Is the property market overregulated?

Trying to find a balance between regulating the worldwide property market and promoting a free-market strategy is not easy. There are obviously times when the UK government has quite simply got it wrong, the buy to let sector is one, but there is obviously a need to regulate the market for a number of reasons. So, is the property market overregulated or do a minority spoil it for the majority?

Money laundry

While there are many challenges to regulating the worldwide property market perhaps the greatest is money-laundering. Prior to the introduction of specific money-laundering regulations many from the criminal fraternity used property as a way to integrate their ill-gotten gains into the system. It was simple, buy a property for cash and then sell the property with the funds transferred directly into a legitimate bank account and, hey presto, illegal funds are very quickly seen as illegal.

The main reason this has been such a challenge is because not all governments around the world are willing or in some cases able to introduce their own form of money-laundering regulations. So, the crooks simply use less well-regulated countries to launder their cash and recycling through the system. It would be wrong to suggest that progress has not been made in this area, because it has, but there is still a lot to do especially when the criminals seem to be one step ahead of the regulators.

Sharp practices

Where there is money there is often agreed and “sharp practices” with the property market a haven for this type of activity prior to the introduction of specific regulations. There was a need to regulate finance companies, real estate agents, solicitors and also both buyers and sellers. If a contract is signed then it should be honoured unless there are extenuating circumstances and both parties agree. We have also seen the introduction of registers showing those qualified to operate in the real estate market which gives buyers and sellers significantly greater confidence.

It is also interesting to see that many breaches of the “sharp practices” regulations are made public thereby making an example of those who continue to push the boundaries. This type of “conviction” not only reflects badly on the individual but can reflect badly on their employer. So, if you are an employer operating in the property market you are more likely to ensure your staff are “toeing the line”.

Increased costs

The one major downside to new regulations is the cost of introducing and maintaining these going forward. Unfortunately the cost burden always falls on the consumer/investor and it is no different with the property market. When you also consider the amount of tax that governments raise from the property market it is no surprise to learn that property transaction costs have increased over the years. Additional costs will hit a plateau at some point when it starts to impact the volume of transactions in the property market.

The UK for example is one of the most expensive property markets in the world due to additional taxes and regulations. At some point the government will need to address this because many people believe it is starting to get out of hand and become counter-productive.

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