Why Do People Think Property Is Different?

[Number79]

Have had a few discussions lately and it astounds me that people still see property as a solid investment. I have tried to venture that the possibility exists that property has had its day, much like the dot com bubble, but keep being looked at like an idiot. The mere sugestion that property as a bubble has had its day and was money moving from one bubble into another inevitably leaves me standing alone in the corner of a room like some sort of leper.

And what of all of us here? I mean that many are waiting for the bottom to purchase but what then? All of the str's, the ftb's and btl's, we all know that property does not always go up so having purchased at the bottom what then? In another 15 to 18 years when property dives again does everyone intend to get out again?

[Stars]

Real estate ownership monoplises economic opportunity

People may not understand or acknowledge it intellectually, but many understand it emotionally

[abharrisson]

Have had a few discussions lately and it astounds me that people still see property as a solid investment. I have tried to venture that the possibility exists that property has had its day, much like the dot com bubble, but keep being looked at like an idiot. The mere sugestion that property as a bubble has had its day and was money moving from one bubble into another inevitably leaves me standing alone in the corner of a room like some sort of leper.

And what of all of us here? I mean that many are waiting for the bottom to purchase but what then? All of the str's, the ftb's and btl's, we all know that property does not always go up so having purchased at the bottom what then? In another 15 to 18 years when property dives again does everyone intend to get out again?

Theres a difference in viewing property in pure investment terms to how most people see it... thats why you find your views different to others. While most people partially have a view of property from a financial perspective other things are at work.

[monty1080]

Real estate ownership monoplises economic opportunity

People may not understand or acknowledge it intellectually, but many understand it emotionally

+1

Because we are so close to it, we think we understand it.

[Executive Sadman]

Having cheerleaders like man of the people Kirsty Allslop and Small businessmans champion Alan Sugar is quite helpful probably.

[Number79]

Theres a difference in viewing property in pure investment terms to how most people see it... thats why you find your views different to others. While most people partially have a view of property from a financial perspective other things are at work.

but property should be viewed in investment terms, a mortgage is a hell of a debt that people watch monthly with a view to owning the place at the end. I realise that people make a property their home but at what cost? It is the largest debt and asset that we will ever take on, how can people not protect their savings?

[AteMoose]

It can still bubble but property is different to other investments.

You can live in it which makes it Tax Efficient, you don't pay capital gains tax, and Interest on BTL mortgage is also tax deductible. People in the 40% tax bracket look for anyway to reduce there savings so they don't have to pay even more tax.

You can take a massive loan (bigger than any other investment), and protect yourself against general inflation/make lots of money over and above inflation if you time it well and have more than one property. In a trough, and IF the rent more than covers the mortgage you only need to put 10% down and you get 90% more benefit for no work. When you hit a property trough get a portfolio if you expect long term inflation.

Live other posters said, property is too big to be viewed with emotionally, treat it as a raw business deal and time it right.

Edited August 6, 2009 by moosetea

[Charterhouse]

It can still but but it is different.

You can live in it which makes it Tax Efficient, you don't pay capital gains tax, and Interest on BTL mortgage is also tax deductible. People in the 40% tax bracket look for anyway to reduce there savings so they don't have to pay even more tax.

You can take a massive loan (bigger than any other investment), and protect yourself against general inflation/make lots of money over and above inflation if you time it well and have more than one property. In a trough, and IF the rent more than covers the mortgage you only need to put 10% down and you get 90% more benefit for no work. When you hit a property trough get a portfolio (if you expect long term inflation)

All of the above plus you do not have to post margin if it moves against you despite your leverage (unless you move).

You might not necessarily like it, and it doesn't necessarily mean it's cast iron, but it IS different, both in law and in peoples' eyes.

[Number79]

er because it is different...

You can live in it which makes it Tax Efficient, you don't pay capital gains tax, and Interest on BTL mortgage is also tax deductible. People in the 40% tax bracket look for anyway to reduce there savings so they don't have to pay even more tax...

and how efficient has property been recently? The cycle has turned and property has dived, granted if one intends to remain put then they will see the price ride back up and probably be better off (so long as they can hold on through the downside). But, money could have been protected and profits made by reacting. What I am getting at is that prices go up and down, why hold through a down if you can get out at the top and buy at the bottom? When it is the largest commitement that a person makes why is it not viewed in investment terms? how can people spend this sort of money and shackle themselves with a mortgage but not react to protect their life savings/work/debt?

And for those here that do understand, sell again in 15 years time?

[RobDWaller]

People don't like to think they've made a massive mistake. Ultimately houses should never have been treated as an investment by people because they are a fundamental to a reasonable life.

People took on too much debt because they thought house price would go up an up -- they took a risk with something that if they lost it would f**k them good and proper.

