Cement versus Sentiment – the way ahead

epra-logoThis month’s EPRA Newsletter includes an interesting essay by Anatole Kaletsky, economic commentator of The Times of London, where he puts the current economic turmoil into perspective as it affects property. Crisis tend to come and go and every crisis is different. At least as for their causes.

After each such unthinkable disaster, we hear declarations that capitalism is doomed, that markets will never recover and this is a “once in a lifetime crisis”. But every time, capitalism survives, asset prices do recover and investors with steady nerves (plus ready cash) are well rewarded. In property, even more than any other business, it is a truism that the greatest fortunes are made in the depths of the slump.

Apart from Kaletsky’s conclusion that “capitalism has survived far worse crises than this one”, there is one other firm conclusion to draw:

The financial crisis will permanently alter the structure of all European economies – but also [] the financial sector will not just disappear. Bankers have always been among the richest people in every society since before Jesus threw the money changers out of the Temple – and the profitability of financial services will not evaporate, whatever happens in the coming months.

On the closing note of the article, Kaletsky builds a case for property investing. Property is not just as a hedge against inflation, which is expected to emerge again in two years time or so. But property is also a hedge against profound structural change, because …

… occupational demand automatically reflects changes in economic structure. Investors may not be able to predict whether hedge funds will ever recover from the present crisis or whether some totally new industry will emerge as the most profitable business of the next decade. But as long as successful businesses want to locate their headquarters in Mayfair, or the Madeleine or on Bahnhofstrasse, property investors do not need to pick the industries of the future. They can let the market decide that – and simply collect the rent.

As simple as that …

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