
There is also a distinct possibility that many of these housing associations and shared property schemes will actually be able to acquire properties at rock bottom prices over the coming months and turn these into substantial profits in the longer term. Yet again, it would appear that the taxpayer is the one to suffer in the short-term although unlike a number of the government led rescue schemes there could be an increase in the value of taxpayer investments in the longer term.
Those who predicted the end of the boom times
Looking back, there were signs of discomfort among some economists back in the middle of 2006 as the US housing boom continued unabated and cheap finance was available to the masses. However, against the growing crowd of those jumping on the property bandwagon the “doom and gloom merchants” were drowned out until the credit crunch happened and many economists realised they had made some serious errors.
As a consequence, those who took heed of the minority back in 2006 and 2007, by disposing of their worldwide properties towards the top end of the market, will now be sitting pretty, assuming they did not reinvest their proceeds!
Many believe the old saying that “Wealth is not created, just transferred” and there is no doubt that there are some winners from the ongoing decline in worldwide property prices and economies around the world. For those who follow investment leaders of the past, Lord Goldsmith lived by his favourite saying which was “the reason I am so rich is because I always sold too early” and many investors of today would do well to heed his advice.
Even though the number of people suffering from the property downturn is set to increase substantially over the coming months and years it is worth remembering that for every distressed asset sale there is potentially a very appreciative investor waiting out there!