They should have been thinking purely about living in the house and the cost of maintaining that house over the long term. They should not have been thinking about how much money an estate agent would say their house was worth in 5 years time.

[AteMoose]

and how efficient has property been recently? The cycle has turned and property has dived, granted if one intends to remain put then they will see the price ride back up and probably be better off (so long as they can hold on through the downside). But, money could have been protected and profits made by reacting. What I am getting at is that prices go up and down, why hold through a down if you can get out at the top and buy at the bottom? When it is the largest commitement that a person makes why is it not viewed in investment terms? how can people spend this sort of money and shackle themselves with a mortgage but not react to protect their life savings/work/debt?

And for those here that do understand, sell again in 15 years time?

Prices go up and down in the short term, but generally because of inflation prices always go up, money supply is between 3 and 20% PA, inflation is pegged at 2%, wage inflation 4%. Because prices always go up wages also go up over the long term, and there is always more money in the system. The advantage of property is you only need to put a small % down to get the inflationary benefits of the full asset. This is why it is impossible for a normal citizen in normal times to save up enough to buy a house cash. This is one of the reasons why the landed rich can stay rich without having to work.

Yes, I agree there is some timing, dont buy at a peak, try to buy in a trough but because of never ending inflation property is now more expensive than 50 years ago, and as long as we print enough money it will be more expensive in 50 years than it is today, so in reality it doesn't really matter. If you can comfortably afford it buy it, if it is really cheap and has a good yeild buy loads....

The only thing that could throw a spanner in the works is a period of general deflation, but thats a different topic.

Edited August 6, 2009 by moosetea

[bagsos]

Moosetea

This is one of the reasons why the landed rich can stay rich without having to work.

They can also, insofar as its agricultural land, pass it to their heir free of inheritance tax, which is another reason the landed rich only ever sell if they absolutely have to, and why those newly minted through the finance trade move their wealth into land.

[Goat]

Property is different because there is a large unregulated industry of VI's who have co-opted a large slice of the print and broadcast media so that they can spew out "property is special" propaganda 24/7.

[Stars]

Property is different because there is a large unregulated industry of VI's who have co-opted a large slice of the print and broadcast media so that they can spew out "property is special" propaganda 24/7.

Nope..it is actually different

[Guest Skinty]

I was thinking about this earlier on.

You buy a car and you know that it will depreciate in value over time as it gets older.

Same with furniture, electronic goods, anything really except antique, and they have gone through a period of being unwanted and worthless before regaining in value again (for the most part anyway).

The only purchase that people commonly make that don't depreciate just because it's getting older whilst being regularly used are houses. People understand the concept of their house being run-down and requiring renovation, but because of all the property porn, say the word "renovation" to move people and they will think "opportunity" and "profit".

So to their minds, property is different.

It wouldn't be if there was plenty of land and we could just build log cabins where we wanted without owning the land.

[DiggerUK]

The mere sugestion that property as a bubble has had its day and was money moving from one bubble into another inevitably leaves me standing alone in the corner of a room like some sort of leper.

"Lepers of the world unite, we have nothing to lose but the fiction"

Most talking about house prices, seem to be trying to find out when they are going to "make money" out of property again. Telling them that the objective should be to get a secure roof over their head, will only confuse them.

"Stoopid is, as stoopid does"

Since when did talking common sense stop idiots, being idiots.

C'est la vie.

[abharrisson]

but property should be viewed in investment terms, a mortgage is a hell of a debt that people watch monthly with a view to owning the place at the end. I realise that people make a property their home but at what cost? It is the largest debt and asset that we will ever take on, how can people not protect their savings?

People shouldn't smoke, shouldn't allow themselves to get overweight, shouldn't drink too much, shouldn't take harmfull drugs, should work hard etc etc etc... there are loads and loads of things that people do and don't do when they should consider their actions more carefully and possibly do the opposite... many of these are much more serious than not viewing a house solely from a cold hard investment perspective... its called the human condition.

You could for instance argue smoking is more dangerous for your health and your wealth than overpaying £50k on a property when viewed against its value solely in investment terms.

Equally you'll find pretty every single commercial property investor chucking loads and loads of money into the market in 2006/2007 were doing so contrary to best investment advice... so even when property is viewed purely and solely from an investment perspective people make irrational decisions... thats life.

[neon tetra]

Having cheerleaders like man of the people Kirsty Allslop and Small businessmans champion Alan Sugar is quite helpful probably.

It is true that what goes up must come down, but this bubble is falling against a great deal of hot air.... so it's falling very VERY slowly. (And occasionally rising.)

The irony is that the pricks aren't bursting the bubble, they are feeding it...

[Stars]

It wouldn't be if there was plenty of land and we could just build log cabins where we wanted without owning the land.

