Recently, website Money Sense got asked why it was that rich people always seem to invest in real estate, despite the problems in the market over the last decade or so. After all, the price of housing has been bouncing around all over the place, and given the enormous overall rise in the price of accommodation since the mid-1990's, it seems unsustainable.
Well, according to Romana King, a financial expert at the site, it’s all to do with what’s going on in the rest of the economy. When the return on bonds is hovering around 2.0 percent, and when the interest on savings in the bank is even lower, it’s a problem. Investors fundamentally don’t want to invest in traditional assets because they simply don’t offer a reasonable return. Housing, on the other hand, does.
House Prices Will Keep Going Up
Unlike central bank money, housing is something that is finite. There are only so many houses that can be built every year, meaning that the supply of homes can’t rise all that fast. Investors know that the government and the planning authorities dramatically restrict what could be built, meaning that it’s unlikely we’ll see a building spree of the magnitude required to push prices down. Smart, rich people know this, and so they keep piling into housing, especially in areas where demand and jobs are highest.
Many analysts think that the real estate market is headed for another collapse. They remember back to 2008 when millions of people had taken out subprime mortgages with very low rates and were paying mortgages that far outstripped their income. Back then, though, home ownership - if you can call it that - was still on the rise. And so more and more people who couldn’t afford to own a home were still piling into the market. This pushed the prices up to unsustainable levels, and it all came crashing down after Lehman Brothers went out of business. The same is not the case today. Home ownership is actually falling, thanks to rules imposed on the lending industry. To many wealthy investors in the property market, this is a signal that house prices probably won’t fall. After all, if prices are rising in a declining market, it suggests that we’re not headed for the same debt-collapse we saw at the end of the last decade.
Investing Overseas Is Easy
Another reason why investors are getting into real estate is because it is easy to do and it doubles as a holiday home. With the rise of firms like Enness International, investors no longer have to do all the paperwork themselves and navigate complex domestic markets. Instead, they pass all those chores off to somebody else. Rich investors get to do the fun part: working out which areas will yield the greatest capital gains.
Think about how exciting that is. Imagine you’d invested in property in San Francisco in the late 1990s. Today, you would have made millions of dollars, all thanks to the fact that prices in that city have risen dramatically. Now investors are turning to places, like Europe, to do the same.