Over centuries many asset classes have come and gone, many investors have made their money and departed and trends in the international investment market have peaked, troughed and disappeared. However, as the worldwide economy continues to move along towards a potential depression there would appear to be a significant shift in investor trends and investor demands. Property has been the most significant investment by the vast majority of people in the world for centuries but are we seeing a significant shift towards different investments and investment classes?
Have you ever stepped back and wondered why property is such a popular investment?
The worldwide property market literally goes back to caveman times when leaders and prominent figures in society were measured by the land they owned and the homes which they lived in. Even though we have seen various investment trends and investment tools come and go over the years, with property a particular asset class which seems to ebb and flow in popularity, the property market has always been at the top of the investment ladder.
Even now you’re likely to see the rich and famous of society have the larger homes in the better areas of town while those on lower incomes are often pushed into particular areas of towns and cities around the UK. If you are not sure about this particular comment and its validity, next time you’re walking around the UK or any other country in the world just check out the significant difference between the higher end of the property market and lower income areas.
Will property continue as the main investment class of choice?
When you consider that property market investors as a whole have lost trillions upon trillions of dollars of value from their properties over the last 18 months, with many having been pushed towards financial oblivion, can these excessive boom and bust cycles continue forever?
Over the last 40 or 50 years we have seen excessive booms in property markets around the world and while there have been difficult periods when the price of property has fallen in different areas of the world, the vast majority have rebounded fairly quickly. However, this ongoing recession/depression which has engulfed the worldwide economy is something different and something which has literally left many people financially distraught.
More and more emphasis has been placed upon governments around the world to bail people out of this ongoing situation with more and more properties coming under government control in various areas of the world. While direct government ownership of property has not yet materialised in place such as the UK, we have seen the authorities take over a large chunk of the UK mortgage market, effectively meaning the government is in control of the UK property market and mortgage finance. However, social housing has also risen to the top of the investment ladder as more and more people are thrown onto the streets. Large numbers of the UK population are also reconsidering their position and whether they should take the significant risk of buying a home in the future.
Will investors return in great numbers?
Whichever way you look at the ongoing economic crisis engulfing the world, there is no doubt that the massive numbers of investors in the property market have literally “lost their shirts”. Many have no money to invest in the short and medium term, are struggling to meet their liabilities and may be forced to refrain from re-entering the property market for some time to come. If this is the case, and liquidity does not return to the property market as quickly as many had expected, will we see investors with money looking elsewhere?
The regulatory environment
It is no coincidence that the substantial property boom which has dominated the world wide investment market for the last 20 years has coincided with a tightening of regulations in other investment markets. When you also take into account the ability to obtain substantial finance at affordable prices in the mortgage market, even for so-called sub-prime lenders, in hindsight we had the ingredients for a very popular and substantial investment market, but one with the potential to overheat.
At the moment governments such as those in the UK, the US, Europe and the Far East are making loud noises suggesting that mortgage finance in the future will not be as easy to obtain as it has been in the past. A change in the regulatory environment will coincide with a number of legal rules to be introduced which could substantially reduce the amount of investment capital available to the worldwide mortgage market.
As we all know, reduced demand in any investment market will reduce liquidity and potentially reduce the investment returns of the future.
Will governments around the world carry out their threat to reduce mortgage liquidity?
This is the big question on the lips of many investors around the world, the potential for governments to fulfil their threat to reduce mortgage liquidity and tighten the regulatory environment around the world. There is no doubt that whatever level of reduced finance, there will be an impact on the market but will this be a short-term, medium-term, long-term or permanent change in the property investment market?
The truth is that property has been, and will remain for some time, the main investment market around the world. However, there may be some short-term issues with mortgage finance if we see a reduction in liquidity and an increase in the regulatory environment, which could hit many property investors.
While the likes of gold, pensions, stock markets and other investment markets will remain a haven for investors, it is worth remembering that investments such as pensions and stock markets already have a substantial exposure to the property sector. Whichever way you look at it, property is set to remain the main investment asset around the world for many years to come and the fact there are so many untapped markets in all corners of the globe should ensure a constant supply of food to feed the ever-growing property market.
Despite attempts by governments over the last two months to try and gain control of the world where property market, this is a market which has been around for centuries, seen recessions, depressions and wars and still remains the main investment market of choice. In reality each and every economy around the world already has a significantly high exposure to the property market and if this was taken away, or reduced substantially, we would see a significant reduction in overall wealth around the globe.