Political Risks Of Real Estate Investments
Posted On April 17, 2019
As a field real estate is notorious for being affected by a lot of external factors. In business, one of the external factors a company might face is political factors. This is especially relevant in places where there political landscape is turbulent and lacks any stability. This is true in developing nations where the government does not have any outlook on the future. As an investment real estate is notoriously volatile and highly dubious. It is subject to wild fluctuations that can make people lose thousands, if not millions in a matter of few days.
One of the foremost political risks affecting great real estate investments is the risk of a change in government. In places where governments change often, a continuity of economic policies is often lacking. This creates an uncertain environment when it comes to investing. This is true for nearly all investment markets such as stocks, Forex, commodities and so on. But real estate is hit especially hard. This is the reason developing countries have very risky real estate markets. This also means that there are higher rewards accompanying higher risks.
Another factor that influences the decision to invest in real estate is the ease of doing business, try to attend a property investment seminar. The ease of doing business in a place is determined by an index that takes note of several factors. Some of these factors are fixed while others are variable subject to change. Some of these change in the short term whole others only ever change in the long term. Example of factors that change in the short term include government attitudes towards investment. Examples of factors that only change in the long run include the infrastructure of a country, both communication and transportation. Even fixed factors can sometimes change in the long term. But they usually take over ten to fifteen years to change. They might take as long as fifty years to change for some factors. When determining the ease of doing business, such factors are treated a seeing fixed for practical reasons. As for the real estate investment market, they impact of political factors makes the value of the investment vary on a daily basis. This is more than for other investments of similar value.
Other factors that influence real estate investments are the government’s attitude towards nationalisation. If a government nationalised resources, this results in a loss of value. This deters investors and causes a fall in their confidence. This leads to them divesting their capital. This causes a fall in the value of the real estate investments. Such a fall in value is often very sharp and very significant. Most global real estate crises were caused this way when governments did not make investing their priorities. This affects both the economy at large and the investors.