Bingo

Real estate really is different because of the economic nature of land whose ownership forms an excluding cartel power over economic opportunity

[Number79]

Prices go up and down in the short term, but generally because of inflation prices always go up, money supply is between 3 and 20% PA, inflation is pegged at 2%, wage inflation 4%. Because prices always go up wages also go up over the long term, and there is always more money in the system. The advantage of property is you only need to put a small % down to get the inflationary benefits of the full asset. This is why it is impossible for a normal citizen in normal times to save up enough to buy a house cash. This is one of the reasons why the landed rich can stay rich without having to work.

Yes, I agree there is some timing, dont buy at a peak, try to buy in a trough but because of never ending inflation property is now more expensive than 50 years ago, and as long as we print enough money it will be more expensive in 50 years than it is today, so in reality it doesn't really matter. If you can comfortably afford it buy it, if it is really cheap and has a good yeild buy loads....

The only thing that could throw a spanner in the works is a period of general deflation, but thats a different topic.

and you, a registered bull, buy and hold or treat as your cash and play the peaks and troughs?

with anything else that people could put money into they would keep an eye on the price and buy/sell according to price and market moves. I understand that the British mentality is different when it come to property but can not understand why even when discuaaing ones home.

[Mr Punter]

Bingo

Real estate really is different because of the economic nature of land whose ownership forms an excluding cartel power over economic opportunity

Unlike farming, manufacturing, mining, oil etc.

[kingsgate]

Have had a few discussions lately and it astounds me that people still see property as a solid investment. I have tried to venture that the possibility exists that property has had its day, much like the dot com bubble, but keep being looked at like an idiot. The mere sugestion that property as a bubble has had its day and was money moving from one bubble into another inevitably leaves me standing alone in the corner of a room like some sort of leper.

And what of all of us here? I mean that many are waiting for the bottom to purchase but what then? All of the str's, the ftb's and btl's, we all know that property does not always go up so having purchased at the bottom what then? In another 15 to 18 years when property dives again does everyone intend to get out again?

Property "had its day"? What does that mean, that houses will lie empty and worthless as mankind returns to living in caves or something?

People understand that while prices may rise and then fall, since everyone needs, and will always need, a place to live, property as an investment will never have "had its day" like you can say about worthless non-profit making dotcom businesses.

[Stars]

Unlike farming, manufacturing, mining, oil etc.

Exactly

[Number79]

Property "had its day"? What does that mean, that houses will lie empty and worthless as mankind returns to living in caves or something?

People understand that while prices may rise and then fall, since everyone needs, and will always need, a place to live, property as an investment will never have "had its day" like you can say about worthless non-profit making dotcom businesses.

hmm...I mean that as an investment it is unlikely to act again as it has during this bubble. Sure, prices do always go up in reality, due to inflation but shouldn't we consider our single and largest investment as just that? Why is property different such that people do not protect or maximise their investment but sit and hold regardless? All those here waiting to buy at bottom, are they going to be sitting tight in 15 -18 years time rather than doubling up?

[R K]

and how efficient has property been recently? The cycle has turned and property has dived, granted if one intends to remain put then they will see the price ride back up and probably be better off (so long as they can hold on through the downside). But, money could have been protected and profits made by reacting. What I am getting at is that prices go up and down, why hold through a down if you can get out at the top and buy at the bottom? When it is the largest commitement that a person makes why is it not viewed in investment terms? how can people spend this sort of money and shackle themselves with a mortgage but not react to protect their life savings/work/debt?

And for those here that do understand, sell again in 15 years time?

'Cause they look at what their old folks spent on a house in the 50/6070s - £2 or 3k perhaps - and work out that in nominal terms they have multiplied 100 fold?

Most people aren't economists (most economists appear to be wrong most of the time anyway), don't understand inflation but can figure out that if they bought a house in the 60s they'd no longer have a mortgage, they'd have their own home etc etc. Or going back further still, they may have had grandparents with small businesses, grocers, shoe shops, bakeries and so on who when they managed to save some money used it to buy a few terraced homes up the road (for cash!) and rent them out. That's what people did. For the most part they didn't have access to a stock broker!

Plus, they've learned, much as we are starting to see now, that every time there has been a property crash the govt. has come to the rescue to support prices. It's thus not unreasonable to assume that if they can hold onto their house long enough nominal prices will keep rising.

The alternative - selling up, risking getting the timing wrong, the hassle of renting, paying (increasing) fees and taxes, disrupting their kids schooling and so on, make doing nothing a rational choice based upon most people's experience.

Where things have tended to go a bit awry has been the capture of society by the banksters and the corporations who are effectively operating a fascist model. Again, we have seen that government will do everything in its power, and beyond, to keep this model going. People do what seems like the rational thing to do at the time, irrespective of whether it's in their best interests. Govts, banksters and corporate fascists know this and exploit it.